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2021 (7) TMI 415 - AT - Service TaxLevy of service tax - Agreeing to the obligation to tolerate the Act - providing maintenance services to the appellant - declared services - whether the Machine Availability clause of agreement dated 17.12.2014 creates the service tax liability upon the appellant? - HELD THAT - It is clear from the facts that there is no denial on the part of the department, as is apparent from para 4 of the Show cause notice to the fact that the appellant/ service recipient, has already suffered service tax on the invoices raised by M/s. SGSL from time to time. The credit note issued by M/s SGSL, service provider is a refund of excessive amount paid by the appellant on account of defined service to be provided by M/s SGSL. It does not represent any service rendered by the appellant to M/s SGSL so as to attract any service liability of the appellant. The basis of transaction between the parties is the agreement dated 17.12.2014. Perusal thereof makes it abundantly clear that the appellant is service recipient and M/s SGSL is service provider. Hence the payment of service tax can be the liability only and only of M/s. SGSL. The Machine Availability clause in the present case, to my opinion when read with the entire agreement, there is an apparent intent that the terms of agreement shall not be violated and that the service provider shall not compromise with the quality of service else the commercial interest of the appellant shall remain safeguarded in the form of compensation to be paid by M/s. SGSL. Hence, it cannot, by any stretch of imagination, be stated that the recovery of sum by invoking the said clause is the reason behind the execution of agreement for a accrued consideration. The amount received by the appellant in terms of Machine Availability clause, from the service provider with reference to maintenance of WTG due to shortcoming in said service is merely an amount to safeguard the loss of appellant. The said amount cannot be called as consideration for the tolerance of service provided and some lacunae thereof nor it makes the appellant the service provider. Infact once the appellant receives compensation for the downfall in service quality, it is because he is not inclined to tolerate the loss as he may suffer on account of said downfall - The concept of Declared Services has therefore been wrongly invoked by the Department and the adjudicating authority below. The findings in order under challenge are not at all sustainable - Appeal allowed.
Issues Involved:
1. Whether the Machine Availability clause of the agreement dated 17.12.2014 creates a service tax liability upon the appellant. 2. Whether the amount received by the appellant from M/s SGSL under the Machine Availability clause constitutes a "Declared Service" under Section 66E(e) of the Finance Act, 1944. Issue-wise Detailed Analysis: 1. Machine Availability Clause and Service Tax Liability: The primary question to be adjudicated is whether the Machine Availability clause in the agreement dated 17.12.2014 creates a service tax liability upon the appellant. As per Section 65(64) of the Finance Act, "Service" means any activity carried out by a person for another for consideration and includes a declared service. The cumulative reading of relevant provisions indicates that to invoke tax liability, there must be a service provider, a service recipient, payment of charges by the recipient, and tax to be paid by the service provider on the received amount. In this case, the service involved is maintenance or repair. The agreement between the appellant and M/s SGSL clearly establishes that the appellant is the service recipient and M/s SGSL is the service provider. The Machine Availability clause warrants an annual average machine availability of 95.5% per year for the WTG. If the availability falls below this threshold, M/s SGSL is liable to compensate the appellant. This compensation does not represent any service rendered by the appellant to M/s SGSL, thus not attracting any service tax liability on the appellant. 2. Declared Service under Section 66E(e) of the Finance Act: The Department argued that the Machine Availability clause amounts to "agreeing to the obligation to tolerate an Act," which is classified as a "Declared Service" under Section 66E(e) of the Finance Act. However, the Tribunal held that the compensation received by the appellant due to the shortfall in machine availability is not an act of tolerance but rather a safeguard against the loss suffered due to the service provider's failure to meet the agreed standards. The Tribunal emphasized that the appellant has never been the service provider, and the liability to pay tax is on the service provider only. The concept of Declared Service was wrongly invoked by the Department. The compensation received by the appellant is not a consideration for tolerating the deficiency in service but a mechanism to ensure that the service provider meets the contractual obligations. The Tribunal referenced the Hon'ble Supreme Court's decision in Bhayana Builders and Intercontinental Consultants, which held that "consideration" must flow from the service recipient to the service provider and should accrue to the benefit of the service provider. The amount charged must have a nexus with the taxable service provided. In this case, the compensation does not have any nexus with a taxable service provided by the appellant to M/s SGSL. Conclusion: The Tribunal concluded that the amount received by the appellant under the Machine Availability clause is merely to safeguard against the loss due to the service provider's failure to meet the agreed standards. It does not constitute a consideration for any service rendered by the appellant to M/s SGSL. Therefore, the concept of Declared Services was wrongly invoked, and the appellant cannot be fastened with any service tax liability. The order under challenge was set aside, and the appeal was allowed.
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