2008 (2) TMI 131 - AT - Service Tax

Repair of old LPG cylinder under rate contract for oil companies - respondent is only undertaking repair of the old cylinders not maintenance because Maintenance involves periodical checkups and services to prevent failure of the machinery - respondent was only repairing old gas cylinders and for taking such repair, they have entered into a rate contract - when only repair work was undertaken without a maintenance contract then service tax was not attracted for the period prior to 16.06.05

Summary

Issues:
Appeal against order of Commissioner (Appeals) regarding service tax on maintenance and repair services for LPG cylinders.

Analysis:
The appeal was filed by the department against the order of Commissioner (Appeals) dated 28.4.2006. The respondent, a manufacturer of LPG cylinders, also provided repair services for old LPG cylinders under a rate contract for oil companies. The department insisted on taxing the repair services under "Repair and Maintenance" services. The respondent paid tax on the repair services but claimed the benefit of Notification No. 12/2003-ST dated 20.6.2003 by deducting the cost of materials used in repairs. However, the Original Authority held that the respondent was not eligible for the benefit as they did not show the value of goods used for repair separately in the bills. Consequently, a demand of Rs. 3,34,891/- was confirmed along with interest and penalties under the Finance Act, 1994.

The Commissioner (Appeals) determined that the repair services provided by the respondent did not fall under a maintenance contract or agreement. The Commissioner relied on a Board's Circular dated 27.7.2005, stating that no service tax was leviable for repair work undertaken without a maintenance contract before 16.6.2005. The Departmental Representative argued that the repair of old gas cylinders was done under a rate contract, and since the cost of materials used in repairs was not separately mentioned, the gross amount charged became taxable.

The Tribunal analyzed Section 65 (64) of the Finance Act, 1994, which defines "Maintenance or Repair" services. It was observed that maintenance and repair are distinct, with maintenance involving preventive actions to prevent machinery failure, while repair is undertaken after a machine fails. The respondent was found to be only undertaking repair of old gas cylinders under a rate contract, which does not qualify as a maintenance contract. The Board's circular clarified that service tax was not applicable for repair work without a maintenance contract before 16.06.2005. Therefore, the Tribunal upheld the Commissioner (Appeals) order, rejecting the department's appeal.

In conclusion, the Tribunal found no merit in the department's appeal and rejected it, affirming the order of the Commissioner (Appeals) regarding the taxation of repair services for LPG cylinders.