2024 (9) TMI 1077 - AT - Service Tax

Demand of differential service tax - credit notes issued on account of lowering of contract price due to Progressive Plant Available Factor less than 75% - Chargeability of service tax on the value of spares and consumables supplied during the course of provision of service of operation and maintenance of power plant of the service recipient - Cenvat credit availed on such spares and consumables. Whether the credit notes issued on account of lowering of contract price on account of PAF less than 75%, is liable to service tax or otherwise? - HELD THAT - Even though by way of credit note the contract price has been lowered but the same was on account of less performance with regard to PAF less than 75% as per contract between the respondent and service recipient. With this arrangement it is clear that when there is low performance i.e. PAF is less than 75%, the service is not as per the contract and for lower performance of service the amount was deducted by way of credit notes. It is also the fact that the amount of credit notes stand reduced from the contract price as mentioned in the contract therefore, the reduced amount of fees is the actual amount which is charged by the respondent to M/s. GMDC Limited. The provisions of Section 67 of Finance Act, 1994 clearly provides that gross value for charging service tax is the value which is charged towards provision of service - In the present case, the contract price minus credit note amount is the gross value charged by the respondent to service recipient M/s. GMDC Limited. Therefore, it is the reduced amount of service charge as gross value which is strictly in terms of Section 67 of the Finance Act, 1994 therefore, no further notional addition can be done for charging service tax - the Adjudicating Authority has rightly dropped the proceedings to the extent the demand of service tax on the credit note issued by the respondent to the recipient i.e. M/s. GMDC Limited. Whether service tax is charged on the value of spares and consumables supplied during the course of provision of service of operation and maintenance of power plant of the service recipient? - HELD THAT - It is found that the contract is for two transactions one is for service simpliciter i.e. maintenance and operation of power plant and the service charge for the same is fixed only for service and the second limb of contract is for supply of spares and consumables which is nothing but sale of goods. In this fact, the value of spares and consumables cannot be included in the service of operation and maintenance of power plant. Cenvat credit availed on such spares and consumables - HELD THAT - The respondent has undertaken to reverse the credit involved in the spares and consumables on which no service tax was paid. Accordingly, the appellant is required to reverse the cenvat credit in respect of spares sold by them on which no service tax was paid. There are no infirmity in the order of the Adjudicating Authority therefore, Revenue s appeal is not maintainable hence the Revenue s appeal is dismissed.

Summary

Issues:
1. Whether credit notes issued on account of lowering of contract price due to Progressive Plant Available Factor less than 75% are liable to service tax.
2. Whether service tax should be charged on the value of spares and consumables supplied during the provision of operation and maintenance service of a power plant.

Analysis:

Issue 1:
The appeal was filed by the Revenue against the order-in-original where the demand of service tax was dropped. The respondent, engaged in the operation and maintenance of a power plant, issued credit notes to the service recipient due to lower performance based on the Progressive Plant Available Factor (PAF). The Revenue contended that the amount reduced by credit notes should be included in the gross value of service for taxation. However, the respondent argued that the reduced amount was the actual charge for the service provided, as per the contract terms. The Tribunal held that the reduced amount, after deducting credit notes, constituted the gross value charged by the respondent to the service recipient, in compliance with Section 67 of the Finance Act, 1994. Therefore, the Tribunal upheld the Adjudicating Authority's decision to drop the service tax demand on credit notes.

Issue 2:
Another contention raised was regarding the value of spares and consumables supplied during the provision of service. The contract involved two parts: maintenance service and supply of spares, treated as a sale of goods. The Tribunal ruled that the value of spares and consumables should not be included in the service charges for operation and maintenance of the power plant. Additionally, the Cenvat credit availed on these items, even though initially dropped in a separate order, was to be reversed as no service tax was paid on these supplies. Thus, the Tribunal concluded that the appellant must reverse the Cenvat credit for spares and consumables on which no service tax was levied. Consequently, the Tribunal dismissed the Revenue's appeal, finding no fault in the Adjudicating Authority's order.

In conclusion, the Tribunal upheld the decision to drop the service tax demand on credit notes issued due to lower performance and ruled that the value of spares and consumables should not be included in the service charges. The appellant was directed to reverse the Cenvat credit for spares and consumables on which no service tax was paid.