UNDERTAKING TO OPERATE AND MAINTAIN POWER PLANT WILL NOT AMOUNT TO RENDERING OF SERVICE TO OWNER OF POWER PLANT

[Mr. M. GOVINDARAJAN]

In 'M/s CMC (India) Operations &Maintenance Co. Private Ltd., V. Commissioner of Central Excise' - 2007 (7) STR 369 (Tri. Chennai) the Chennai Tribunal held that operating and maintaining power plant does not taxable services of management consultancy/consulting engineer/clearing and forwarding/business auxiliary/maintenance or repair services as generation of electricity is within the meaning of manufacture under Central Excise Act, 1944.

In 'Rolls Royce Industrial Power (I) Ltd., V. Commissioner' -2006 (3) STR 292 (Tri.) the issue taken by the Tribunal is the true meaning and scope of operation and maintenance agreement.  In this case the appellant had taken over the plant and was operating and maintaining it in terms of the agreement.   The agreement makes it clear that it is a contract between owner and an operator.   The terms of the contract vest complete freedom and responsibility on the appellant, without any interference by the owner.   The owner's right is restricted to entry and access, to be satisfied that the operation is carried out according to standards. He also receives reports about the relevant aspects of operation, status and output. The payment for operation and maintenance are determined under the various clauses of the contract.   In addition to the lump sum payment, it also provides for bonus and penalty. The terms of the contract do not envisage or involve providing any consulting or engineering help to the owner. The operator is fully autonomous and responsible for the performance of the operation and maintenance.  Whatever engineering issues are involved, it is for the operator to find solutions for and attend to in the course of operation and maintenance. He is not required to render any advice or to take any orders from the owner. He cannot pass on the responsibility for operating the plant in any manner to the owner. Thus, there are no two parties, one giving advise and the other accepting it.   Service tax is attracted only in a case involving rendering of service, in this case, engineering consultancy.  That situation does not take place in the present case. Therefore the Tribunal held that the duty demand raised is not sustainable. 

In 'GVK Power & Infrastructure Ltd., V. Commissioner of Central Excise, Visakhapatnam-II' - 2009 -TMI - 35532 - (CESTAT, BANGALORE) the Tribunal has taken the same issue.  In this case the appellant under an agreement of operation and maintenance of the power plant of M/s GVK Industries Ltd., render certain services.  On the said contract of 'Operation and Maintenance' provided to M/s GVK Industries Ltd., a show cause notice was issued by the Assistant Commissioner for the period from 7.7.1997 to 31.3.1999 demanding service tax under the category of consulting engineer services.   The said order was finally set aside.

The appellant prior to 2005 was known as M/s Jegarupadu Operating & Maintenance Company.   Later it was taken over by the appellants.  They entered into an agreement with M/s GVK Industries Ltd., for operation and maintenance of their 235 MW mixed duel based combined cycle power plant.   The appellants are, as per the terms of the agreement, to generate electricity in the power plant and electricity so generated is transmitted to A.P. Transco grid.  The equipments are belonging to M/s GVK Industries Ltd., Receiving the fuel, generation and transmission of electricity to M/s A.P. Transco Power Grid, maintenance activities of the plant and connected records are attended to by the appellants.  The building, plant and machinery of GVKIL are also maintained by the appellants.   The appellants have obtained all the required permissions, approvals, renewal of licences from various departments on behalf of GVKIL.  The appellants are attending to scheduled and unscheduled activities periodically in terms of the agreement.  They are also required to maintain personnel management by hiring, training, mobilizing, supervising and managing facilities of personnel in sufficient numbers with adequate qualifications.   The main obligation of the said activity is measured in terms of number of units of electricity generated.  The Commissioner in the impugned order has given a finding that the appellants rendered the services of maintenance and repair. The Commissioner further held that the appellants had not disclosed the fact of rendering the services of management of the immoveable property and services of maintenance or repair of equipment till the department enquired about the same with an intention to evade payment of service tax.   The Commissioner thus held that the impugned order has justified the invocation of the longer period.

The Tribunal after hearing both sides held as follows:

* The appellants are not the owners of the power plant;

* In terms of the operations and maintenance contract, the appellants are required to operate and maintain the power plant which is not a contract for just 'maintenance and repair';

* The appellant under the contract is to operate the entire power plant and maintain it;

* Once the appellant undertakes to operate and maintain the power plant under a contract, it cannot be said that the appellant is rendering a service to the owner of the power plant;

* If at all any service is rendered, the service will be only to the appellants themselves;

* There is no separate contract for maintenance and repair or management, maintenance and repair;

* The correspondence between the department and the appellant reveals that the department had full knowledge of the activities of the appellant; hence no longer period, prima facie, cannot be invoked;

* As the balance of convenience lies in favor of the appellant we order complete waiver of pre deposit of the dues demanded in the impugned order.