2015 (2) TMI 569 - AT - Service Tax

Waiver of pre deposit - Valuation of taxable services - inclusion of supply of diesel - Held that - As per the contract the appellants are required to keep the mobile towers in perfectly operational and ready condition (uptime 99.95%). Ensuring readiness for functionality is different from actual functioning. Readiness for functionality (i.e. uptime) only requires that the systems including generating set are found to be ready to function whenever required. Thus diesel consumption is not required for providing such service but diesel consumption is required for generating electricity. We find that electricity is goods and diesel is clearly an input for producing electricity by generating sets. Also we find that as per the contract the appellants were required to procure diesel from designated outlets and of specified quality and they were to raise periodical and separate bills for the reimbursement of the cost of diesel which was filled. Thus in a sense it was arguably a case of diesel being supplied by the service recipient. As regards the contention of the ld. AR, with reference to the judgment of Supreme Court in the case of Idea Mobile Communications (2011 (8) TMI 3 - SUPREME COURT OF INDIA) it is seen that the judgement was predicated on the value of SIM cards being insignificant and sales tax department having given up their claim to charge sale tax thereon. Property in goods (diesel) was transferred to the service recipient before it was consumed for producing electricity and therefore, on that count also, its value was not liable to service tax. We find that in the case of Xerox Modicorp Ltd. vs. State of Karnataka - Manu/SC/0505/ 2005 Hon ble Supreme Court held that in case of operation of Xerox machines transfer of property in the form of tones/developer take place as the property passes the moment the goods are put in the machine because at that stage they are not consumed but are tangible goods which can pass; they are consumed only after they are put in the machines. - value of diesel is not includible in the assessable value of the impugned service. Accordingly we waive the pre-deposit and stay recovery of the impugned liability during pendency of the appeal - Stay granted.

Summary

Issues:
1. Inclusion of the value of diesel in the assessable value for service tax.
2. Interpretation of the service contract regarding the provision of maintenance and repair services for telecom towers.
3. Transfer of property in goods (diesel) to the service recipient before consumption for electricity production.

Analysis:
The appellants filed a stay petition along with an appeal against an Order-in-Original confirming a demand for service tax along with interest and penalties. The dispute arose from the Department's claim that the value of diesel filled in generators should be included in the assessable value of service tax. The appellants argued that diesel was not essential for providing the service but for generating electricity, and the property in goods (diesel) passed on to the service recipient. The Department contended that without diesel, the service could not be rendered, citing a relevant judgment.

Upon examining the contract, the Tribunal noted that the appellants were obligated to maintain the telecom towers in operational condition, which required readiness for functionality rather than actual functioning. The Tribunal observed that diesel consumption was necessary for generating electricity, which is considered goods, and diesel was an input for producing electricity. The appellants were also required to procure diesel from specific outlets and bill the service recipient separately for the cost of diesel filled, resembling a case of diesel being supplied by the recipient.

The Tribunal referenced a Supreme Court judgment regarding the transfer of property in goods, highlighting that the property in goods (diesel) was transferred to the service recipient before consumption for electricity production. Drawing parallels with the Xerox machines case, the Tribunal concluded that the value of diesel was not includible in the assessable value of the service. Consequently, the Tribunal waived the pre-deposit and stayed the recovery of the disputed liability during the appeal's pendency.