Customs, Excise and Gold Tribunal - Delhi
Rolls Royce Industrial Power (I) Ltd. ... vs Cce on 9 June, 2004
Equivalent citations: 2004(95)ECC441, 2004(171)ELT189(TRI-DEL), 2006[3]S.T.R.292, [2007]6STT506
JUDGMENT C.N.B. Nair, Member (T)
1. The appellant entered into an operation and maintenance agreement dated 14.3.95 with M/s. Spectrum Power Generation Limited, Secunderabad for Operation and Maintenance of the 208 MW Combined Cycle Power Station owned by M/s. Spectrum Power Generation Limited at Kakinada, Andhra Pradesh. A show cause notice was issued by Central Excise authorities on 22.2.2001 alleging that the appellant was liable to pay service tax as applicable to "consulting engineer" for the period July 1997 to May 2000. This allegation was confirmed in the adjudication and that order was upheld in appeal by Commissioner (Appeals) Visakhapatnam. A duty demand of about Rs. 2.7 crore and penalty are involved. The present appeal challenges those Orders.
2. The appellant's contention was that their agreement dated 14.3.95 was for Operation and Maintenance of a Power Plant and not for rendering any advise or consultancy service. According to them, in terms of the agreement, they are performing the job of operating and maintenance of power plant and the payment is made for that job done and not for any other work and that such maintenance and operation activities do not come within the purview of consulting service. They also pointed out that any help rendered by the appellant prior to the taking over of the plant for maintenance was prior to the coming into force of service tax on consulting engineers. During the period of the show cause notice, they were governed by the operation and maintenance agreement. Whatever service they may provide at the time of termination of the operation and maintenance agreement cannot also be a ground for raising the service tax demand, as that eventualities has not been reached. The lower authorities rejected the appellants' contentions and confirmed the service tax and penalty.
3. We have perused the records and have heard both sides. Learned Counsel representing the appellant took us through the clauses in the agreement to show that the appellant's contract was not for rendering any service but for performing a job. The job in question was operating and maintaining the plant. It was emphasized that the payment was also on that basis. Provisions for bonus payment in case of operating the plant beyond the stipulated load factor and penalty for operating the plant below the stipulated load factor, makes this clear. In the course of operating and rendering the plant, the appellant was not giving any consultancy. They merely kept record and reported the results and other details of the operation. According to the appellant, that was again merely a report of performance and not any advice for consultancy. The initial agreement was for a period of operation of 5 years and the agreement also provided for renewal of the agreement.
4. The learned Counsel for the appellant also pointed out that the legal position in this matter remained settled in favour of the appellant by the decision of this Tribunal in the case of Daelim Industrial Co. Ltd. v. Commissioner of C.Ex. Vadodara, 2003 (89) ECC 140 : 2003 (155) ELT 457 wherein the Tribunal held that a work contract cannot be considered as a consultancy contract. Nor can it be vivisected and part of it subjected to service tax.
5. As against the aforesaid contention of the learned Counsel of the appellant, learned SDR has pointed out that operating and maintenance of the plant involved rendering of engineering advice. She has also submitted that the proposition that a work contract cannot be divided would not be valid in view of the 46th Amendment of the Constitution enlarging definition of sale to include deemed transfer of property/goods involved in a work contract and the judgment of the constitution bench of the Supreme Court in the case of Builders Association of India and Ors. v. Union of India and Ors., (Sales Tax Casses Vol. 73-37). The learned SDR also relied on the decision of this Tribunal in the case of CCE, Shillong v. Rabindra Das, 2003 (158) ELT 487 wherein this Tribunal held that functions performed by the assessee such as planning of building, preparation of land map, preparation of ground plan of factory, stability certificate, installed capacity assessment etc. comes within the ambit of consulting engineer.
6. We have perused the records and considered the submission made by both sides. The issue raised is the true meaning and scope of operation and maintenance agreement dated 14.3.95. The appellant had taken over the plant and was operating & maintaining is terms of the agreement. A perusal of 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 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, we are of the opinion that the duty demand raised is not sustainable. The learned SDR's contention about the 46th Amendment and the Apex Court's decision in Builders Association of India and Ors. (supra) have no application in the present case since such a deemed definition does not exist in the case of job work, as has taken place in regard to project contracts in sales tax. In these facts and circumstances, the appeal is allowed after setting aside the impugned order.