Custom, Excise & Service Tax Tribunal
M/S.Stallion Rubbers Ltd vs Cce, Jaipur-I on 3 March, 2011
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.II, R.K. PURAM, NEW DELHI-110066.
Division BENCH
Service Tax Appeal No.149 of 2008
(Arising out of Order-in-Appeal No.221(RKS)ST/JPR-I/07 dt.26.12.2007 passed by the CCE(A), Jaipur-I)
M/s.Stallion Rubbers Ltd. Appellant
Vs.
CCE, Jaipur-I Respondent
Present for the Appellant: Shri Ms.Reena Khair, Advocate Present for the Respondent: Shri K.K.Jaiswal, SDR Coram:Honble Mr.D.N.Panda, Judicial Member Honble Mr.Rakesh Kumar, Technical Member Reserved on: 07.12.2010 Date of Decision: 03.03.2011 ORDER NO._______________ PER: D.N.PANDA The appellants being aggrieved by the order dt. 26.12.2007 passed by learned Commissioner (Appeals) came in appeal challenging his decision that services provided by appellants with effect from 1.7.2003 under category of maintenance and repair shall be liable to service tax and the appellants having suppressed the facts, extended period was rightly invokable and penalty under sections 76, 77 and 78 of Finance Act, 1994 (hereinafter referred to as the Act) was leviable.
2. The first appellate authority in Para 5 of the order undisputedly found that the appellants were undertaking retreading of old tyres against the supply order received from the Defence Department of Govt.of India. According to Revenue retreading of old tyres undertaken by the appellants was maintenance and repair activity in terms of Section 65 (64) of the Act for which liability arose w.e.f.1.7.2003.
3. The adjudication related to two show cause notices issued as under:
Sr. No. Show Cause Notice No. and date Amount of Service tax demanded Order-in-Original No. and date Period involved 1 V(H)ST/Adj-I/213/06 Dt.22.02.07 16,81,235.00 37/ST/JP-I/2007 1.7.03 to 31.3.06 2 V(H)ST/Adj-I/39/07 Dt.19.03.07 7,64,513.00 38/ST/JP-I/2007 1.4.06 to 8.1.07 It was alleged in the show cause notice that that the appellant did not disclose the Maintenance or Repair carried out for Defence Department and has intention to evade payment of service tax from 1.7.03 to 31.3.06 and 1.4.06 to 8.1.07. Proposals in both the show cause notices were for recovery of the service tax not paid earlier by the appellant, alongwith interest and penalties imposable for contravention of law brought out notices. Both the show cause notices were adjudicated by the common impugned order as below:
(i) Service tax amounting to Rs.24,45,751/- (Rs.16,81,235/- + Rs.7,64,516/-) was confirmed and of service tax of Rs.15,47,780/- and interest of Rs.2,17,645/- pad was appropriated to the Government account;
(ii) Interest at the applicable rates under section 75 of the Act, 1994 on the service tax demand was levied;
(iii) Penalty of Rs.100/- subject to the maximum limit prescribed under section 76 of the Act was levied;
(iv) Penalty of Rs.16,81,235/- under section 78 of the Act was levied holding that no penalty was imposable on the appellant against service tax demand of Rs.7,64,516/- since such amount was deposited by them before the issue of the show cause notice; and
(v) Penalty of Rs.1000/- under section 77 of the Act for failure to obtain/amended Registration under section 69 of the Act was levied.
4.1 Order of the learned first appellate authority was challenged on the principal ground that the matter was decided without examining legal position as it existed prior to 16.6.05. Prior to 16.6.2005, maintenance or repair service falling under section 65 (64) of the Finance Act, 1994 was defined as under:
maintenance or repair means any service provided by -
(i) any person under a maintenance contract or agreement; or
(ii) a manufacturer or any person authorised by him, in relation to maintenance or repair or servicing of any goods or equipment, excluding motor vehicle 4.2 According to appellant, prior to 16.6.05, Maintenance and Repair carried on under a maintenance contract or agreement was alone covered under service tax law. The activity of retreading was just a job work as per supply orders and not chargeable to tax.
4.3 The definition under section 65 (64) the Finance Act, 1994 as it existed prior to 16.6.2005 did not include activities carried out against agreements other than those for maintenance. The term maintenance required an ongoing exercise for the upkeep and efficient working of an equipment or otherwise. The supply orders of the Defence were not maintenance contract or agreements but they were essentially orders for undertaking the work of retreading of tyres on one time basis. Repairs without maintenance were not taxable.
4.4 The CBEC vide circular dated 27th July, 2005 had clarified that maintenance was to keep a machine, building etc. in good condition by periodical checking and servicing or repairing. While repair is one time activity, maintenance is a continuous process of which repairing may be incidental or ancillary. In para 16.4 of the circular, it has been categorically stated that repair or servicing carried out under a contract other than maintenance contract of agreement, was not covered within the purview of service tax prior to 16.6.05.
5. Learned appellate Authority found that retreading of old tyres was an admitted fact. He examined the copy of supply order issued by the appellant from the Army Headquarters, New Delhi. Retreading of old tyre was done through hot pressure for a consideration. In para 9 of the order, he examined the scope of the activity undertaken by the appellant. Appellants contention that the tyre retreading was neither maintenance nor repair prior to 16.6.05 was not acceptable to him. In para 7 of the order, he dealt with meaning maintenance and repair as defined in section 65 (64) of the Finance Act, 1994. According to him, the activity was like works contract for repair of old tyres and Boards Circular No.B1/6/2005-TRU dated 27.07.2005, clarified that prior to 16.6.2005 repair service carried out without contract or agreement was not taxable. He was of the view that when the activity was carried out for the benefit of other that was so done under a contract only. In para 9 of the order, the learned first appellate Authority found that the appellant was holding Central Excise Registration No.AABCS5906MXM001 for the manufacturer of excisable goods i.e. hot rubber under sub heading 4006.10, cold rubber under sub heading 4008.22, cushion under sub heading 4006.10 and vulcanizing cement under sub heading 3506.00 and the appellant became liable to service tax with effect from 1.7.2003 as service provider of maintenance and repair service. In para 10 of the order, the appellate authority held that the appellant never came forward for registration with the department and applied for amendment of registration as late as on 21.01.2006 when action was initiated against them. Therefore, extended period was invokable and the appellant contravening law, penalty was imposable.
6. Learned Counsel appearing on behalf of the appellant submitted that there was no repair and maintenance contract executed. The appellant only carried out the activity of retreading of tyres to make that usable which is essentially a manufacturing activity not amounting to rendering of service. But learned Commissioner (Appeals) erred in holding that the appellant was a manufacturer. By letter dated 20.11.2007, the appellant explained that although they were engaged in the manufacturing activity they are not providing maintenance and repair service of those goods. Repair being done to tyres which was not manufactured by them there shall not be taxability. Maintenance and repair was not relating to the goods manufactured by the appellant and no maintenance of tyres manufactured by others shall not make the appellant liable to tax. Prior to 16.6.2005, maintenance and repair activity carried out under contract or agreement was alone covered by service tax law for taxation. Repairs or servicing not being covered by maintenance contract or agreement were not liable to tax. Retreading of tyres on job work was not taxable. CBECs circular clarified that maintenance was to keep machine, building, etc. in good condition by periodical checking and servicing or repair. Repair is only one time activity while maintenance is a continuous one and repair and maintenance carried out without a contract or agreement were not liable to tax prior to 16.6.2005. The appellant relied on the decisions of the Tribunal in the case of Cochin Shipyard Ltd. vs.CCE, Cochin reported in 2007 (7) STR 291, in the case of Uni Power System Ltd. vs. CCE, Cochin reported 2007 (7) STR 590 and in the case of CCE, Jaipur vs. Dusdad Transformer & Switchgears (P) Ltd. reported in 2007 (5) STR 37 to submit that as per Boards circular dated 27.7.2007, prior to 16.6.2005 repair or servicing carried out under a contract other than maintenance contact or agreement were not covered by law for taxation.
7. On the other hand, Revenue supports the order of the learned authority below and submitted that repair and maintenance was the activity carried out under contract whether written or verbal makes no difference when the activity was to make repair of goods serviceable and usable. As per the order given by the Defence department, contract was executed by the party. Board clarified that to attract service tax contract or agreement need not necessary be maintenance contract or agreement.
8. Heard both sides.
9. What does maintenance or repair meant prior to 16.6.2005 as dealt by Section 65(64) of the Act reads as under:
maintenance or repair means any service provided by -
(i) any person under a maintenance contract or agreement; or
(ii) a manufacturer or any person authorised by him, in relation to maintenance or repair or servicing of any goods or equipment, excluding motor vehicle.
10.1 Analysis of the above section throws light that any service provided under maintenance contract or agreement between the parties were taxable service. Similarly any service provided by a manufacturer or a any person authorised by him in relation to the maintenance or repair or servicing of any goods or equipment, excluding motor vehicle were liable to service tax. The parties to the contract are recipient in one hand and the service provided on the other, or recipient in one hand or manufacturer or other person authorised by him on the other. The maintenance contract or agreement may be written or oral. Format or document does not decide the taxability while substance of the contract decides incidence of the contract.
10.2 The work orders issued by the Defence department to the appellant which were relied upon documents for adjudication remained undisputed. That throw light to suggest that entire activity of the appellant was subject to warranty. Accordingly to the clause 19 of the supply order No.40011/RTD/HOT/TPC/CV/022/2003-2004/18 dated 8.7.2004 appearing at page 26 of the appeal folder shows that if a retreaded tyre gives less than 75% (12,000 kms) of the guaranteed kilometerage i.e.16,000 kms, the retreading firm would pay the 100% retreading charges back to the purchaser. Similarly, a slab was provided for the proportionate calculation of such liability as per page 28 of the appeal folder. Accountability of the retreaders appears from page 29 of the appeal folder throwing light that if the tyres meant for retreading are found unsuitable that shall be returned back to the indentor and if any defects is found in the course of inspection, retreader shall return the tyre on freight pre-paid basis to the consignee and no retreading charges shall be payable.
10.3 There is no doubt that retreading of tyre is a service provided consuming certain goods in the process to add economic life to the used tyre and make the same usable. There was economic activity carried out for consideration. The activity was repair of old tyre for making the same usable. Totality of reading of contract and supply order suggests that there was commercially viable and feasible contract between parties prescribing obligations of each other recognising services to be provided by the appellant was the essence of the contract followed by certain penalties and warranty clauses in the contract. The meaning of repair or maintenance under section 65 (64) of Finance Act, 1994 during the material period does not necessarily require a written contract or agreement to be entered into by the parties. When need of one and the contribution of the other to fulfil the need of the former surfaces and promise recognising such contribution followed by consideration payable binds each other that results in a contract or agreement. The offer and acceptance of the proposition of retreading of tyre resulted in binding contract of the parties to carry out their promise. Therefore, there was no need of any written contract or agreement to bring the appellant to the fold of law. All the three citations made by the appellant did not deal with the modality of the contract and that remained in silence. Even the Board by its circular, nowhere spell out that the contract or agreement shall necessarily be in writing. In the absence of legislative mandate that the contract should necessary be in writing, there is no scope to grant relief for which the appeal is dismissed.
(Pronounced in the open court on 03.03.11) (D.N.PANDA) JUDICIAL MEMBER (RAKESH KUMAR) TECHNICAL MEMBER mk 6 10