Custom, Excise & Service Tax Tribunal
Commissioner Of Service Tax, Mumbai Ii vs Evonik Energy Services on 21 March, 2016
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
Application No.
in
ST/S/93889/14
Appeal No.
ST/85154/14
ST/CO/91029/14
(Arising out Order-in-Appeal No. 113 dated 16.10.2012 passed by the Commissioner of Service tax, Mumbai II)
For approval and signature:
Honble Shri M.V. Ravindran, Member (Judicial)
Honble Shri C.J. Mathew, Member (Technical)
1. Whether Press Reporters may be allowed to see No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the No CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy Yes
of the Order?
4. Whether Order is to be circulated to the Departmental Yes
authorities?
Commissioner of Service tax, Mumbai II
Appellant
Vs.
Evonik Energy Services
Respondent
Appearance:
Shri R.K. Das, DC (AR) for the appellant Shri Vishal Agarwal, Advocate for the respondent CORAM:
Honble Shri M.V. Ravindran, Member (Judicial) Honble Shri C.J. Mathew, Member (Technical) Date of hearing : 21-03-2016 Date of decision : 21-03-2016 O R D E R No: ..
Per: M.V. Ravindran This stay petition and appeal is filed by the Revenue against Order-in-Appeal No. 113 dated 16.10.2012.
2. After hearing both sides for sometime on the stay petition, we find that the appeal itself could be disposed of. Accordingly, after dismissing the stay petition filed by the Revenue, we take up the appeal for disposal. The Cross objection filed by the respondent is also taken up for disposal.
3. The facts, in brief, of this case are that the respondent are engaged in the business of operating power plants and were allegedly providing taxable services of Consulting Engineer Services for power plants. The respondents had applied and obtained service tax registration under the category of Consulting Engineer Services vide service tax registration dated 04.08.2005. The respondents had entered into an Operation & Maintenance Agreement (hereinafter referred to O&M Agreement) with M/s. HPL Cogeneration Ltd. (HPLCL) on 30.07.2006 at Kolkata for providing operation and maintenance service for their power plant at Haldia in West Bengal on the terms and conditions as set for in the said agreement. On the payments received under the aforesaid contract for the period from October 2006 to June 2007, the respondent deposited a sum of Rs.24,09,838/- as service tax by classifying their service as Consulting Engineer Services and also filed service tax returns accordingly with the department. Thereafter, on realising that the services relating to the operation and maintenance of the power plant in terms of the said contract with HPLCL were not liable to service tax under the head Consulting Engineer or any other head of taxable service tax under the Finance Act, 1994. Accordingly, the respondents discontinued the payment of service tax w.e.f. July 2007 and intimated the department on 08.10.2007. The respondent also filed service tax returns in ST-3 claiming there under refund of Rs.24,09,838/- being the service tax paid by them during the period from October 2006 to March 2007 and from April 2007 to September 2007. A refund claim in Form-R was also filed on 04.12.2007 with the respondent claiming therein that the activity of operation and maintenance of power plant being an activity for generation of energy and not for rendering of any taxable service, is not covered by the provisions relating to service tax. The Adjudicating Authority after issuing the show-cause notice rejected the refund claim on the ground that the classification of the services by the respondent assessee was erroneous and the current classification was Management Maintenance and Repair Services. Aggrieved by such an order, an appeal was preferred before the First Appellate Authority. The First Appellate Authority set aside the impugned order before him and directed the lower authorities to sanction the refund.
4. Ld. Departmental Representative after taking us through the show-cause notices, Adjudicating Authoritys order and First Appellate Authoritys order submits that the relevant portion of the operation and maintenance agreement dated 30.06.2006 entered between the respondent assessee and HPLCL needs to be considered. He would take us through the relevant clauses of the agreement and submit that the said agreement in article no. 6.3.3 specifically records that the operator fee is exclusive of service tax which would indicate that the respondent assessee and the owner HPLCL were aware that the services rendered by the respondent assessee are taxable services. It is his submission that despite such explicit and clear terms of agreement, respondent assessee could not have paid the tax and claimed refund subsequently. It is his further submission that the services rendered by the respondent assessee would fall under the definition of Management Maintenance and Repair Services and correctly classified by the Adjudicating Authority. He would submit that due to this reasons the impugned order be set aside.
5. Ld. Counsel appearing for the respondent assessee would submit that the article 6.3.3 of the agreement as read by the Departmental Representative would indicate that there was a clause of payment of service tax, but if it was applicable. He submits that the First Appellate Authority has relied upon the judgment of the Tribunal in CMS (India) Operations & Maintenance Company vs. CCE 2007-TIOL-892-CESTAT and in the case of Rolls Royce Industrial Power vs. CCE 2004 (171) ELT 189, which is directly on the point. He would submit that the decision of CMS (India) Operations & Maintenance Company is on identical set of facts. It is his further submission that the Adjudicating Authority could not have reclassified the services rendered by them in a refund claim filed by the respondent assessee, if the revenue wanted to reclassify the services rendered they should have done so by issuing a separate show-cause notice.
6. We have considered the submission made at length by both sides and perused the records.
7. The issue to be decided in this case is whether the appellant has correctly discharged the service tax liability under the category of Management Maintenance and Repair Services or otherwise and whether he is eligible for the refund of the service tax paid under the mistake of law or otherwise.
8. It is undisputed that the respondent assessee and HPLCL entered into agreement for operation and maintenance of power plant. The terms of the agreement were considered by us and we find that the entire agreement talks about operation of the power plant for generation of electricity and incidentally also maintain the same by way of annual Maintenance and Repair to the plant for operations.
9. The First Appellate Authority after considering the facts of the case in his impugned order recorded the following findings.
" 23. All said and done, the Adjudicating Authority has nowhere denied the fact that the Operator i.e. the appellants contract with the owner is to operate the power plant for generation of energy and not merely to maintain it. The appellants contention is that the management or maintenance of the plant was only incidental to the activity of operating the power plant to generate electricity and steam. The Adjudicating Authority, while conceding to the fact that services rendered by the appellants were wrongly classified under Consulting Engineer as they did not provide any such service. But he (Adjudicating Authority) has jumped on to his hurried conclusion that as per their Agreement entered with the owner, they had provided the service of Management Maintenance and Repair Services as defined under Section 65 of the Finance Act, 1994 and that the appellants claim that their services are not covered under Service tax is not correct and therefore not acceptable.
24. I do not find any merit in the Adjudicating Authoritys above contentions. For the sake of illustration, I may observe that if someone hires a driver to drive ones vehicle; the drivers prime duty is to drive the vehicle though its cleaning, maintenance, proper up-keep etc.will be incidental to his prime duty of driving the said vehicle. Same way, the appellants contract with the owner under the impugned O&M Agreement dated 30.06.2006 is to Operate the plant in accordance with an operating regime indicated by the Owner, including enhanced operations as per Schedule 13. Besides, they are obliged to Maintain the plant in a manner such as to maximize the efficiency, output, availability, and starting and operational reliability of the Plant, minimize the heat rate, downtime, forced outages, fuel consumption and losses (evaporation or otherwise), including performance of scheduled inspections and overhauls of the plan. The appellants are required to maintain the plant in such a manner to prevent wastages, theft, pilferage and shortages etc. from the plant. One cannot infer that the appellants had entered into the aforesaid O&M Agreement with the Owner exclusively to maintain, manage or repair their Power Plant.
25. In find ample support from the Honble CESTATs decision in the case of CMS (India) Operations & Maintenance Co. P. Ltd. vs. CCE Pondicherry 2007 (7) STR 369 (Tri-Chennai) wherein para 31 it is clearly held that :-
31. We have seen that in generating power, the appellant did not render any advice to improve the functioning of the working system of another organisation. They ran the facility and organised the required materials through the owner and services of their own staff. These activities did not constitute services to any other person/organisation. These impugned functions were incidental to their main activity of producing power. The O&M contract is a works contract and it is bad in law to vivisect it and tax certain activities covered by the contract. A reading of the whole contract makes it plain that the same was intended to ensure generation and supply of power as per PPA and not for rendering any service to the owner.
26. I, therefore, hold that the subject activity of the appellants regarding operating the power plant for generation of energy cannot be classified as services of Management, Maintenance or repairs and as such no service tax was leviable thereon under this category of taxable service during the period under reference. The leviability of tax under Consulting Engineering Service is already ruled out by the department itself as pointed out supra. Hence, refund of service tax is held to be admissible on its merit.
27. So far as the question of unjust enrichment involved in the present refund claim is concerned, I may agree with appellants contention that in terms of Article 6.3.3 of the O&M Agreement. The operator free payable for each operating year was inclusive of the Operators Income Tax and any and all other taxes as applicable on such free but was exclusive of service tax at the rates as applicable on such fee at the time of invoicing such fee. Such service tax shall be shown and claimed separately by the operator. No doubt, the appellants have admittedly charged the element of service tax separately in their invoices issued to the owner from time to time but this amount has not been charged/ realised from any other person save and except an amount of Rs.3,36,278.00. This fact has been duly disclosed by the appellants in their refund claim in Form-R submitted to the Assistant Commissioner of Service tax, Division-IV, Mumbai and further admitted in course of personal hearing held on 10.10.2012 before me. Therefore, the refund claim for a total sum of Rs.24,09,838.00 becomes allowable to the appellants. However, a sum of Rs.3,36,278.00 merits to be credited to the Consumer Welfare Fund as refund thereof to the appellants in the given circumstances would constitute unjust enrichment.
10. As against the above reproduced factual finding by First Appellate Authority it is to be noted that the grounds of appeal as taken by the revenue in the appeal memorandum are nowhere contradicting the factual position as stated by the First Appellate Authority. It is also to be noted that the First Appellate Authority has correctly come to a conclusion that the similar issue has been decided by the Tribunal in the case of CMS (India) Operations & Maintenance Company (supra). Further, we also note that identical view has been taken by this bench in the case of CST vs. Polydrill Engineers P. Ltd. in Order no. A/86518/16/STB.
11. We agree with the contention raised by the ld. Counsel that the reclassification of the services as sought by the Adjudicating Authority in a refund claim filed by the assessee seems to be incorrect appreciation of the law. In our view if the Revenue authorities were holding a view that the services rendered by the respondent assessee would be correctly classified under Management Maintenance and Repair Services they should have issued a show-cause notice for doing it so. Revenue authorities cannot reclassify the services rendered by the respondent assessee in a refund claim filed by the respondent.
12. In view of the foregoing, we hold that the impugned order is correct, legal and does not suffer from any infirmity. The cross objection filed by the respondent assessee being in support of the said impugned order is also disposed of.
13. We uphold the impugned order and reject the appeal.
(Pronounced in Court) (C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial) //SR 11 ST/85154/14