By TIOL News Service

MUMBAI, AUG 22, 2013: IN this case, the applicants entered into two agreements with M/s Ispat Industries Ltd.-

The first agreement was in respect of Installation and Commissioning of the Oxygen Plant.

++ And for this purpose the applicant imported the plant on payment of appropriate customs duty. The imported equipment was leased out to M/s Ispat Industries Ltd. and who availed the CENVAT credit of the CVD paid on the plant. Thereafter, M/s Ispat Industries Ltd. entered into a contract with the applicants for installation and commissioning of the plant.

Pursuant to this agreement, the applicant got the plant installed and commissioned.

Thereafter, another agreement was entered into between the two parties and which is in respect of operation and maintenance of the plant.

On this activity of 'maintenance', the applicant is paying Service Tax.

Incidentally, the applicant has availed CENVAT credit of Rs.1.62 Crores in respect of the service tax paid on the taxable service received of installation and commissioning and which is sought to be denied.

It is the case of the Revenue that the oxygen plant is an immovable property and hence the applicants are not entitled to credit in respect of the service tax paid on the taxable services in respect of installation and commissioning of the plant.

Before the CESTAT, the applicant submitted that they are entitled for the CENVAT credit as operation and maintenance will come after the installation of the plant and hence they are integrated activities.

The Bench observed [See 2013-TIOL-848-CESTAT-MUM] -

"7. We find that the applicants entered into an agreement dated 22.5.2006 with Ispat Industries Ltd. for operation and maintenance of the plant. The amount in dispute is in respect of the credit of service tax which is in respect of taxable service received during installation and commissioning of the plant which is under a different agreement. We find that in case the installation and commissioning of the plant was done by a different party, then the assessee who undertakes the operation and maintenance and activity cannot take credit in respect of service tax in respect of installation and commissioning of the plant. In the present case, different activities are undertaken by the applicants under a different agreements and the dispute is in respect of the credit which was availed in respect of installation and commissioning of the plant under a different contract and the applicants want to utilize that credit towards payment of service tax in respect of operation and maintenance service which is under a different contract. In this view of the matter, prima facie, the applicants have not made out a case for total waiver of service tax. Keeping in view the facts and circumstances of the case, the applicants are directed to deposit 25% of the service tax demand within 8 weeks. On deposit of the said amount, pre-deposit of the remaining dues is waived and recovery thereof is stayed during the pendency of the appeal."

Against this order, the appellant filed an appeal before the Bombay High Court and the High Court held -

“4) In appeal, the Tribunal by the impugned order holds that the appellant is not entitled to utilize the credit of service tax paid taken in respect of services received during the installation and commissioning of the plant for discharge of service tax payable on providing services of maintenance and repairs as they are covered by two different agreements. The impugned order directs the appellant to pre-deposit 25% of Rs.1.61 crores on the basis that there are two different agreements and therefore, credit taken under one agreement cannot be utilized in discharge of service tax payable under another agreement. This was after stating in Para 4 of the impugned order that revenue wants to deny credit on the ground that oxygen plant is an immovable property. However, thereafter this issue is not discussed at all in the impugned order.

5) In view of the above we set aside the impugned order and restore the application for dispensing with pre deposit of service tax and penalty for hearing before the Tribunal. In order to ensure that the stay application before the Tribunal is taken up expeditiously, we direct that the parties shall appear before the Tribunal on 19 August 2013 for further directions. Parties shall also cooperate with the Tribunal for expeditious disposal of the stay application within six weeks from today.

6) In view of the above time table, it is directed that till the disposal of the stay application there will be ad interim stay for recovery of service tax, interest and penalty on the basis of the adjudication order dated 29 October 2012 of the Commissioner of Central Excise and Customs.”

The appeal was disposed of in above terms.

(See 2013-TIOL-635-HC-MUM-CX)