By TIOL News Service

NEW DELHI , FEB 02, 2015: THE facts are that the appellants are engaged in providing service of maintenance and repair of telecom towers of various telecom companies like M/s. Bharati Infratel Ltd. classifiable under 'Management and Maintenance or repair service'. The appellant had paid service tax under the said service but they had not included the value of diesel which they had been filling in the generators.

The Department wants the value of diesel so filled to be included in the AV for the purpose of payment of service tax and so this mighty demand tall as the telecom tower.

A Service Tax demand of Rs.5.84crores was confirmed against the appellant by the Commissioner, CE & Service Tax, Jaipur-I .

The period involved is April, 2007 to March, 2012. Penalty and interest have also been added in tall measure.

The appellant is before the CESTAT and submits that as per the contract their responsibility was to provide maintenance and repair of the tower stations so that they are in ready condition for operation. The scope of their service is detailed in the contracts which include the charges for filling diesel in the DG sets. They said that diesel was not required for providing service but for generating electricity. They also argued that property in goods passed on to the service recipient in the form of diesel.

The AR strenuously argued that without diesel the service cannot be rendered and, therefore, citing the judgment in the case of Idea Mobile Communication vs. CCE, Cochin- 2011-TIOL-71-SC-ST , it was contended that the value of diesel is to be included in the assessable value for the purpose of service tax.

The Bench observed -

“…We find 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 (supra) 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.”

In the context of the submission made by the appellant that the 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, the Bench added -

“…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 toner/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.”

Holding that the Bench is of the prima facie view that the value of diesel is not includible in the assessable value of the impugned service, the pre-deposit of adjudged dues was waived and stay was granted.

(See 2015-TIOL-235-CESTAT-DEL)