By TIOL News Service

MUMBAI, FEB 12, 2016: THE appellant is a manufacturer of transformers and also undertakes maintenance and repair as well as commissioning and installation of the said transformers on which theydischarge service tax liability. In addition to such activities, appellant undertakes repair of transformers of various States Electricity Boards by quoting on tender for such activity; the transformers so received from the Electricity Boards are not manufactured by the appellant but some other manufacturers.

During the course of EA-2000 audit, the auditing team came to a conclusion that during the period 01.07.2003 to 31.03.2006, repairing activity undertaken by the appellant of transformers manufactured by other manufacturers is liable to service tax under the category of "maintenance or repair services".

SCN was issued and the same was confirmed with interest and equivalent penalty.

The Tribunal had granted a stay in the matter on 25.02.2013 and we had reported the said order as 2013-TIOL-2145-CESTAT-MUM thus -

ST - Appellant rendered repair services during the period 1.7.2003 to 31.3.2006 to various State Electricity Boards by undertaking repair of the Transformers - in respect of transformers manufactured by them and sold to the Electricity Board on which they undertook the repairs, they discharged ST liability - however, in respect of the transformers manufactured by other manufacturers on which they undertook repairs, they did not discharge ST liability, inasmuch as they had no maintenance contract for such repair work with their clients - SCN dated 25.5.2007 was issued demanding ST of Rs.2.37 crores by classifying the services under "Management, Maintenance or Repair Service"- demands confirmed along with interest/penalty - appeal to CESTAT: HELD - Tribunal in the case of Basant Enterprise -  2011-TIOL-1192-CESTAT-DEL  held that rate contract entered into with the customers for the repairs of the goods for the period prior to 16.6.2005 cannot be considered as a maintenance contract or agreement and accordingly held that ST is not leviable on repair services prior to 16.6.2005 - similar view was held by this Tribunal in the case of Bhiwadi Cylinders -   2008-TIOL-833-CESTAT-DEL  - in the light of these decisions, appellant has made out a strong case - pre-deposit waived, recovery stayed: CESTAT [para 5.1, 5.2]

The appeal was heard recently.

It is submitted that the repairing activity of the transformers undertaken by the appellant in respect of other manufacturers of transformers would not be covered under "maintenance or repair services" as definition requires the assessee should undertake maintenance or repair under the maintenance contract & that there was no maintenance contract entered by the appellant with the State Electricity Boards. Moreover, the definition underwent a change from 16.06.2005 wherein the words "maintenance contract" was removed and only a "contract" was mentioned and from that date tax liability may arise on the appellant and they have discharged the said liability; but demands raised in the show-cause notice and confirmed by the adjudicating authority has included various materials cost which was used while undertaking the repairs during the period 16.06.2005 to 31.03.2006 and it requires re-quantification. The appellant also pleads that the demand is hit by limitation as D-3 intimation was filed when they received transformers for repairs and the department was aware of the repair activity. The Tribunal decision in Basant Enterprise - 2011-TIOL-1192-CESTAT-DEL & Board Circular B1/6/2005-TRU dated 27.7.2005 is adverted to in support.

The AR justified the action taken by the department and in the matter of plea of re-quantification of demand left the issue for a decision by the Bench.

The definition - Before & after 16.06.2005:

Before:

"Maintenance or repair" means any service provided by -

(i) any person under a contract or an agreement; or

(ii) a manufacturer or any person authorized by him, in relation to,-

(a) maintenance or repair including reconditioning or restoration orservicing of any goods or equipment, excluding motor vehicle; or

(b) maintenance or management of immovable property.

After:

"Maintenance or repair" means any service provided by -

(i) any person under a maintenance contract or an agreement; or

(ii) a manufacturer or any person authorized by him, in relation to maintenance or repair or servicing of any goods or equipment, excluding motor vehicle.

The Bench observed -

++ It can be seen from the (above reproduced) definition, the requirement of statute prior to 15.06.2005 for taxability of the services rendered is very clear i.e. that the maintenance of repairs has to be provided by any person under "maintenance contract" or agreement. Undisputedly in the case in hand for the entire period, there was no maintenance contact entered by the appellant with the State Electricity Board for repairs of their transformers. The tender process through which the appellant got the contract for repairing the transformers is only a "work order" and contract for repair and it is not a "maintenance contract". We find that the learned Counsel was correct in relying upon the judgement of this Tribunal in the case of Basant Enterprises (supra)….

++ The ratio clearly covers the issue in favour of the appellant prior to 15.06.2005 and we hold that no service tax liability arises on the appellant on the activity of the repairs undertaken on transformers received by them from various State Electricity Boards.

++ Casual perusal of the invoices produced before us indicates that the appellant has charged separately for the material consumed and for the services of repairing of the said transformers. In our considered view the payment of the service tax liability under "maintenance or repair" services post 15.6.2005 needs re-quantification. Upholding the demand of service tax liability and the interest thereof for the period post 15.06.2005, we remit the matter back to the adjudicating authority to reconsider the limited prayer of the appellant regarding the cost of the material that needs to be reduced from the valued on which tax liability is due. Appellant is also required to discharge the interest on re-quantification of tax liability.

++ The plea that the issue is hit by limitation has no legs to stand as we find from the records that the appellant had not informed the department about the activity of repairing of transformers of other manufacturers undertaken by them. The correspondence to which our attention is drawn, we find that when the appellant had sought the views of the department, the Superintendent in-charge of the Central Excise had specifically directed them to discharge the service tax liability with a direction that the activity would fall under the taxable activity. Despite such direction, appellant chose to ignore the same and did not discharge the tax liability.

++ Since the issue involved is regarding interpretation, no penalty needs to be imposed even on re-quantification tax liability for the period post 15.06.2005.

The Appeal was disposed of.

(See 2016-TIOL-404-CESTAT-MUM)