COVANTA SAMALPATTI OPERATING Vs. COMMISSIONER OF SERVICE TAX

JUDGEMENT

(1.) THE Commissioner has demanded service tax of over Rs. 1.3 crores from the appellants and also education cess therewith for the period July, '03 to March,' 06 by invoking the larger period of limitation under Section 73(1) of the Finance Act, 1994. He has also imposed huge penalty on the assessee. After examining the records and hearing both sides, we note that the assessee was operating and maintaining a power plant set up by another company namely, M/s. Samalpatti Power Company Pvt. Ltd. (SPCPL, for short) under an "operation and maintenance agreement" (O&M agreement, for short) dated 03.12.1999. The power generated was being supplied to consumers like TNEB in terms of "power purchase agreements" executed between them and M/s. SPCPL. During the period of dispute, the assessee paid service tax in the category of Maintenance and Repairs Service on the cost of routine maintenance of the power plant by excluding the cost of materials consumed therein and also excluding what is called "Major Maintenance Reserve" (MMR, for short). After investigations, the department took the stand that service tax should have been paid on these two elements also. Accordingly, a show -cause notice was issued by invoking the larger period of limitation and, ultimately, in adjudication thereof, the Commissioner passed the above order.

(2.) IT is the submission of learned senior advocate for the assessee that MMR was an amount lying as a deposit with the assessee's principal viz. M/s. SPCPL and, therefore, no part of that amount was liable to be included in the Gross Taxable Value of the service in question. It is further submitted that the consumables used up in the routine maintenance of the plant had already suffered sales tax both at the hands of the supplier and at the hands of the assessee and, therefore, these items being "goods" and deemed to have been "sold" for purposes of Section 67 of the Finance Act, 1994 cannot be brought into picture in the context of levy of service tax. It is also submitted that, as per the provisions of service tax as understood now and as per a decision of this Bench, the assessee ought not to have paid any tax at all on any amount collected by them from their principal on account of operation and maintenance of plant. In this connection, learned Counsel has referred to our Final Order No. 614 and 615/2007 dated 21.05.2007 in the case of CMS (India) Operations and Maintenance Co. (P) Ltd. v. Commissioner of Central Excise, Pondicherry 2007 -TIOL -892 -CESTAT -MAD. Learned Counsel has also claimed prima facie case on the ground of limitation. It is submitted that nothing was suppressed willfully or otherwise by the assessee, for the department to invoke the larger period of limitation.

(3.) AFTER considering the submissions, we are of the view that learned senior advocate has been able to make out prima facie case against the above demand. In the case of CMS (India) Operations and Maintenance Co. (supra), we had held that operation and maintenance of a power plant did not involve any taxable service in the nature of Management Consultancy, Engineering Consultancy, Clearing and Forwarding, Business Auxiliary Service or Maintenance and Repair Services. In that case, the relevant agreement had not provided for split up of the activities of the power plant operator into these services. The position seems to be similar in the present case also. It is also noticed that the assessee in this case was paying service tax in the category of maintenance and repairs during the period of dispute, albeit by excluding certain elements from the Gross Taxable Value. It is also noteworthy that the factum of exclusion of cost of materials was clearly discernible from the relevant invoices. In the circumstances, prima facie, there is a point in the counsel's submission that there was no suppression by the assessee.