The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) quashed service tax demand thereby holding that heavy water attracts nil rate of duty and hence are classifiable as excisable goods.
The department during the course of audit of the appellant’s books of accounts found that the appellant have not paid service tax on the amount which has been received by them from the Heavy Water Board, Department of Atomic Energy and therefore, show cause notice covering the period from July 2003 to March 2004 was issued demanding service tax under the category of “Management or Repair Service” and demanded service tax of Rs. 1,02,33,701/- under Section 73 of the Finance Act, 1994. The show cause notice also invokes the provisions of Section 75 for the purpose of demanding interest as well as penalties under Section 77 and 78 of the Finance Act, 1994.
Jigar Shah, Counsel appearing along with Shri Amber Kumarawat submitted that in the first show cause notice dated 16.06.2005 whereunder demand has been made for the period July 2003 to March 2004 the department in this show cause notice dated 16.06.2005 had proposed to demand of service tax for the entire gross amount received by the appellant under the head “Maintenance or Repair Service”.
Since the Heavy Water plant is not in the nature of movable property, therefore no demand of service tax of the activity of operation and maintenance of Heavy Water plant can be made under the category of Maintenance or Repair Service for the period prior to 16.06.2005. It has further been stressed by the learned Advocate that the Adjudicating Authority has not given any reasoned findings in the impugned orders-in-original as to how the activity of operation of Heavy Water plant gets covered under the head of Maintenance or Repair Service and therefore, the impugned order-in-original is bad in law and needs to be set-aside.
A Two-Member Bench comprising Ramesh Nair, Judicial Member and CL Mahar, Technical Member observed that “We take note of the fact that the consideration which were received by the appellant were for operating the Heavy Water plant and production of Heavy Water which was the main activity and the other activities carried out by the appellant were incidental to the main activity and are undertaken for smooth functioning of Heavy Water plant. We find that the appellant has acted in operation and maintenance of Heavy Water plant for generation of Heavy Water which falls under CETH 28.45 Central Excise Tariff Act, 1985 and attracts nil rate of duty.”
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