The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi Bench ruled that no Service Tax can be levied in absence of consideration or service.
The appellant, Ruchi Soya Industries has set up a project for generating electricity using wind energy consisting of one Suzlon made Wind Turbine Generators (WTG) having output of 1500 KW electricity. The appellant requested the operator of said WTG M/s. Suzlon Global Services Ltd. (SGSL) to maintain the said WTG. SGSL inter alia is in the business of operating, managing and maintaining wind farms for projects for generation of wind energy by means of WTG. Hence, they accepted the aforesaid request of the appellant vide agreement so entered between them.
The Department observed that as per the said agreement M/s. SGSL has agreed for providing maintenance services to the appellant who shall be liable to pay operation and maintenance service charges to M/s. SGSL against the invoices as were to be raised from time to time by M/s. SGSL. However, there has been a Machine Availability clause in the said agreement. For the purpose thereof M/s. SGSL had issued credit notes on the appellant for the claims raised by the appellant towards Machine availability due to break down in WTGs.
Forming an opinion that under section 65 B(44) of Finance Act, 1944, services includes ‘Declared Services’ defined under section 66(e) of Finance Act, the department issued a show cause notice to the appellant alleging that “agreeing to the obligation to tolerate the Act” as per said Machine Availability clause amounts to declared services as envisaged under section 66E(e) of Finance Act, 1944, and thus the amount received, through credit notes, by the appellant i.e. Rs.1.33 crores from M/s. SGSL during the period 2015-16 was alleged to be service liability of the appellant towards said ‘Declared Services’ and as such, the Service tax of Rs.19,34,212/- was proposed to be recovered from the appellant along with appropriate interest and the proportionate penalties. This proposal was confirmed vide the order-in-original.
R Sudhinder, Counsel for the appellant the appellant has been the owner of WTG and it is M/s. SGSL who has been in the business of operating, managing and maintaining the said WTGs; The agreement was executed between the two vide which M/s. SGSL agreed to provide services to the appellant for maintaining his WTG. It is impressed upon that this fact is sufficient to show that the appellant was the service recipient and M/s. SGSL was the service provider. It is further submitted that though there has been a clause in the said agreement that in case Machine Availability falls between below 95.5% and upto the machine availability of 92.5 %, then the M/s. SGSL shall compensate to the owner an amount from the service charges recovered, so as to warrant an annual average machine availability of 95.5% per year in the WTG under the said agreement.
The coram of Judicial Member Rachna Gupta held that the amount received by the appellant in terms of Machine Availability clause, from the service provider with reference to maintenance of WTG due to shortcoming in said service is merely an amount to safeguard the loss of appellant. The said amount cannot be called as consideration for the tolerance of service provided and some lacunae thereof nor it makes the appellant the service provider. Infact once the appellant receives compensation for the downfall in service quality, it is because he is not inclined to tolerate the loss as he may suffer on account of said downfall. The concept of ‘Declared Services’ has therefore been wrongly invoked by the Department and the adjudicating authority below. Service recipients cannot be fastened with any liability to pay tax.
Therefore, the Tribunal relied on the decision of Apex Court in the case of Association of Leasing and Financial Service Companies vs. Union of India wherein it has been held that when no service has been rendered, service tax cannot be levied.
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