By TIOL News Service

NEW DELHI, FEB 13, 2017: THIS is a Revenue appeal.

The respondent is engaged in the business of developing windfarm and related activities.

The respondent entered into an MOU with M/s. Vestas-RRB for sharing of work and responsibilities in operationalising the said wind farm with a capacity to install 25 windmills at Kadarkhow Hills, Madhya Pradesh .

Revenue entertained a view that the respondents were providing various taxable services like erection, commissioning or installation services, Commercial or industrial construction services, scientific and technical consultancy services to M/s. VestasRRB and, therefore, are liable to pay Service Tax of Rs.39,42,111/-.

The original authority confirmed the demand and imposed a penalty of Rs.40,00,000/-.

The Commissioner(A) dropped the demand and, therefore, Revenue is before the CESTAT.

Whereas the AR reiterated the grounds of appeal, the respondent submitted that the MOU is not the work order from one party to another party but is to demarcate the intent and the scope of joint arrangement;that the respondent obtained the land and has right over the development of such land to generate wind power; that for financing the project they have entered into the said MOU with M/s. VestasRRB , so that the required wind mills can be supplied by the other party without payment being made by the respondent; that the arrangement is that the amount shall be collected from the potential investors, who will become interested in the project on development of the same as a viable wind farm;that to attract the investors, it is necessary to have a proper infrastructure and to develop the same M/s. VestasRRB advanced money based on the progress in the work; that these payments are not towards any services rendered by the respondent; that M/s. VestasRRB are not managing the wind farm or will never get possession of the said wind farm for any operation or for profit; that wind farm will continue to be in control of the respondent and the investors will be paying back the money to M/s. VistasRRB for having the wind mills installed;that in such an arrangement the MOU does not lead to the service provider-recipient relationship and there is no consideration of payment for any such service and wherever services are provided like maintenance, repair etc. of the wind farm, the respondents are discharging service tax.

The Bench observed -

++ On factual appreciation of the background of the case, it is recorded that the respondents developed the required infrastructure or other civil requirements by getting the work done from various sub-contractors. They were actually the recipients of these services.

++ Respondent shared certain responsibilities with M/s. VestasRRB towards operationalising the wind farm. There is no agreement to provide or receive service between the parties in the MOU. Both the parties are mutually interested in attracting the investors to invest in the wind farm and to operationalise 25 wind mills for mutual benefit.

++ In the show cause notice, as well as the original proceedings the nature of service, taxable classification and consideration attributable to such individual services have not been indicated at all. The amount received from M/s. VestasRRB in terms of the MOU was summarily considered as a consideration for taxable service without examination and pointing out the nature of service and its classification.

Holding that there is no merit in the appeal by the Revenue, the same was dismissed.

(See 2017-TIOL-408-CESTAT-DEL)