7. Services must be to a client - two parties

In relation to consulting engineer, the word used is client. In the case of Rolls Royce Industries Power (I) Ltd. v. CCE, the appellant entered into an operation and maintenance agreement with the owner of a power station. The terms of the contract vested complete freedom and responsibility on the appellant, without any interference by the owner. The owner’s right was restricted to entry and access, to be satisfied that the operation was carried out according to standards. He also received reports about the relevant aspects of operation, status and output. The payment for operation and maintenance was determined under the various clauses of the contract. In addition to the lump sum payment, it also provided for bonus and penalty. The terms of the contract did not envisage or involve providing any consulting or engineering help to the owner. The operator was fully autonomous and responsible for the performance of operation and maintenance. Whatever engineering issues were involved, it was for the operator to find solutions for, and attend to in the course of operation and maintenance. He was not required to render any advice or to take any orders from the owner. He could not pass on the responsibility for operating the plant in any manner to the owner. So on the basis of these facts, the Tribunal held that there were no two parties, one giving advice and the other accepting it. Service tax is attracted only in a case involving rendering of service. That situation did not take place in the instant case. So in case of pure contract of works/hire etc., service tax is not payable.