ST - No Service Tax on value of goods used in repair
IN 2014-TIOL-664-CESTAT-DEL, the CESTAT held that the value of the goods and materials, which are used for the repair of the transformers, on which excise duty/VAT is paid, need not again suffer Service Tax. The Tribunal relied on several decisions to arrive at this conclusion, but Revenue was not impressed and took the matter in appeal to the Allahabad High Court with the following question of law:
"Whether the CESTAT has erred in holding that Service tax is not required to be paid on goods used in the repairing process on which Excise duty and VAT has been paid on the value of the said goods, ignoring the fact that as per the contract the respondents were under an obligation to replace the damaged parts and to maintain the transformers in a proper working condition."
The Commissioner had in his order fairly observed,
"In this regard, I am in agreement with the party's view that while providing any kind of service of repair and maintenance, if any goods are replaced which are separately identifiable and on which proper taxes have been paid, the value of such goods should be excluded from the total value charged for the purpose of levy of Service Tax and the Service Tax should only be charged on the value representing the labour charges etc. as provided under Notification No.12/2003 dated 20.6.2003;
But he found a subtle difference:
but in the instant case, the condition are altogether different as in this contract a complete repair package cost per transformer (capacity wise) is being charged by the party. Further, it has been explained under para 1.2 of the said contract that for the purpose of calculations of price variation of HV/LV Leg Coil, Transformer Oil, excise duty, Sales Tax, the breakup of repair package is being given that means the replacement of parts like HV/LV Leg Coil, Transformer Oil was as part and parcel of condition of the said contract and the party was not having any option not to replace these items etc. which do not find a mention in the said contract.
And so he demanded Service Tax on the entire amount.
The High Court observed,
Tribunal held that merely because the segregation of various items was shown in the contract for the purpose of price variation, the contract would not be regarded as one for providing services inclusive of the value of the goods which were used. The Tribunal relied upon Notification 12/2003-ST, dated 20 June 2003 under which the value of goods and materials sold by the service provider to the recipient of services stands exempted from the service tax leviable thereon subject to the condition that there should be documentary proof specifically indicating the value of the goods and materials.
In the present case, it has been found as a matter of fact that the value of the goods and materials utilized for repair of the transformers is separately disclosed in the agreement and is separately mentioned in the invoices of the assessee. The assessee has paid excise duty or, as the case may be, value added tax on goods used in the repairing process. It was in this factual background, on which there is no dispute that the Tribunal held that service tax could not be demanded on that component representing the value of the goods and materials used for carrying out repairs. The mere fact that the cost of the various items was shown for the purpose of price variation was held not to make any difference to the legal position.
On this finding of fact which was recorded by the Tribunal, no substantial question of law would arise. As a matter of fact, we may note that in the memo of appeal which has been filed by the Revenue, no effort has been made to displace the finding of fact which has been recorded by the Tribunal as being admitted.
And so the Revenue appeal was dismissed.