2012 (6) TMI 719 - AT - Service Tax

Valuation (Service Tax) - Goods and materials sold by service provider to recipient of service - Retreading of tyres on job work basis - Maintenance and Repair service - tax paid on labour charges shown in the invoices and did not include cost of tread material procured - Notification No.12/03-ST Held that - Service provider is required to produce documentary proof specifically indicating the value of the said goods and materials so sold by them - invoices unilaterally raised by the appellants indicating the break-up without substantiating the amount attributable to the value of the goods supplied cannot be considered as documentary proof for the purposes of the said notification - assessee has not proved that the conditions under Notification 12/03 ST dated 20.06.2003 have been satisfied and, therefore, they are not entitled to the benefit of deduction of cost of raw materials consumed in providing the impugned service.

Issues Involved:
1. Entitlement to deduction of the cost of raw materials consumed in providing maintenance and repair services under Notification No. 12/2003-ST.
2. Determination of the gross value for service tax purposes.
3. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction of Cost of Raw Materials:
The appellants, engaged in retreading tyres, claimed deduction for the cost of materials consumed during the service under Notification No. 12/2003-ST. The notification exempts the value of goods and materials sold by the service provider from the service tax, provided there is documentary proof indicating the value of the goods and materials.

The Tribunal noted that in similar cases, such as Shilpa Color Lab v. CCE, the deduction was allowed for materials used in providing services, even if there was no actual sale. The Tribunal also referenced the clarification from CBEC, which stated that the value of goods consumed while rendering service need not be included in the taxable value, provided records are maintained.

However, the Technical Member disagreed, stating that the appellants did not provide sufficient evidence of actual sale of materials. The materials were consumed during the service, and the invoices raised by the appellants were not considered adequate proof of sale. The Technical Member concluded that the appellants did not meet the conditions of Notification No. 12/2003-ST and were not entitled to the deduction.

2. Determination of Gross Value for Service Tax:
The Tribunal examined whether the gross value for service tax should include the cost of materials consumed in the service. The Delhi Bench in Speedways Tyre Service v. CCE held that the gross amount charged by the service provider, including material costs, should be subject to service tax.

The Technical Member concurred with this view, stating that the appellants did not sell materials separately but consumed them during the service. Therefore, the gross value, including material costs, should be adopted for service tax purposes.

3. Applicability of Penalties:
The appellants were penalized under Sections 76, 77, and 78 of the Finance Act, 1994. The Vice-President suggested setting aside the penalties, considering the appellants' claim for deduction of material costs. However, the Technical Member upheld the penalties under Sections 76 and 77 but recommended setting aside the penalty under Section 78, as the appellants had already been penalized under Section 76.

Conclusion:
The Third Member, M. Veeraiyan, concurred with the Technical Member, concluding that:
- There was no evidence of actual sale of materials.
- The gross value for service tax should include the cost of materials consumed.
- The penalties under Sections 76 and 77 were upheld, but the penalty under Section 78 was set aside.

The appeal was dismissed regarding the demand for service tax, interest, and penalties under Sections 76 and 77, but the penalty under Section 78 was set aside.

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