2012 (11) TMI 881 - AT - Service Tax

Demand of service tax retreading of old tyres of the customers - whether the value of material used for retreading is to be added to the assessable value of the service for the purpose of service tax - Notification No.12/03-ST Held that - In the case of Aggarwal Colour Advance Photo System ((2011 (8) TMI 291 - CESTAT, NEW DELHI (LB)) - value of photographic material is to be added to the assessable value of the service prima facie case against the assessee - stay granted partly.

Summary

Issues:
- Demand of service tax on retreading activity
- Applicability of Notification No.12/03-ST for exemption
- Inclusion of material value in assessable value for service tax

Analysis:
1. The case involved a dispute regarding the demand of service tax on the retreading activity undertaken by the applicants, categorized under "Maintenance and Repair Service." The applicants claimed exemption under Notification No.12/03-ST, which provides relief from service tax equal to the value of goods and materials sold to the recipient of service.

2. The contention put forth by the applicants was that they sell the main material, rubber, separately to customers after paying VAT, and pay service tax only on charges for the retreading process. They argued that as per the notification, when materials are sold separately and shown in invoices, the material value should not be included in the assessable value for service tax purposes.

3. The Revenue, however, relied on a Tribunal decision in a similar case where the benefit of the said notification was denied. Additionally, they referred to a Larger Bench decision concerning photographic services, where the value of photographic material was required to be added to the assessable value for service tax, even if sold separately. The Revenue contended that total waiver of service tax was not justified.

4. The Tribunal acknowledged that the applicants were indeed providing a taxable service of retreading old tires but emphasized the crucial issue of whether the value of material used should be considered for service tax calculation. Citing the previous Tribunal decision and the Larger Bench ruling, the Tribunal found in favor of the Revenue, stating that the applicants had not established grounds for a complete waiver of service tax.

5. Consequently, the Tribunal directed the applicants to pre-deposit a specified amount within a given timeframe, with the remaining dues waived and recovery stayed during the appeal process. This decision was made after considering the facts and circumstances of the case, emphasizing the need for compliance by a specific date.

In conclusion, the judgment upheld the demand for service tax on the retreading activity, denied the total waiver of service tax based on applicable notifications and precedents, and required the applicants to make a pre-deposit to proceed with the appeal process.