2013 (8) TMI 145 - AT - Service Tax

Valuation - exclusion of cost of goods sold - Service tax only on Labour Charges under Management, Maintenance or Repair service and are not paying service tax on entire cost of repair including the cost of various items replaced during the repair of transformers though said repair is being done under a composite agreement - During the course of repairs, Respondents are replacing LV/HV Leg coils, Transformer Oil and other items - Contract shows that rates quoted in contract are exclusive of Excise duty, VAT/Sale Tax and Service tax. There is no dispute that the VAT has been paid by the Respondents on cost of LV/HV Leg coil, Transformer oil other supplies items Notification No. 12/2003-Service Tax dated 20.6.2003 Held that - Under Notification No. 12/2003-Service Tax dated 20.6.2003, value of goods and material sold by the service provider to service recipient is exempted subject to the condition that there is documentary evidence indicating value of goods/material - Value of goods/material is separately shown in contract itself for each category of transformers. Moreover VAT has been paid on these goods/materials. Therefore there is no reason to deny the benefit of Notification No. 12/2003 dated 20.06.2003 to the Respondents Decided against the Revenue.

Summary

Issues:
Appeals challenging service tax on repair of transformers; Applicability of Notification 12/2003; Interpretation of composite agreements.

Analysis:
The judgment involves six appeals filed by the Commissioner of Central Excise and Customs and Service Tax, Allahabad, collectively addressing the issue of service tax on repair of transformers. The Respondents, engaged in repairing old and damaged transformers, were registered for providing taxable services under Management, Maintenance, or Repair service. The Department alleged that the Respondents were only paying service tax on labor charges and not on the entire repair cost, including replaced parts, under composite agreements. Show Cause Notices were issued demanding service tax, interest, and penalties. The original authority ruled in favor of the Respondents, prompting the Revenue to challenge these decisions in the appeals.

The Revenue contended that the replacement of parts during transformer repair was ancillary to the main repair service, emphasizing that the Respondents should pay service tax on the total repair cost. They argued that the decision in the case of Wipro Ge Medical System Ltd. was not applicable post the amendment of Section 67 in 2006. On the other hand, the Respondents, represented by Sh. K. S. Gupta, argued that the replaced parts were separately accounted for and subjected to Sales Tax/VAT, justifying the dropping of proceedings against them.

Upon reviewing the appeal records, it was observed that the Respondents replaced various parts during transformer repairs, such as LV/HV Leg coils and Transformer Oil, while only paying service tax on labor charges. The dispute revolved around whether the Respondents should pay service tax on the entire repair cost, including replaced parts, and whether they were eligible for the exemption under Notification 12/2003 dated 20.06.2003.

The Tribunal examined the contracts and found that the repair cost included labor charges, costs of LV/HV Leg Coils, Transformer Oil, and other supply items, with separate payments made for VAT on these items. Referring to Notification No. 12/2003, the Tribunal noted that the value of goods and materials sold by the service provider was exempted from service tax, provided there was documentary proof of the value. As the contracts specifically indicated the value of these goods and materials, and VAT had been paid on them, the Respondents were deemed eligible for the exemption.

The Tribunal rejected the Revenue's argument that the amendment to Section 67 rendered the Wipro Ge Medical System Ltd. decision inapplicable, emphasizing that Notification No. 12/2003 remained in force, thereby upholding the Orders-in-Original and dismissing the appeals filed by the Revenue. Additionally, the cross objections were also disposed of in the judgment.