2013 (8) TMI 745 - AT - Service Tax

Marketing, Selling and After Sales Services - Valuation - assesse was not paying service tax on cost of spare parts reimbursed Revenue was of the view that the assesse should had paid service tax on the value of service inclusive of the material used - Held that- There cannot be levy of service tax on value of spare parts used in repair service of motor vehicles - In such activity the cost of materials and the service itself can be clearly vivisected and was perceived as separate components by customers relying upon BSNL Vs. UOI 2006 (3) TMI 1 - Supreme court - there was no proof regarding value of goods involved the reimbursement claims for value of goods show the items used and price of each item. The argument of Revenue that spare parts of motor vehicles used in repair was of the same nature as chemicals used in photography because the former are in the nature of spare parts where a sale prior to replacement is acceptable as a concept and the latter has the nature of consumables cannot be accepted Rule 6 (1) (vi) of Service tax (Determination of Value) Rules 2006 does not specifically state that the rule was about cost of spare parts. Prima facie case is in favor of assessee - stay granted.

Summary

Issues:
Service tax on cost of spare parts reimbursed by manufacturer to authorized dealer for free services provided.

Analysis:
The case involved a dispute regarding the payment of service tax on the cost of spare parts reimbursed by a manufacturer to an authorized dealer for free services provided to buyers of two-wheelers. The applicant, an authorized dealer, contended that no service tax was payable on the value of spares reimbursed as it represented the value of a transaction of goods, not services. The applicant relied on legal precedents, including a Supreme Court decision, to support their argument that in a composite transaction involving the sale of goods and provision of services, tax could not be levied by both authorities on the same aspect.

The applicant also sought exemption under notification 12/2003-ST, which provides exemption for the value of goods sold by the service provider while rendering services. The Counsel argued that the reimbursement of expenses by the manufacturer for services provided did not constitute a sale of goods to the manufacturer, hence the exemption should apply.

On the other hand, the Revenue argued that the value of spare parts was essential for providing the service and should be included in the assessable value for service tax purposes. The Revenue relied on legal provisions, including Rule 6 (1) (vi) of the Service Tax (Determination of Value) Rules 2006, which specifically included reimbursement received for carrying out services of motor vehicles in the assessable value.

After considering the arguments from both sides, the Tribunal held that the spare parts used in the repair service of motor vehicles should not be subject to service tax. The Tribunal noted that the cost of materials and the service itself could be distinguished as separate components by customers. Additionally, the Tribunal found that there was sufficient proof regarding the value of goods involved through reimbursement claims, and hence, there was no merit in the Revenue's argument to sustain the demand for service tax on spare parts.

Consequently, the Tribunal granted a waiver of pre-deposit of dues arising from the impugned order for admission of appeal and stayed the collection of such dues during the pendency of the appeal. The decision was pronounced in open court on 21.5.13.