2013 (12) TMI 154 - AT - Service Tax

Waiver of pre deposit - Composite contract for Sale and service - Benefit of Notification No.19/2003-ST and Notification No.1/2006-ST - Section 65(105)(39a) - sale, supply and installation of Computers and Software - Held that - prima facie, explicate the principle that the value of a transaction which is liable to or has been assessed to levy of sales tax must be considered outside the scope of the taxable value for the purpose of levy of Service Tax, under the Act. This apart, the process followed by the adjudicating authority in suo motu applying the benefits of exemptions Notifications and failing to assess the taxable value of the services provided or in analyzing the validity of the Petitioner s claim that only 2% of the value of the contracts was attributable to the taxable service component, appears fallacious - Stay granted.

Summary

Issues:
Waiver of pre-deposit of adjudicated liability sought.

Analysis:
The petitioner, a computer hardware and software producer, entered into contracts for sale, supply, and installation of computers and software with various entities. The contracts varied in structure but all required the petitioner to supply and install specified hardware and software. The petitioner treated some contracts as composite transactions involving both sale and service due to installation and commissioning activities. The petitioner self-assessed the service component's value based on the total contract value, offering 2% as the taxable service value under Section 65(105)(39a) of the Finance Act, 1994. However, the adjudicating authority rejected this claim, considering the total contract values with different parties as the gross taxable value and applied Service Tax rates, disregarding the petitioner's assessment and the exemption under Notification No.1/2006-ST.

On the interpretation of Notification No.19/2003-ST and Notification No.1/2006-ST, it was found that exemptions/abatements could be claimed at the assessee's option and not imposed by the adjudicating authority. The authority should have assessed the taxable value based on available material or called for further particulars if unsatisfied with the petitioner's assessment, instead of applying exemptions suo motu. Reference was made to judgments emphasizing that the value subject to sales tax should be excluded from the taxable value for Service Tax purposes.

The Tribunal granted waiver of pre-deposit and stayed further proceedings, finding the adjudicating authority's approach flawed in applying exemptions without proper assessment of taxable value and disregarding the petitioner's claim. The core issue revolved around excluding sales tax value from the taxable value for Service Tax levy. The Tribunal's decision was based on the fallacious process followed by the authority, leading to the grant of relief to the petitioner pending final disposal of the appeal.