2013 (12) TMI 1013 - AT - Service Tax

Demand of service tax - Benefit of Notification No. 12/2003-S.T - whether the cost of spare parts, which the appellant used while repairing transformers is required to be added in the value of the service so provided by them, for the purpose of service tax - Held that - there is clear finding by the Commissioner that the proper taxes have been paid on such goods which are used in providing service. However, he has not extended the benefit to the appellant by simply observing that replacement of parts was an integral condition of the contract and without fulfilling that condition the contract cannot be said as completed. At this prima facie stage, we find that the above observations made by the Commissioner are against the said declaration of the law, in the above referred decisions. At this stage, we also take note of the Board s Circular No. 96/7/2007-S.T., dated 23-8-2007 laying down that the value of spare parts sold by a service provider is not required to be taken into consideration if the same are subjected to levy of sales tax and VAT and there is clear evidence to show the sale of the same. Circular further goes on to say that the fact of payment of VAT/sales tax on a transaction value indicates that the said translation is treated as sale of goods - Prima facie case in favour of assessee - Stay granted.

Summary

Issues:
1. Whether the cost of spare parts used in repairing transformers should be added to the value of the service for service tax purposes.

Analysis:
The appellant had an agreement with U.P. Power Corporation Ltd. for repair and maintenance of transformers. The dispute revolved around whether the cost of spare parts used in the repair should be included in the value of the service for service tax. The lower authorities had held that the cost of materials should be added, denying the benefit of a specific notification to the appellant.

During the hearing, both sides were represented, with the appellant's advocate arguing that sales tax and VAT were paid on the materials used in providing the service. The Tribunal referred to various decisions, including cases like Wipro GE Medical Systems Pvt. Ltd. v. CST, Bangalore, and Imagic Creative Pvt. Ltd. v. CCT, to support the argument that if sales tax and VAT were paid on the materials, they should not be added to the value of the taxable service.

The Commissioner had acknowledged that proper taxes were paid on the goods used in providing the service but did not extend the benefit to the appellant, stating that replacement of parts was an integral condition of the contract. However, the Tribunal found that this observation was against established legal principles and cited a Board's Circular from 2007, which stated that spare parts sold by a service provider need not be considered if subjected to sales tax and VAT. The Tribunal held in favor of the appellant based on the Circular and precedent decisions, allowing the stay petition unconditionally.

The Tribunal disposed of the miscellaneous application and stay petition accordingly, emphasizing the appellant's case and the legal precedents cited during the proceedings.