2014 (1) TMI 616 - AT - Service Tax

Demand of service tax - Imposition of penalties under Section 76, 77 and 78 - Service tax on the entire value of spare parts sold - Held that - It would appear that even in a case of composite transaction involving sale of goods and rendering of service, if the bill/invoices issued clearly shows payment of sales tax/VAT on the spare parts, then the value of such spare parts would not be includable in the gross consideration received for rendering of service. The Commissioner has not considered these submissions made by the appellant and also the clarifications issued on the matter. Therefore, we are of the considered view that the mater has to go back to the adjudicating authority for fresh consideration. First of all, all the transactions involving only sale of spare parts should be excluded for the purpose of computation of service tax demand. Secondly, even in a case where the transaction involves both sale of spare parts and also rendering of service, the value of sale of spare parts should be excluded if sales tax/VAT liability has been discharged on such sales as is evident from the invoices/bills issued in this regard - Decided in favour of assessee by way of remand.

Summary

Issues:
Service tax liability on spare parts sold during repair services.

Analysis:
The appeal and stay application were filed against an Order-in-Original passed by the Commissioner of Central Excise & Service Tax, Nagpur. The case involved M/s. Sudarshan Motors, Nagpur, who were service agents for Honda cars and also supplied spare parts during repair services. The department issued a notice demanding service tax on the value of spare parts sold during repair services, which the appellant had not included in the consideration for their services. The appellant argued that service tax cannot be levied on spare parts sales as they had already discharged VAT liability on those sales. They cited circulars and a Tribunal decision supporting their position. The Revenue contended that goods used in providing services should be treated as inputs forming part of the taxable service value. The Tribunal noted that in cases of pure spare parts sales, service tax would not apply. For transactions involving both spare parts sales and services, if VAT had been paid on spare parts, their value should be excluded from the service tax computation. The matter was remanded back to the adjudicating authority for fresh consideration, directing the appellant to provide necessary evidence.

Therefore, the appeal was allowed by way of remand, and the stay application was disposed of.