2014 (2) TMI 709 - AT - Service Tax

Waiver of pre-deposit - Valuation - reimbursement of expenses - Servicing and repair of two wheeler motor vehicle as an authorized service station - from 2006-2007 to 2009-2010 (upto September) - Held that - the appellant in their invoices show the value of the service component and the value of the spare parts and consumable used separately and while pay Sales Tax/VAT on the amount charged for spare parts and consumables, the service tax is paid only on the labour/service component. - Hon ble Delhi High Court in case of Intercontinental Consultants & Technocrop Pvt. Ltd. vs. Union of India 2012 (12) TMI 150 - DELHI HIGH COURT has held that Rule 5 (1) to be ultra vires the provisions of Section 66 and 67 of the Finance Act, 1994. No judgment of the Apex Court staying or reversing this judgment of Hon ble Delhi High Court or of any other high expressing a contrary view has been shown. - stay granted.

Summary

Issues:
1. Whether the appellant is liable to pay service tax on the gross amount charged, including the value of spare parts and consumables used in servicing?
2. Whether the appellant has a prima facie case in their favor justifying a waiver from the requirement of pre-deposit for hearing the appeal?

Analysis:
1. The appellant, a dealer of two-wheeler motor vehicles, was found to be paying service tax only on the labor/service component of the bills, excluding the value of spare parts and consumables used in servicing. The Department contended that as per Section 67 read with Service Tax (Determination of Value) Rules, 2006, the appellant should pay service tax on the gross amount charged, including the value of spare parts. A show cause notice was issued for a substantial service tax demand, interest, and penalties. The Commissioner upheld the demand. The appellant argued that since they separately charged for service and spare parts, paying VAT on spare parts, the value of spare parts should not be included in the assessable value for service tax. They cited Circulars and Tribunal decisions supporting their stance. The Tribunal acknowledged the separate nature of the transactions for service and sale of spare parts. It noted that when VAT is paid on spare parts, indicating a sale, such value should not be included in the service tax. The Tribunal also referenced exemption Notifications and previous Tribunal decisions granting stays in similar cases. Additionally, the Tribunal highlighted a Delhi High Court judgment deeming Rule 5(1) of the Service Tax Rules ultra vires, further supporting the appellant's case. Consequently, the Tribunal waived the pre-deposit requirement and stayed the recovery of service tax demand, interest, and penalties pending the appeal.

2. The Tribunal considered the arguments from both sides and examined the records. It observed that the appellant's transactions involved both service and sale of spare parts, which were clearly distinguishable. The Tribunal found a prima facie case in favor of the appellant, emphasizing that when there is a sale of goods, the benefit of exemption Notifications should apply if conditions are met. Referring to previous Tribunal decisions and a Delhi High Court judgment, the Tribunal concluded that the appellant had a strong case. Therefore, the requirement of pre-deposit for the service tax demand, interest, and penalties was waived for the appeal hearing, and recovery was stayed. The Tribunal granted the stay application and disposed of the miscellaneous application for early hearing.