2014 (3) TMI 226 - AT - Service Tax

Penalties under Sections 76, 77 and 78 - Value of spare parts were not included in the consideration received for repair services and service tax liability had not been discharged on the value of such spare parts - Circular No. B.11/1/2001-TRU, dated 9-7-2001 - Held that - From the reading of the above circular, 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 includible 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 matter 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.

Summary

Issues:
Service tax liability on spare parts sold during repair services; Interpretation of circulars and previous judgments; Consideration of sales tax/VAT liability on spare parts in service tax computation.

Analysis:
The judgment involves a dispute regarding the service tax liability on spare parts sold during repair services by an authorized service agent for motor cars. The appellant argued that the spare parts' sale and service are distinct, and service tax cannot be levied on spare parts sold during repair services. They relied on Circular No. B.11/1/2001-TRU and a previous Tribunal decision supporting their stance. The Revenue contended that goods used in providing services are integral to the taxable service value, as per Master Circular No. 96/7/2007-S.T. The Tribunal considered these arguments and documents submitted by the appellant.

The Tribunal found that the Commissioner had incorrectly included transactions involving only spare parts sales in the service tax computation. The judgment emphasized that if a transaction solely involves spare parts sale, service tax should not apply. Regarding transactions involving both spare parts sale and service, the Tribunal referred to the Master Circular's provision that service tax is not applicable if sales tax/VAT is paid on spare parts. The Tribunal noted that the Commissioner did not consider these submissions and directed a fresh consideration.

Conclusively, the Tribunal allowed the appeal by remanding the case for reconsideration by the adjudicating authority. The appellant was instructed to provide evidence supporting their contention that spare parts sales with discharged sales tax/VAT liability should be excluded from service tax computation. The stay application was also disposed of in light of the remand decision.