2014 (6) TMI 796 - AT - Service Tax

Management, maintenance or repair service - Exclusion of value of material - appellant disclosed 30% of the consideration received, assuming that 70% of the consideration received (asserted by the appellant to be on the basis of an industry norm ) to represent the value of goods and raw materials deemed to have been sold to the recipient of the service. - Held that - wherever there are complex transactions including components of service and sale of goods (actual or deemed), the taxable value for levy of service tax would be only the component of service but excluding the component of sale of goods. Accordingly, on this interpretation of the provisions of Section 67 the value of goods sold or deemed to have been sold, requires to be excluded from the taxable value for computation of service tax liability. Consequently, provisions of Notification No. 12/2003 merely explicate the inherent intent of Section 67 of the Act - appellant is entitled to claim exclusion of the value of the goods and raw materials claimed to have been sold to the recipient of the service as part of the management, maintenance or repair agreements and works executed in pursuance thereof. Since the adjudication order proceeds on the flawed premise and presumes that the value of goods and material deemed to have been sold is not liable to exclusion either under the provisions of Section 67 or qua Notification No. 12/2003, the order invites invalidation and is accordingly quashed. The matter is however, remitted to the adjudicating authority for denovo disposition - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of service tax on 'management, maintenance or repair' service and renting of immovable property.
2. Applicability of Notification No. 12/2003-ST and provisions of Section 67 of the Act.
3. Exclusion of the value of goods and raw materials from the taxable value for service tax computation.

Analysis:

1. The judgment involves the confirmation of service tax on two aspects: 'management, maintenance or repair' service and renting of immovable property. The impugned order confirmed service tax on the appellant for providing these taxable services during the period from April 2005 to March 2010. The appellant's contention regarding the ambiguity of renting immovable property as a taxable service was dismissed, citing legislative dynamics and judicial precedents establishing its taxable nature.

2. The adjudicating authority negated the appellant's claim for the benefits of Notification No. 12/2003-ST, stating that the exclusion of the value of goods deemed to have been sold was not accommodated in the taxable value calculation as per Section 67 of the Act. The authority highlighted discrepancies in the appellant's invoicing and balance sheet regarding the material consumed, leading to the rejection of the claim under the said notification.

3. The judgment delves into the interpretation of Section 67 of the Act in light of the recent decision of the Delhi High Court in G.D. Builders & Others vs. Union of India. It clarifies that in complex transactions involving service and sale of goods, the taxable value for service tax levy should exclude the component of sale of goods. Consequently, the provisions of Notification No. 12/2003 were deemed to elucidate the intent of Section 67, allowing exclusion of the value of goods and raw materials deemed to have been sold from the taxable value for service tax computation.

4. As a result of the analysis, the impugned adjudication order was quashed due to the flawed premise regarding the exclusion of the value of goods and materials from the taxable value. The matter was remitted to the adjudicating authority for fresh consideration. The appellant was granted the opportunity to provide proof of the value of goods and materials deemed to have been sold within a specified timeframe, failing which the authority was directed to proceed with the adjudication based on available records.

5. Ultimately, the appeal was allowed, and no costs were imposed on the appellant. The judgment emphasized the importance of excluding the value of goods and raw materials from the taxable value for service tax computation in cases involving complex transactions combining service and sale of goods.