2014 (7) TMI 279 - AT - Service Tax

Waiver of pre-deposit - Valuation - repair and maintenance of transformers - inclusion of cost of spare parts - Held that - appellants have paid sales tax as also VAT on the material used in providing the said service by them. The ratio of the various decisions of the Tribunal is to the effect that where the sales tax and VAT stands paid on the material it has to be held that the goods were sold by the assessee. In such a scenario, the value of the same, cannot be added in the value of taxable service. 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 transaction is treated as sale of goods. - stay granted.

Summary

Issues:
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, where costs of parts and repair charges were shown separately. The dispute centered around whether the cost of spare parts used in repairs should be included in the value of the service for service tax. Lower authorities held that the material costs should be added, denying the benefit of a specific notification to the appellant.

During the hearing, both sides were represented, and it was noted that the appellants had paid sales tax and VAT on the materials used in providing the service. The Tribunal referred to various decisions, including Wipro G.E. Medical Systems Pvt. Ltd. v. CST, Bangalore, to highlight that when sales tax and VAT are paid on materials, it indicates a sale by the assessee, and the value of the material should not be added to the taxable service.

The Commissioner acknowledged that proper taxes were paid on the goods used in the service but did not grant the benefit to the appellant, citing the integral condition of parts replacement in the contract. However, the Tribunal found this reasoning against established legal principles and referred to a Board's Circular stating that where VAT and sales tax are paid on spare parts, and evidence of sale exists, the transaction is treated as a sale of goods. Relying on this circular and precedent decisions, the Tribunal ruled in favor of the appellant, allowing the stay petition unconditionally.

Ultimately, the Tribunal disposed of the stay petition in favor of the appellant based on the principles established in the circular and previous tribunal decisions.