2014 (8) TMI 145 - AT - Service Tax

Valuation - Retreading of tyres - Management Maintenance & Repairs Service - Commissioner (Appeals) held that the cost of the rubber used for retreading of tyres is not to be taken into consideration while arriving at the assessable value for the purpose of service tax in view of Notification No. 12/2003-ST - Whether the respondents are entitled for the benefit of Notification No. 12/2003-ST - Held that - as per the provisions of the Notification, there is a specific condition that there should be documentary proof specifically showing the value of material sold. In the present case, the respondents were clearing the goods under the consolidated invoice and uniformly charging taking 60% towards the value of the material and 40% towards service. There is no separate invoice regarding the actual sale of goods and material - in the case of retreading of tyres where the invoices are showing deemed sale of certain percentage of material the benefit of Notification No. 12/2003 is not available. The Tribunal further held that the material used for repairs of tyres cannot be considered as spare - order whereby the Commissioner (Appeals) allowed the benefit of Notification No. 12/2003-ST is set aside and the order passed by the adjudicating authority in this regard is restored - Following decision of Ador Fontech Ltd. 2014 (7) TMI 1008 - CESTAT MUMBAI - Decided in favour of Revenue.

Summary

Issues:
- Interpretation of Notification No. 12/2003-ST regarding the assessable value for service tax calculation.
- Whether the value of goods and materials used in retreading of tyres should be considered for service tax calculation.
- Applicability of penalties under Section 80 of the Finance Act, 1994.

Analysis:
1. The appeal involved a dispute over the assessable value for service tax calculation in the case of retreading of tyres. The Revenue challenged the order of the Commissioner (Appeals) which allowed the benefit of Notification No. 12/2003-ST to the respondents, excluding the cost of rubber used for retreading from the assessable value.

2. The Revenue contended that the respondents were providing retreading services and charging a gross amount, thus arguing that the cost of rubber should be included in the assessable value for service tax calculation. They emphasized the requirement of documentary proof under Notification No. 12/2003-ST to specifically indicate the value of materials sold.

3. In response, the respondents relied on a Supreme Court decision to argue that retreading of tyres falls under works contract, where the value of goods and materials used should not be considered for service tax calculation. They maintained that the value of materials sold was separately indicated in the invoices, with a percentage allocated to material and labor charges.

4. The Tribunal analyzed the provisions of Notification No. 12/2003-ST and emphasized the requirement of documentary proof to indicate the value of materials sold. Since the respondents did not provide separate invoices for the actual sale of goods and materials, the Tribunal found merit in the Revenue's contention. They cited a previous case where it was held that the benefit of the notification is not available when invoices show deemed sale of materials.

5. Regarding penalties, the Tribunal referred to a previous case involving a difference of opinion, leading to a third member referral. In light of this, the Tribunal concluded that the respondents were not liable for penalties under Section 80 of the Finance Act, 1994.

6. Consequently, the Tribunal set aside the Commissioner (Appeals) order granting the benefit of Notification No. 12/2003-ST to the respondents and restored the order passed by the adjudicating authority. The appeal was disposed of accordingly.