2014 (11) TMI 713 - AT - Service Tax

Management, maintenance or repair service - business of retreading of old and used tyres - Held that - there is a demand of tax on the material portion alone. It is seen from the said adjudication order that the appellants contended that they are paying sales tax/VAT on the materials at the time of purchase and also at the time of delivery of retreaded tyres since it is a works contract service and the transfer of property amounts to sale as per Article 366 (29A) of the Constitution of India. It is further seen from the adjudication order that appellant had adduced sales invoices, sales tax returns, VAT returns and sales tax assessment orders to prove that transfer of property in the retreading activity is leviable to sales tax. - Following decision of G.D. Builders Vs UOI 2013 (11) TMI 1004 - DELHI HIGH COURT - Matter remanded back - Decided in favour of assessee.

Summary

Issues Involved:
1. Demand of service tax on retreading of old and used tyres under "management, maintenance or repair service".
2. Applicability of service tax on the service component of a composite contract.
3. Interpretation of relevant legal principles based on the judgment of the Hon'ble Delhi High Court in G.D. Builders Vs Union of India.

Analysis:

1. The judgment addresses the issue of demand of service tax on retreading of old and used tyres categorized under "management, maintenance or repair service". The appellants contended that they are already paying sales tax/VAT on materials at the time of purchase and delivery of retreaded tyres due to it being a works contract service, where the transfer of property constitutes a sale as per Article 366 (29A) of the Constitution of India. The adjudication order highlighted the evidence provided by the appellants, including sales invoices and tax returns, to support their position.

2. The tribunal delved into the applicability of service tax on the service component of a composite contract based on the judgment of the Hon'ble Delhi High Court in G.D. Builders Vs Union of India. The High Court emphasized that service tax can be levied on the service component of a composite contract, and the notifications regarding this are optional. The judgment outlined various principles, including the bifurcation of composite contracts, the procedural nature of computing the service component, and the voluntary nature of seeking coverage under notifications. It clarified that an assessee can choose to comply with the terms of notifications to benefit from them.

3. The judgment extensively quoted the High Court's decision, emphasizing the importance of adhering to the terms and conditions of notifications for claiming benefits. It highlighted that the notifications provide a non-discretionary formula for computing the service element in a composite contract, aiming to reduce ambiguity and ensure clarity. The tribunal, in line with the Delhi High Court's ruling, set aside the impugned order and remanded the matter to the adjudicating authority for a fresh decision, considering the legal principles discussed in the judgment. The authority was instructed to provide a reasonable opportunity for a hearing before making a decision, ultimately allowing the appeal through remand.

In conclusion, the judgment provides a detailed analysis of the issues related to the demand of service tax on retreading services and the application of service tax on the service component of composite contracts, drawing insights from the legal principles established by the Hon'ble Delhi High Court.