2015 (6) TMI 660 - AT - Service Tax

Valuation - Management maintenance and repair service - Inclusion of entire cost of repair including the cost of various items replaced during the repair of transformers, although the repair work was done under a composite agreement - Held that - Invoices raised by the appellant clearly indicate the value of the goods separately. Not only that the contract itself while giving the rate of repair package clearly stated the value of labour charges and the value of HV/ LV leg oil, transformer oil and supply items. The adjudicating authority has also conceded that the appellant has paid VAT on the items supplied. In these circumstances, we do not find the observation of the adjudicating authority to the effect that in the absence of any specific clause in the contract specifying the quality, make, specification of the items, it would be difficult to concede these a sale even though the service provider has paid VAT on the same legally valid and sustainable. - the appellant was entitled for deduction of the value of the goods supplied during repair of the transformer in which case the impugned demand would not survive as the demand has been computed on the value of such goods on the ground that the value thereof was not excludible from the assessable value - Decided in favour of assessee.

Summary

Issues:
Service tax demand confirmation for repair work including replacement items under a composite agreement; Exemption under Notification No. 12/2003-ST; VAT payment on materials supplied; Interpretation of contract terms; Applicability of service tax on total repair package; Legal validity of adjudicating authority's observations; Deemed sale of goods in works contract; Deduction of value of goods supplied during repair; Assessment of demand based on value of goods.

Analysis:
The appeal was filed against the confirmation of a service tax demand for repair work, including replacement items, under a composite agreement. The appellant paid service tax on labor charges but not on the entire repair cost. The adjudicating authority denied exemption under Notification No. 12/2003-ST due to the absence of specific clauses in the contract specifying the value of replaced items. The appellant argued that the contract clearly mentioned the value of materials supplied, VAT was paid, and they were entitled to exemption as they did not avail cenvat credit on goods.

The Tribunal reviewed invoices and contract terms, finding that the appellant clearly indicated the value of goods separately in invoices and the contract specified the value of labor charges and replaced items. The Tribunal disagreed with the adjudicating authority's observation, citing legal precedents where goods used during repair were deemed sold in works contracts. Referring to a previous case, the Tribunal held that goods deemed sold during repair were not subject to service tax. Consequently, the Tribunal allowed the appeal, stating that the appellant was entitled to deduct the value of goods supplied during repair, rendering the demand invalid as it was based on the non-excludable value of goods.

In conclusion, the Tribunal set aside the impugned order, emphasizing that the appellant was entitled to deduction for the value of goods supplied during repair work. The decision was based on the legal principle that goods deemed sold in works contracts were not subject to service tax, leading to the allowance of the appeal and invalidation of the demand based on the value of goods.