2016 (1) TMI 704 - AT - Service Tax

Management, Maintenance and Repair service - Liability of service tax - inclusion of Value of goods - cost of the goods supplied during repair - Held that - Having considered the rival contentions and in view of the settled legal position in the case of Samtech Industries (2014 (4) TMI 995 - CESTAT NEW DELHI), upholding the order of this Tribunal by the Hon ble High Court of Allahabad 2014 (8) TMI 1023 - ALLAHABAD HIGH COURT and also in view of the letter of the CBE&C accepted the legal position that the cost of items supplied/sold and there is documentary proof specifically indicating value of the goods, the demand of Service Tax against the assessee for the cost of the goods supplied during repair does not appear sustainable. In this view of the matter, we set aside the impugned order and allow the appeal with consequential benefits. - Decided in favour of assessee.

Summary

Issues:
1. Applicability of Service Tax on spare parts and lubricants used in servicing of motor vehicles.
2. Interpretation of Service Tax (Determination of Value) Rules, 2006.
3. Validity of penalty imposed under Sections 76, 77, and 78 of the Finance Act.

Analysis:
1. The appellant, an Authorized Service Station of Motor Vehicles, faced a show-cause notice for not paying Service Tax on the value of spare parts and lubricants used during servicing, contrary to Rule 5 & 6 of Service Tax (Determination of Value) Rules, 2006. The Revenue argued that the spare parts and consumables, if consumed during servicing and not available for sale, are integral to the service and subject to Service Tax. The appellant contended that they pay VAT on spare parts separately and Service Tax on labor charges, thus no Service Tax should apply to the sale of goods.

2. The Order-in-Original confirmed a reduced amount, considering the appellant's prior deposits, and imposed penalties under Sections 76, 77, and 78 of the Finance Act. The Commissioner (Appeals) upheld this order, leading to the appellant's appeal before the Tribunal. The appellant cited a precedent where Service Tax was not applicable on goods sold separately with VAT paid, emphasizing that the value of goods used for services, with separate invoices and VAT payment, should not attract Service Tax.

3. The Tribunal, referencing the settled legal position from previous cases, ruled in favor of the appellant. It noted that when goods are separately invoiced with VAT paid, Service Tax should not apply to the value of those goods in the service transaction. The Tribunal set aside the impugned order, allowing the appeal and providing consequential benefits to the appellant. The decision was influenced by the acceptance of the legal position by the Board, as indicated in their letter dated 27.9.2013, further supporting the appellant's stance.

This judgment clarifies the treatment of spare parts and consumables in service transactions for Service Tax purposes, emphasizing the importance of separate invoicing and VAT payments on goods supplied during services to determine the assessable value.