2017 (10) TMI 1379 - AT - Service Tax

Valuation - maintenance of repair services - Inclusion of cost of materials in the total value of taxable services - demand of differential service tax along with interest and penalty - Held that - It is not disputed that the appellant discharged service tax liability on the labour portion of the value received for the services. They have availed benefit of N/N. 12/2003-ST by deducting the cost of material - the issue is decided in the case of SAFETY RETREADING COMPANY (P) LTD. 2017 (1) TMI 1110 - SUPREME COURT where it was held that assesee can avail benefit of N/N. 12/2003 to deduct cost of materials when the service is executed under a composite contract containing labour as well as cost of material - demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues: Interpretation of Notification No.12/2003-ST regarding exclusion of cost of materials from service tax liability in maintenance and repair services.

Analysis:
1. The appellants, registered under maintenance and repair services, were required by the department to include the cost of materials in the total value of taxable services for service tax liability. The dispute arose when a show cause notice was issued proposing a demand for the differential amount of service tax, interest, and penalty due to the exclusion of the cost of materials by the appellants.

2. The appellant argued that they were eligible to exclude the cost of materials as per Notification No.12/2003-ST, and had correctly discharged their service tax liability. They relied on the decision of Safety Retreading Co. (P) Ltd. Vs CCE Salem, where the Supreme Court held that the assessee could deduct the cost of materials when the service was executed under a composite contract containing labor and material costs.

3. The department, represented by the learned A.R Shri K.Veerabhadra Reddy, reiterated the findings of the impugned order, supporting the inclusion of the cost of materials in the service tax liability.

4. The Tribunal, after hearing both sides, acknowledged that the appellant had discharged their service tax liability on the labor portion of the services and had availed the benefit of Notification No.12/2003-ST by deducting the cost of materials. The Tribunal referred to the Supreme Court decision in Safety Retreading Co.(P) Ltd. and concluded that the demand made by the department was unsustainable. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief as per the law.

This judgment clarifies the interpretation of Notification No.12/2003-ST in the context of maintenance and repair services, affirming the right of the appellant to exclude the cost of materials from their service tax liability, as established by the Supreme Court precedent in Safety Retreading Co.(P) Ltd. The decision provides a significant legal precedent for similar cases involving the exclusion of material costs in service tax calculations under composite contracts.