2017 (6) TMI 1324 - AT - Service Tax

Levy of Service Tax - gross value of spare parts used for servicing of the vehicles by authorized service station - Board s Circular No. 96/7/2007-ST dated 23.08.2007 - HELD THAT - When the subject transactions involve sale of spare parts on which sales tax/ VAT has been levied, there is no question of charging service tax on the gross value of the subject spare parts used in servicing of motor vehicles by the authorized service station. The Tribunal in the case of M/S. SAMTECH INDUSTRIES AND OTHERS VERSUS CCE. KANPUR AND OTHERS 2014 (4) TMI 995 - CESTAT NEW DELHI has held that on the cost of items supplied/ sold for providing the service, service tax cannot be demanded. There is no merit in the impugned orders confirming the demand of service tax - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of demand of service tax on the gross value of spare parts used for servicing vehicles by authorized service station.

Analysis:
The judgment pertains to appeals against orders-in-original confirming the demand of service tax on the gross value of spare parts used for servicing vehicles by an authorized service station. The appellant argued that service tax should not be levied on spare parts where sales tax/VAT has already been paid, citing a Board's Circular. Additionally, the Tribunal's decision in the case of Samtech Industries vs CCE was referenced, where it was held that service tax cannot be demanded on the cost of items supplied for providing a service, if sales tax/VAT has been paid on those items. The Tribunal considered the separate invoicing of goods and service charges, stating that when sales tax/VAT has been paid on goods used for the service, they should be treated as a separate sale transaction and not included in the service value for service tax calculation.

The Tribunal highlighted Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, which states that all expenditures or costs incurred in providing a taxable service should be included in the value of the service for charging service tax, unless incurred as "Pure Agents" of the service recipient. However, this rule was deemed ultra vires by the Delhi High Court in a previous case, leading to the exclusion of goods used for providing the service from assessable value if they were separately invoiced and sales tax/VAT paid on them. Consequently, the Tribunal set aside the impugned orders confirming the service tax demand, following the precedent set by the earlier decision, and allowed both appeals with any consequential relief to the appellant.

In conclusion, the judgment provides a detailed analysis of the legal principles surrounding the demand of service tax on spare parts used for servicing vehicles by authorized service stations. It emphasizes the importance of separate invoicing and payment of sales tax/VAT on goods used for services in determining the assessable value for service tax calculation, in line with relevant legal provisions and judicial precedents.