2017 (1) TMI 1285 - AT - Service Tax

Works contract - Valuation - break-up of cost of material and service charges was given separately, tax paid on service charges only - whether the appellant required to pay service tax on the whole of the gross value of the retreding charges? - Held that - involvement of goods and services in a contract renders that to be Works Contract. In the case of Imagic Creative Pvt Ltd. Vs Commissioner of Commercial Taxes 2008 (1) TMI 2 - Supreme Court of India it was noticed that when the invoices bifurcated service element distinctly showing goods used in the contract for levy of sales tax, Hon ble court held that the service aspect is only taxable under Union List and State government has no jurisdiction to impose sales tax thereon - no levy of service tax on the value of goods used in tyre retreading as distinctly shown by appellant in its invoices - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether service tax is payable on the whole gross value of retreading charges?
2. Whether retreading of tires constitutes a Works Contract?
3. Whether goods used in the retreading contract are liable to service tax?

Issue 1:
The appellant was required to pay service tax on the entire gross value of the retreading charges, as per the submission made on behalf of the Revenue. However, the respondent argued that service tax was paid on the retreading charges received from customers, and since no service tax was payable on the goods used in the retreading process, there should be no levy on them. The adjudicating authority had recorded that the cost of material and service charges were separately mentioned in the bills raised to customers.

Issue 2:
The question of whether retreading of tires constitutes a Works Contract was discussed, citing judgments from various high courts and the Supreme Court. The High Court of Kerala and the Madras High Court had previously addressed similar issues under different tax laws. The apex court's decision in the case of Kone Elevator India Pvt Ltd Vs State of Tamil Nadu clarified that when goods and services are involved in a contract to achieve the parties' objective, it constitutes a Works Contract. Consequently, the goods used in the execution of such a contract are liable to sales tax but not service tax.

Issue 3:
The involvement of goods and services in a contract determines whether it qualifies as a Works Contract. Citing the case of Imagic Creative Pvt Ltd. Vs Commissioner of Commercial Taxes, it was established that the service aspect is only taxable under the Union List, and the State government cannot impose sales tax on it. The judgments of the apex court ruled out the levy of service tax on goods used in the tire retreading contract. Therefore, the appeal was allowed, directing no service tax levy on the value of goods used in tire retreading, as shown in the appellant's invoices. A similar decision was made in another appeal, allowing the appellant a refund of taxes paid under protest on the value of goods used in the retreading contract. Consequential relief, if applicable, would be granted in accordance with the law.