2017 (3) TMI 1291 - AT - Service Tax

Exemption under notification no. 12/2013 dated 01.07.2003 - bullet proofing services - the vehicles in issue are supplied by the customer and on such vehicles, bullet proofing is done by the appellant. This activity is amounting to production. On the material portion used VAT is paid - whether benefit of notification is to be extended to appellant or not? - Held that - the material where the VAT has already been paid cannot be brought to the service tax levy; otherwise it would amount to double taxation. However, where the VAT is not paid the value of the goods as well as the service is subject to the service tax - the adjudicating authority is to ascertain where VAT has been paid and in those cases value of the component will be excluded and wherever the VAT is not paid that can be brought under the clutch of the service tax including the value of the goods as well as the service - appeal allowed by way of remand.

Issues:
1. Demand of service tax under "Business Auxiliary Service"
2. Distinction between trading activity and service tax liability
3. Interpretation of Notification No. 12/2013
4. Application of principles from CCE&C, Kerala vs. Larsen & Toubro Ltd.
5. Double taxation concerns and exclusion of VAT-paid material from service tax levy

Analysis:

1. The case involved a demand for service tax amounting to a specific sum under the category of "Business Auxiliary Service" as per Section 65(19) of the Finance Act, 1994. The appellant was engaged in providing bulletproofing services to various vehicles, with two distinct practices: one involving VAT payment for purchased and improved vehicles, and the other where customers supplied vehicles for bulletproofing. The latter activity was considered as production, leading to the service tax issue.

2. The appellant argued that in cases where customers supplied vehicles for bulletproofing, it constituted a production activity rather than a service, and thus fell outside the scope of service tax. The appellant relied on the distinction between trading activities and service tax liabilities, emphasizing that no service element was involved in the first practice where vehicles were purchased, improved, and sold.

3. The appellant claimed the benefit of Notification No. 12/2013 dated 01.07.2003, seeking exemption or reduced tax liability based on the provisions outlined in the notification. This raised the issue of interpreting and applying the notification to the specific circumstances of the case.

4. The judgment referenced the decision in CCE&C, Kerala vs. Larsen & Toubro Ltd., highlighting the importance of segregating taxable elements between service tax leviable by the Centre and sales tax leviable by the States. The judgment emphasized the need to avoid double taxation by excluding VAT-paid material from service tax levy, ensuring a fair and non-discriminatory taxation approach.

5. Concerns regarding double taxation were addressed by instructing the adjudicating authority to differentiate cases where VAT had been paid on materials from those where it had not. The judgment emphasized that the value of goods and services subject to service tax should be carefully determined to prevent double taxation, with a directive to provide a reasonable opportunity for the appellant to present their case and relevant documents during the adjudication process. Ultimately, the appeal was allowed for remand, indicating a favorable outcome for the appellant pending further assessment by the adjudicating authority.

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