2017 (4) TMI 1133 - AT - Service Tax

Valuation - composite contract - Revenue entertained a view that the valuation has been made improperly by the appellant and in terms of the N/N. 12/2003-ST, they have not properly taken the actual service value to pay service tax - the appellants pleaded that there is no monetary gain for them in artificially loading more value to materials supplied by paying VAT, as the rate of VAT is higher than the service tax, payable on the service portion - Held that - We have perused a few work orders, which clearly stipulated that 80% of the value shown to have suffered VAT with reference to supply of materials, which is done in the present case - appeal allowed - decided in favor of appellant.

Summary

Issues: Dispute over service tax valuation based on contract terms and actual value of materials supplied, applicability of notification no.12/2003-ST, proper discharge of service tax liability.

Analysis:
1. The appeal challenged an order by the Commissioner (Adj.), Service Tax, New Delhi, regarding service tax liability under Section 65(105)(zzg) read with Section 65(64) of the Finance Act, 1994. The appellants provided management, maintenance, and repair services and discharged service tax on 20% value of the contract, with the remaining 80% attributed to materials supply. The Revenue alleged improper valuation, leading to show cause notices and a confirmed service tax liability of ?1,09,43,926/- along with penalties and interest.

2. The appellant's consultant cited three Tribunal decisions with similar facts to support their case, emphasizing the bifurcation of value for materials and services in the work order. The Revenue contended that the split was artificial to evade service tax, lacking clear evidence supporting the actual value of materials supplied. Both sides presented their arguments, leading to a detailed examination by the Tribunal.

3. The Tribunal noted that similar cases involving other contractors with the same client had been decided in favor of the contractors by the Tribunal in previous judgments. The Tribunal emphasized the importance of examining the actual quantity of materials supplied before confirming tax liability on the entire consideration, as per the terms of the work order. The Tribunal found the Revenue's assertions lacking in documentary evidence and upheld the appellant's claim based on the written contract terms and actual supply records.

4. The Tribunal further highlighted that the appellant's practice of loading more value on materials for VAT payment did not result in monetary gain, as the VAT rate was higher than the service tax rate. By analyzing the work orders and following the ratio established in previous judgments, the Tribunal concluded that the impugned order was unsustainable. Consequently, the Tribunal set aside the order and allowed the appeal in favor of the appellant.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's reasoning in arriving at its decision.