2017 (8) TMI 435 - AT - Service Tax

Maintenance or Repair Services - maintenance and repair services mainly in respect of Defence customers like Air force, Navy, Army and Coastguard, in addition to civil customers like M/s. ONGC - Held that - the issue involved in the present case is no more res integra and has been settled in favor of the appellant by the Hon ble Supreme Court in the case of Larsen and Toubro Ltd. 2015 (8) TMI 749 - SUPREME COURT , wherein the Hon ble Supreme Court has categorically held that before 1.6.2007 there was no charging Section to specifically levy service tax on works contract or mechanism to tax service element derived from gross amount charged for works contract less value of property in goods transferred in execution of the works contract and in the present case, the period involved is July 2003 to September 2004 - appeal allowed - decided in favor of appellant.

Summary

Issues:
Service tax liability on maintenance and repair services provided by the appellant to customers.

Analysis:
The appeal challenged an order confirming a demand for service tax on maintenance and repair services provided by the appellant, a manufacturer of helicopters, to both Defence and civil customers. The appellant contended that the impugned order was unsustainable as it contradicted judicial precedents recognizing such services as works contracts. The appellant relied on decisions by the Hon'ble Supreme Court, including Larsen and Toubro Ltd., to argue that there was no mechanism to tax service elements in composite contracts before June 1, 2007. The appellant also emphasized the need to tax only the labor portion of the service, not the material cost, citing relevant case law. Additionally, the appellant cited previous decisions in favor of different divisions of HAL to support their position.

The respondent argued that the appellant was liable to pay service tax on the maintenance and repair services provided to customers, as per the Finance Act, 1994. The respondent contended that the charges collected by the appellant for these services were subject to service tax, excluding the material portion as per Section 67 of the Finance Act.

After considering the arguments and precedents cited, the Tribunal found that the issue was settled in favor of the appellant by the Hon'ble Supreme Court's decision in Larsen and Toubro Ltd. The Tribunal noted that before June 1, 2007, there was no specific provision to levy service tax on works contracts or to tax the service element separately. As the period in question was July 2003 to September 2004, the Tribunal concluded that the impugned order was not sustainable in law. Therefore, the Tribunal set aside the order, allowing the appeal of the appellant. The operative portion of the order was pronounced on April 25, 2017.