2009 (3) TMI 135 - AT - Service Tax

Retreating of old tyres - The appellants are carrying out retreading of old tyres used in motor vehicles. Revenue proceeded against the appellants on the ground that they were not including the value of materials such as tread rubber, cushion gum, vulcanizing solution, which were used/consumed in the activity of retreading/reconditioning of tyres in the value of taxable services for the purpose of payment of Service Tax held that - The appellants are entitled for the benefit of the Notification No. 12/2003

Summary

Issues:
1. Whether the value of raw materials used in retreading old tyres should be included in the taxable services for the purpose of Service Tax payment.
2. Whether the appellants are liable to discharge the service tax liability on the gross receipts.
3. Applicability of Notification No. 12/2003-ST exempting the value of goods or materials sold by the service provider to the recipient of service from service tax.

Analysis:

Issue 1:
The primary issue in this case revolved around whether the value of raw materials used in retreading old tyres should be included in the taxable services for the purpose of Service Tax payment. The appellants argued that the value of raw materials should be excluded as they were separately charged and VAT was paid on them. The Joint Commissioner initially held in favor of the appellants, stating that the value of raw materials used could be excluded since it was considered a sale. However, the Commissioner reversed this decision during the Revisionary proceedings, emphasizing that all costs incurred by the service provider should be treated as consideration for taxable services under the Service Tax (Determination of Value) Rules, 2006.

Issue 2:
The second issue involved whether the appellants were liable to discharge the service tax liability on the gross receipts. The Commissioner held that the appellants should pay service tax on the gross receipts, including the value of raw materials used in the retreading process. This decision was based on the interpretation that the gross amount charged by the service provider for such services should be considered the value for service tax purposes.

Issue 3:
Regarding the applicability of Notification No. 12/2003-ST, which exempts the value of goods or materials sold by the service provider from service tax, the appellants claimed entitlement to this benefit. They argued that since they separately charged for raw materials and paid VAT on them, they should be exempt from service tax on the value of these materials. However, the Commissioner did not examine the applicability of this notification in detail, leading to a dispute over its relevance to the case.

In conclusion, the Appellate Tribunal, after careful consideration of the facts and legal arguments presented, allowed the appeal in favor of the appellants. The Tribunal emphasized that the cost of materials should not be included for service tax purposes, especially when VAT is paid on those materials. The decision was also supported by previous cases and the Notification No. 12/2003-ST.