2018 (6) TMI 1012 - AT - Service Tax

Management, Maintenance or Repair Service to Indian Air Force (IAF) - also supply of material alongwith the said services - N/N. 12/2003-ST dt. 20.06.2003 - Held that - The Appellant is showing the values of raw materials and labour separately in their invoices. They also pay VAT/ Sales Tax as may be applicable on such value of material. In such case there is no reason to demand service tax on 10% profit or profit on which material is sold by them - The issue involved already stands settled in favour of Appellant in case of HINDUSTAN AERONAUTICS LTD. VERSUS COMMR. OF SERVICE TAX, BANGALORE 2009 (9) TMI 163 - CESTAT, BANGALORE , where it was held that there is a clear distinction available between the sales of the materials/parts and the labour charges, we are of the opinion that the impugned order which confirms the demand on the amount of the materials/parts sold and used for rendering of repair and maintenance service is incorrect - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Applicability of Notification No. 12/2003-ST on services provided to Indian Air Force
- Allegation of recovering more amount than the acquisition cost of materials
- Denial of exemption under Notification No. 12/2003-ST
- Demand for Service Tax, interest, and penalty under the Finance Act, 1994

Analysis:

1. Applicability of Notification No. 12/2003-ST:
The appellant provided Management, Maintenance, or Repair Service to the Indian Air Force (IAF) and supplied materials along with the services. They claimed the benefit of Notification No. 12/2003-ST dated 20.06.2003. The issue arose when the appellant was alleged to be recovering more than the acquisition cost of materials by adding a 10% profit on the material value. The show cause notice proposed to deny the exemption under the said notification and demanded a substantial amount of Service Tax under section 73(2) of the Finance Act, 1994, along with interest and penalty.

2. Interpretation of Notification No. 12/2003-ST:
The appellant argued that the term 'Value of materials' in the notification includes the element of profit and not just the 'cost of materials.' They contended that they maintained proper records and fulfilled the conditions of the notification. Moreover, they highlighted that they did not pay service tax on the material value and profit from materials obtained from IAF stores, as it was deducted from the invoice value to claim a net amount against the service provided. The appellant relied on various judgments supporting their interpretation, including the case of Hindustan Aeronautics Ltd.

3. Judicial Precedents and Findings:
The Tribunal examined the submissions of both parties and reviewed the case records. It noted that the appellant clearly separated the values of raw materials and labor in their invoices and paid VAT/Sales Tax accordingly. Referring to previous judgments, including Hindustan Aeronautics Ltd. cases, the Tribunal found in favor of the appellant. The Tribunal held that there was no basis to demand service tax on the 10% profit element or the profit from the sale of materials. Consequently, the Tribunal set aside the impugned order, ruling that the demand and penalty imposed on the appellant were not sustainable.

4. Conclusion:
The Tribunal allowed the appeal with consequential relief, if any, on 07/06/2018. The decision emphasized the importance of correctly interpreting the terms of notifications and ensuring compliance with tax regulations. The judgment underscored the significance of maintaining proper records and following legal precedents to support one's case effectively in tax disputes.