2018 (7) TMI 1213 - AT - Service Tax

Valuation - inclusion of value of spare parts raised by the party against the servicing of vehicles in assessable value - C.B.E. & C. Circular No.87/05/2006-Service Tax - Held that - In view of the settled legal position in the case of Samtech Industries 2014 (4) TMI 995 - CESTAT NEW DELHI , and also in view of the letter of the C.B.E. & C., accepted the legal position that the cost of items supplied/sold and there is documentary proof specifically indicating value of the goods, the demand of Service Tax against the assessee for the cost of the goods supplied during repair does not appear sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of Service Tax on spare parts and lubricants used in servicing motor vehicles.
2. Interpretation of Service Tax (Determination of Value) Rules, 2006.
3. Validity of demand for Service Tax, interest, and penalty under Sections 76, 77 & 78 of the Finance Act, 1994.
4. Whether Service Tax is chargeable on the value of spare parts and consumables in addition to labor charges.

Analysis:
1. The case involved a dispute regarding the applicability of Service Tax on spare parts and lubricants used in servicing motor vehicles by an Authorized Service Station. The Revenue contended that Service Tax should be levied on the entire amount of invoices, including the value of spare parts, as they are an integral part of the service provided. The appellant argued that they pay VAT on spare parts separately and Service Tax only on labor charges, hence no Service Tax should be imposed on the sale of goods.

2. The Tribunal analyzed the Service Tax (Determination of Value) Rules, 2006, along with relevant circulars and notifications. It referred to previous judgments where it was held that when the value of goods used is shown separately in the invoice and VAT is paid on them, the supply of goods should be treated as a sale, distinct from the service transaction. Therefore, Service Tax should only be charged on labor charges, not on the value of spare parts sold separately.

3. The Commissioner had confirmed the proposed demand for Service Tax, interest, and penalty under Sections 76, 77 & 78 of the Finance Act, 1994. However, the Tribunal, considering the legal position established in previous cases and the acceptance of the same by the Central Board of Excise and Customs (C.B.E. & C.), held that the demand for Service Tax on the cost of goods supplied during repair was not sustainable. Consequently, the impugned order was set aside, and the appeal was allowed with consequential benefits.

4. The Tribunal emphasized the importance of separate invoicing for spare parts and the payment of VAT on them, which exempts the value of goods sold from being included in the assessable value for Service Tax. The legal position was further supported by the C.B.E. & C.'s acknowledgment and non-pursuance of further appeal in a similar case. Therefore, the Tribunal ruled in favor of the appellant, highlighting the settled legal position and the lack of sustainability in demanding Service Tax on the cost of spare parts and consumables used during the servicing of vehicles.