2018 (8) TMI 1016 - AT - Service Tax

Classification of services - retreading of old tyres used in motor vehicles - whether the services comes under the head Management, Maintenance or Repair Service or not? - Held that - It will be in the fitness of the things to remand the matter to the appellate authority for the limited purpose of calculating the service tax payable by the respondents while giving due allowance to the cost of materials involved, in the amounts received - Appeal allowed by way of remand.

Summary

Issues:
Whether retreading of old tyres amounts to 'Management, Maintenance or Repair' under Section 65(64) of the Finance Act, 1994? Whether retreading of old tyres is a manufacturing activity or a service subject to service tax?

Analysis:
The case involved M/s. Karthik Tyre Service, engaged in retreading old tyres used in motor vehicles. The Department contended that retreading old tyres falls under 'Management, Maintenance or Repair' as per Section 65(64) of the Finance Act, 1994. A show-cause notice was issued demanding service tax for a specific period. The Assistant Commissioner confirmed the demand, but on appeal, the Commissioner(Appeals) set aside the order, stating that retreading is a manufacturing activity subject to excise duty, not service tax. The Department appealed this decision.

The Department argued that the Supreme Court in the case of Safety Retreading Company held that retreading of tyres is a service, not manufacture. They cited a CBEC Circular clarifying that retreading of tyres falls under 'Management, Maintenance and Repair Services' and is liable to service tax. The Department requested a remand to quantify the service component for tax calculation.

The respondents' consultant contended that their activity falls under works contract, citing the Supreme Court's decision in Larsen and Toubro Ltd. case. They argued that no service tax is applicable before 01/06/2007, referencing a previous decision by the same Tribunal in Hindustan Aeronautics Ltd. case.

After hearing both sides, the Tribunal found that retreading of tyres is a service based on the Supreme Court's judgment in Safety Retreading Company case and the CBEC Circular. They distinguished the Hindustan Aeronautics Ltd. case, stating it involved maintenance and repair of helicopters, not the same issue as in the present case. The Tribunal decided to remand the matter to the appellate authority to calculate the service tax payable by the respondents, considering the cost of materials involved, in line with the Supreme Court's judgment.

In conclusion, the Department's appeal was allowed by way of remand, with the Tribunal emphasizing the service nature of retreading old tyres and the need for proper tax calculation based on the Supreme Court's clarification.