2018 (9) TMI 1592 - AT - Service Tax

Valuation - inclusion of 70% of value towards material cost in assessable value - defence of the appellant was that they had already paid VAT on the remaining 70% of the gross charges - Department took a view that the goods used in providing the services are to be treated as inputs for providing the service and accordingly the cost of such inputs should form integral part of the taxable value of such services. Held that - The Hon ble Apex Court in the landmark judgment Safety Retreading Co. (P) Ltd. Vs CCE Salem 2017 (1) TMI 1110 - SUPREME COURT has unequivocally held that when the assesseee had paid tax under the State statute on the value component of material used service tax would be exigible only on the remaining value of services provided - appeal allowed - decided in favor of appellant.

Summary

Issues:
Refund claim rejection, Interest payment demand for belated service tax payment, Applicability of service tax on material cost, Interpretation of judgment in Safety Retreading case.

Refund Claim Rejection:
The appellants, authorized sales and service dealers, raised invoices for repair and maintenance activities based on total number of copies taken. A change occurred from April 1, 2008, where they split the gross amount charged into material cost and service charges, paying service tax only on the latter. The department contended that goods used in services should be treated as inputs, forming part of taxable value. The appellant paid the total tax liability of ?4,94,144 and filed a refund claim, which was rejected by the original authority.

Interest Payment Demand:
Simultaneously, a show cause notice was issued alleging belated payment of service tax for April to September 2008, imposing an interest amount of ?37,588. The adjudicating authority confirmed this demand. Both the refund rejection and interest confirmation were upheld by the Commissioner (Appeals), leading to the appeal before the forum.

Applicability of Service Tax on Material Cost:
During the hearing, the appellant's counsel cited the Supreme Court judgment in Safety Retreading case, asserting that service tax should be levied only on the remaining value of services after paying tax on the material component under the State statute. The Tribunal concurred with this interpretation, setting aside the impugned orders based on the Supreme Court's ruling and allowing the appeals with consequential benefits as per law.

This judgment addressed the rejection of a refund claim, a demand for interest on belated service tax payment, and the interpretation of the Safety Retreading case regarding the applicability of service tax on material cost. The Tribunal found in favor of the appellant, aligning with the Supreme Court's directive that service tax is leviable only on the value of services provided after accounting for taxes paid on material components. The impugned orders were overturned, allowing the appeals and granting any consequential benefits in accordance with the law.