2020 (4) TMI 380 - AT - Service Tax

Valuation - inclusion of value of spare parts sold while servicing a motor vehicle - Section 67 of the Finance Act 1994 - HELD THAT - A bare perusal of the Circular dated 23 August 2007 indicates that Service Tax would not be leviable on a transaction treated as sale of goods and subjected to levy of Sales Tax/ VAT and whether a given transaction between the service station and the customers is a sale or not is to be determined taking into account the real nature and material facts of the transaction. The Circular also clarifies that payment of VAT or Sales Tax on a transaction indicates that the said transaction is treated as sale of goods. The decision in Semtech Industries 2014 (4) TMI 995 - CESTAT NEW DELHI clearly holds that when invoices are issued showing the value of the goods used and the service charges separately, service tax would be chargeable only on the service/ labour charges and the value of goods used for repair would not be includable in the assessable value of the service. It is not in dispute that while raising the invoices, the Appellant had separately shown the cost of the goods and the cost of service. The invoices also shows that VAT had been charged for the sale of spare parts. Thus, if a sale had taken place and it had been subjected to VAT, no Service Tax could have been levied - thus, the value of spare parts cannot be included in the assessable value for payment of Service Tax. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the value of spare parts sold during servicing a motor vehicle is required to be included in the value of taxable service under Section 67 of the Finance Act 1994.

Analysis:
The judgment by the Appellate Tribunal CESTAT NEW DELHI involved the appeal against the Commissioner's order confirming the demand of service tax for a specific period. The central issue revolved around the inclusion of the value of spare parts sold during servicing a motor vehicle in the taxable service value under Section 67 of the Finance Act 1994. The Commissioner relied on a Master Circular from August 2007 to support the inclusion of spare parts value in the taxable service. However, the appellant argued that a previous decision in its favor for a subsequent period supported excluding spare parts' value from the taxable service.

The tribunal examined the Circular from August 2007, which clarified that service tax would not apply to transactions treated as sales of goods subject to sales tax or VAT. The real nature and material facts of the transaction determined whether it constituted a sale. The tribunal referred to a Division Bench decision in M.G. Motors, where it was noted that if spare parts were sold and subjected to VAT, service tax could not be levied on the spare parts' gross value used in servicing vehicles. Additionally, the tribunal cited a case, Semtech Industries, which held that service tax should only be charged on service/labor charges when the value of goods used and service charges were separately shown on invoices.

The tribunal found that the appellant had separately shown the cost of goods and services on invoices, with VAT charged for spare parts sales. Following the precedents set in M.G. Motors and Semtech Industries, the tribunal concluded that the value of spare parts should not be included in the assessable value for service tax payment. Consequently, the impugned order was set aside, and the appeal was allowed.