2009 (5) TMI 171 - AT - Service Tax

Maintenance or repair service - The valuation adopted is that the appellant discharges Service Tax liability on the labour charges and does not the cost of parts/materials used by them for providing such maintenance or repair services , for discharge of Service Tax liability - whether the value of the parts/materials consumed by the appellant needs to be included for arriving at the Service Tax liability of the appellant. - we find that the invoices which were produced before us clearly indicate materials charges and labour charges differently and we also find that in the very same invoices clearly indicate the discharge of Central Sales Tax as the amount of material cost. - we find that the decision of the Hon ble Supreme Court in the case of M/s. BSNL 2006 - TMI - 309 - Supreme court will directly cover the issue in favour of the appellant as regard the non-includability of the value of the parts/materials for arriving at the correct Service Tax liability. We also find that the Principal Bench of the tribunal in the case of M/s. Delux Colour Lab Pvt. Ltd. 2008 - TMI - 31837 - CESTAT NEW DELHI were dealing with similar issue, wherein it was held that sale cannot be treated as service and vice versa. - 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 and the impugned order to that extent is liable to be set aside

Summary

Issues:
1. Whether the assessee is liable to pay Service Tax based on the gross amount charged for maintenance or repair services.
2. Whether Service Tax liability should be determined only on the basis of labor charges.
3. Whether the cost of materials used by the appellant should be included in the gross amount for calculating Service Tax liability.

Analysis:

Issue 1:
The appeal questioned if the assessee, a public sector undertaking providing maintenance or repair services for helicopters, should pay Service Tax based on the gross amount charged. The appellant argued that Service Tax liability should be calculated solely on labor charges, not including the cost of materials. The adjudicating authority disagreed, stating that the cost of materials must be part of the taxable amount. However, the appellant presented invoices showing a clear separation between material and labor charges, indicating a sale of parts/materials. The Tribunal found that the Supreme Court's decision in a similar case supported the appellant's position, ruling in favor of excluding the value of parts/materials from the Service Tax liability calculation.

Issue 2:
The show cause notice issued to the appellant demanded payment of differential Service Tax, interest, and potential penalties. The adjudicating authority upheld the demand for differential Service Tax but did not impose penalties. The appellant contested the inclusion of material costs in the taxable amount, citing relevant case law and presenting invoices to support their position. The Tribunal, after reviewing the invoices and considering the clear separation of material and labor charges, concluded that the impugned order confirming the demand for material costs was incorrect and set it aside.

Issue 3:
The appellant's representative referenced a decision by the Apex Court and a Tribunal case to support their argument that material costs should not be included in the taxable value of services. The Revenue argued that the impugned order was correct and cited a relevant Board circular. The Tribunal carefully examined the invoices provided by the appellant, which clearly showed the separate charges for materials and labor. Based on this evidence and legal precedents, the Tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal with any consequential relief.

In conclusion, the Tribunal found in favor of the appellant, ruling that the value of parts/materials used for maintenance or repair services should not be included in the calculation of Service Tax liability. The impugned order was set aside, and the appeal was allowed with any necessary follow-up actions.