2006 (7) TMI 39 - AT - Service Tax

Service Tax Commissioner has confirmed demand of duty regarding no sale of parts or other materials in Annual Maintenance Contract (AMC), is not a correct finding Order is not a speaking order Plea of time bar and other pleas raised in SCN, need to be reconsidered Matter remanded for de novo consideration and for re-adjudication

Issues Involved:
1. Correct computation and payment of Service Tax on Annual Maintenance Contracts (AMCs).
2. Classification of parts and materials used during AMCs as sales.
3. Applicability of Notification No. 12/2003-ST and Notification No. 21/2002-Cus.
4. Invocation of extended period for demand.
5. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
6. Validity of the Commissioner's order and need for de novo consideration.

Detailed Analysis:

1. Correct Computation and Payment of Service Tax on AMCs:
The Commissioner confirmed demands on the ground that the assessees did not properly compute the correct Service Tax for their Annual Maintenance Contracts (AMCs). The show cause notice alleged that the assessees computed and charged Service Tax only on 30% of the AMC value without any legal basis, while the remaining 70% was deducted arbitrarily. The statutory rate of Service Tax was 10%, which the assessee did not comply with.

2. Classification of Parts and Materials Used During AMCs as Sales:
The assessees argued that in comprehensive contracts, the value of goods and materials used during maintenance or repair services should be excluded from the taxable service value. They cited Section 67 of the Finance Act, 1994, and Notification No. 12/2003-ST, which exempted the value of goods and materials sold during service provision from the taxable service value. The Commissioner, however, held that the utilization of parts for repair and maintenance could not be considered as a sale.

3. Applicability of Notification No. 12/2003-ST and Notification No. 21/2002-Cus:
The assessees contended that the cost of parts or other materials sold to customers during maintenance should be excluded from the taxable service value under Notification No. 12/2003-ST. They also argued that the parts used were imported under Notification No. 21/2002-Cus., and were not to be sold, but used in maintenance. The Commissioner did not accept this argument, leading to the dispute.

4. Invocation of Extended Period for Demand:
The assessees argued that there was no suppression of information or intention to evade tax, and the extended period for demand was not invocable. They relied on several Supreme Court judgments to support their claim that the extended period could not be invoked in the absence of deliberate intention to evade tax.

5. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The assessees contended that penalties under Sections 76 and 77 were not sustainable as the Service Tax itself was not payable. They also argued that there was no suppression or concealment, and hence, no penalty under Section 78 could be imposed. They cited the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa to support their claim that penalties were not justified in the absence of mala fide intention.

6. Validity of the Commissioner's Order and Need for De Novo Consideration:
The Tribunal found that the Commissioner did not apply his mind to the various submissions made by the assessees in their reply to the show cause notice. The order was not a speaking order and lacked consideration of the documentary evidence provided by the assessees. Therefore, the Tribunal remanded the matter for de novo consideration, directing the Commissioner to re-adjudicate within four months, taking into account all the pleas and documentary evidence submitted by the assessees.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter for de novo consideration, emphasizing the need for a detailed and reasoned order that addresses all the submissions and documentary evidence provided by the assessees. The stay application was disposed of accordingly, and the appeal was allowed by remand for fresh adjudication.

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