2013 (10) TMI 1214 - AT - Service Tax

Valuation - value of free services provided during warranty period - inclusion of cost of parts / spares in the value Waiver of Pre-deposit - Revenue was of the view that the goods were required for providing services and disputed that cost of such parts would form part of the value of taxable service Assessee contended that the Revenue has demanded service tax considering the value of parts as reimbursable expenses as per Rule 5 of the Service Tax Valuation Rules and contend that this rule has been struck down - Held that - Prima facie materials consumed in providing service as in re-treading of tyre was different from parts replaced as in servicing of vehicles because in the matter the transaction for the material is easily discernible as distinct - We take note of the decision of the Apex Court in the case of they relied on the decision of the Hon. Apex Court in the case of Bharat Sanchar Nigam Ltd. Vs UOI 2006 (3) TMI 1 - Supreme court in a composite transaction involving both supply of material and providing of service the state governments and the central government can tax only the respective aspects falling within its legislative competence and both the governments cannot levy tax on the same aspect Pre-deposits was waived till the disposal the of the appeal Stay granted.

Summary

Issues involved:
1. Whether the cost of parts replaced during 'free service' provided by an authorized agent during the warranty period is liable for service tax.
2. Applicability of Rule 5 of the Service Tax Valuation Rules in determining the value of taxable service.
3. Interpretation of Notification No.12/03-ST regarding the exemption for reimbursement received for the sale of goods.
4. Whether the reimbursement received from the manufacturer towards parts replaced forms part of the value of taxable service.

Analysis:

Issue 1:
The dispute revolved around the liability of the cost of parts replaced during 'free service' provided by the authorized agent during the warranty period for service tax. The Revenue contended that the cost of such parts should form part of the value of taxable service, leading to the initiation of proceedings for recovery of short-paid tax.

Issue 2:
The counsel for the applicant argued that the Revenue demanded service tax based on Rule 5 of the Service Tax Valuation Rules, which was challenged citing a judgment by the Hon'ble Delhi High Court. Additionally, reference was made to a Tribunal decision granting waiver of pre-deposit on a similar issue, emphasizing that the reimbursement received from the manufacturer was for the sale of goods and materials and should not be part of the taxable service value.

Issue 3:
The Revenue contended that since there was no sale of goods to the manufacturer, the exemption under Notification No.12/03-ST could not be extended to the case. Reference was made to a decision by the Tribunal in a different case to support this argument.

Issue 4:
Considering the arguments from both sides, the Tribunal observed that the materials consumed in providing service, such as in re-treading of tires, differed from parts replaced during vehicle servicing. Citing a Supreme Court decision, it was noted that in a composite transaction involving both supply of material and service, the taxation should be based on the respective aspects falling within each government's legislative competence.

In conclusion, the Tribunal granted a waiver of pre-deposit of dues arising from the disputed orders and stayed the collection during the pendency of appeals based on the discussion and precedent orders in similar matters.