2014 (7) TMI 748 - AT - Service Tax

Valuation of the services - maintenance & repair service; erection, commissioning & installation service - service tax paid on 15% value of services and VAT is paid on rest 85% - Held that - adjudicating authority while deciding the issue, has not considered the submissions made by the appellant and has held that the contracted value has been artificially bifurcated into the material portion and the service portion. It is observed from the clause 25 of the representative contract dt.06.11.2009 entered into between the appellant and M/s Tej Complex, Ahmedabad, that 15% of the contract value represent erection, commissioning and installation services on which VAT / Sales Tax is not paid by the appellant. As per Rule 2A(ii) of the Service Tax (Determination of Value) Rules 2006, the actual value of transfer of property in goods involved in execution of the works contract is not to be taken into consideration while discharging Service Tax liability under the works contract services. It is the claim of the appellant that VAT/ Sales Tax was paid on the actual material value of the material sold, as per audit account furnished to the adjudicating authority and on examination of the records, it seems to be so. However, this matter whether VAT/ Sales Tax has been paid on the actual materials sold to the service recipient is required to be gone into detail by the adjudicating authority - Matter remanded back - Decided in favour of assessee.

Summary

Issues Involved: Valuation of services provided under Rule 2A of Service Tax (Determination of Value) Rules 2006 and correctness of abatement of material value in contracts.

Analysis:
1. The appellant filed a Stay application and an appeal regarding Order-in-Original No.AHM-SVTAX-000-COM-066-13-14, focusing on the valuation of services provided and the abatement of material value in contracts. The appellant argued that the services constituted 15% of the total contract value, with the remaining 85% representing the material portion sold to customers. They contended that VAT was paid on the actual material value, not on an approximate basis as held by the adjudicating authority.

2. The appellant's representatives highlighted that the contracts were for both supply of materials and services, with VAT/Sales Tax payments made on the actual material value. They referenced relevant provisions and contracts to support their stance. The appellant emphasized that the adjudicating authority's view on composite contracts was incorrect, citing discrepancies in the observations made.

3. The appellant relied on a case law involving similar facts to support their argument. They pointed out that the matter was remanded in the referenced case for verification of actual material cost payments. This reference aimed to strengthen the appellant's position regarding the valuation and abatement of material value in their contracts.

4. The Revenue contended that the contracts were composite works contracts, not to be vivisected into service and material values. They argued that Service Tax should be paid on the gross contract value, including materials supplied. The Revenue highlighted clauses in the contracts supporting their stance on the indivisibility of the contract value.

5. After hearing both parties and reviewing the case records, the Tribunal found the issue to be narrow. The Tribunal noted that while the appellant claimed to pay Service Tax on 15% of the contract value for services, VAT/Sales Tax was paid on the actual material value. The Tribunal observed discrepancies in the adjudicating authority's decision and directed a remand for detailed consideration. The Tribunal emphasized the need for verifying VAT/Sales Tax payments on actual material value and granted the appellant a personal hearing opportunity before any new order.

6. The Tribunal allowed the appeal by remanding the case to the adjudicating authority for further examination, keeping all issues open for reconsideration.

This detailed analysis encapsulates the key arguments, legal interpretations, and the Tribunal's decision in the case concerning the valuation of services and abatement of material value in contracts.