2014 (9) TMI 307 - HC - Service Tax

Management, Maintenance and Repair service - Whether the CESTAT has erred in holding that Service tax is not required to be paid on goods used in the repairing process on which Excise duty and VAT has been paid on the value of the said goods, ignoring the fact that as per the contract the respondents were under an obligation to replace the damaged parts and to maintain the transformers in a proper working condition - Held that - It has been found as a matter of fact that the value of the goods and materials utilized for repair of the transformers is separately disclosed in the agreement and is separately mentioned in the invoices of the assessee. The assessee has paid excise duty or, as the case may be, value added tax on goods used in the repairing process. It was in this factual background, on which there is no dispute, that the Tribunal held that service tax could not be demanded on that component representing the value of the goods and materials used for carrying out repairs. The mere fact that the cost of the various items was shown for the purpose of price variation was held not to make any difference to the legal position. no substantial question of law would arise - Decided against Revenue. It has been stated on behalf of the assessee that the Revenue serves only a narrative prepared by the Commissioner and not the memo of appeal, as a result of which it becomes difficult for the assessee to track the appeals which are being filed. This is disputed by the learned counsel for the Revenue. We only need to clarify that the Revenue, when it causes service to be effected on the assessee, must ensure that a complete set of the paper book is served on the assessee and not just the narrative so as to enable the assessee to pursue and keep track of the appeal when it is filed.

Summary

Issues:
- Whether service tax is required to be paid on goods used in the repairing process on which Excise duty and VAT has been paid?
- Whether the contract with the assessee is a composite contract for repairing transformers, necessitating service tax on the total contracted value?
- Whether the Tribunal's decision on the exclusion of service tax on goods used in repair is legally sound?

Analysis:
The case involves an appeal arising from a decision of the Customs, Excise & Service Tax Appellate Tribunal regarding the payment of service tax on goods used in the repair process of electrical transformers. The Revenue contended that service tax should be paid on the total contracted value, including consumables and items used in repair, despite Excise duty and VAT already being paid on those goods. The Commissioner initially agreed with the assessee that goods with paid taxes should be excluded from service tax valuation. However, the Commissioner later imposed duty on service tax and a penalty, considering the contract a complete repair package.

In the appeal, the Tribunal found that the contract's breakdown of costs for individual items did not necessitate service tax on goods used in repair, especially since the invoices separately reflected the value of items like HV/LV Leg Coils and Transformer Oil on which taxes were paid. The Tribunal referred to Notification 12/2003-ST, exempting the value of goods sold by the service provider if documented separately. As the goods' value was disclosed in the agreement and invoices, and taxes were paid on them, the Tribunal ruled against demanding service tax on the goods used in repair.

The High Court upheld the Tribunal's decision, emphasizing that no substantial question of law arose as the Tribunal's finding on the separate disclosure and tax payment on goods was undisputed. The Court noted that the Tribunal's reliance on a previous decision was unchallenged. Additionally, a procedural issue regarding the completeness of documents served during appeals was addressed, clarifying the requirement for the Revenue to provide a complete set of documents to the assessee for effective tracking of appeals.

Ultimately, the High Court dismissed the appeal, affirming the Tribunal's decision and concluding that no service tax was leviable on the value of materials used in repair. The Court highlighted the importance of serving complete documents to the assessee during appeal processes for transparency and efficient tracking.