2018 (5) TMI 677 - AT - Service Tax

Liability of service tax - whether the appellants are liable to pay service tax on the value of spares / parts on which VAT has been discharged? - Held that - the cost of spare parts cannot be included for purposes of levy of service tax - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellant is liable to pay service tax on the value of spares/parts used during warranty services.

Analysis:
The case involved the appellant, an authorized service dealer of a manufacturer engaged in the sale and service of motor vehicles. The appellant provided warranty services free of cost to customers, including labor charges paid by the manufacturer and reimbursement for the value of spares and consumables used. The dispute arose when the department contended that the value of spares and consumables used during warranty services should be included in the taxable value for service tax purposes. The original authority confirmed the demand, but dropped the penalty under Section 76 of the Finance Act, 1994. The Commissioner (Appeals) upheld the decision, leading the appellant to appeal before the Tribunal.

The appellant argued that their activity involved both service provision and sale of goods, and they correctly paid service tax on labor charges. They contended that the value of spares and parts replaced was recovered from the manufacturer with applicable VAT/CST, constituting a sale of goods. Citing a CBEC Circular and a court case, the appellant asserted that when a transaction is treated as a sale of goods and subjected to sales tax, it cannot be subjected to service tax. They also referenced previous decisions in their favor and argued that the reimbursable amounts from the manufacturer should not be subject to service tax.

The respondent reiterated the findings in the impugned order, supporting the department's position on including the value of spares/parts in the taxable amount for service tax. After hearing both sides, the Tribunal referred to previous cases, including the appellant's own case and another case, where it was held that the cost of spare parts sold with VAT cannot be included for service tax purposes. The Tribunal also noted that amounts recovered for extended warranty premiums should not be subject to service tax if already paid by the manufacturers. Consequently, the demand for service tax on spares/parts used during warranty services was set aside, and the appeal was allowed with consequential relief as per the law.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the demand for service tax on the value of spares and parts used during warranty services, on which VAT had been discharged, was not justified. The decision was based on precedents and the understanding that such transactions involving the sale of goods should not be subject to service tax, leading to the appeal being allowed with consequential relief.