2018 (5) TMI 1227 - AT - Service Tax

Demand of Service Tax on the consumable and part support agreements - Held that - it appears that on the consumable and spare parts appellant is paying the VAT and discharging the liability under the Act. On the Service Level appellant is paying Service Tax. In the case of Commissioner of Customs V/s J.P. Transformers, 2014 (9) TMI 307 - ALLAHABAD HIGH COURT Allahabad it was observed that when the VAT has been paid on the goods and material utilized for repair of transformers and separately disclosed in agreements and mentioned in invoices of the assessee then Service Tax cannot be demanded on the component representing the value of goods and material used for carrying out repairs. In the instant case, the appellant is not charging any money on the components which is replaced by the appellant during the annual maintenance contract - when it is so, demand do not sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of Service Tax liability on consumables and spare parts agreements.

Analysis:
The appellant, an authorized distributor of HP Indigo Digital Printers, entered into two composite agreements with customers - a Service Level Agreement and a Consumables and Parts Support Agreement. The appellant charged monthly payments under the Annual Maintenance Agreement related to the service level but did not charge separately for consumables and parts support. The Department demanded Service Tax on consumables and parts support agreements, despite the appellant paying VAT on spare parts and discharging Service Tax on the service level. The Tribunal noted that the appellant did not charge for the components replaced during the annual maintenance contract. Citing a precedent, the Tribunal held that when VAT is paid on goods used for repairs and separately disclosed, Service Tax cannot be levied on the value of those goods. Consequently, the impugned order was set aside, allowing the appellant's appeal and dismissing the departmental appeal related to penalty levy.

In conclusion, the Tribunal's decision revolved around the interpretation of Service Tax liability on consumables and spare parts agreements. The appellant's practice of not separately charging for replaced components during maintenance contracts played a crucial role in the judgment. By applying a precedent establishing that when VAT is paid on goods used for repairs, Service Tax cannot be demanded on their value, the Tribunal ruled in favor of the appellant. This detailed analysis clarifies the reasoning behind the decision and highlights the importance of proper tax treatment in composite agreements involving service and supply components.