2019 (2) TMI 312 - AT - Service Tax

Valuation - maintenance and repair service - inclusion of value of the raw materials/ inputs/items used in providing such services in assessable value - Held that - The items used in repair activities have already discharged the VAT liability and there is no dispute about the same - Further the Appellate Authority has referred the various decisions including the decision of Hon ble Allahabad High Court in the case of Balaji Tirupati Enterprises 2014 (1) TMI 404 - ALLAHABAD HIGH COURT for holding that the value of the items will not be added to the value of services - demand set aside - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Whether the value of raw materials used in providing services should be included in the assessable value for service tax calculation.

Analysis:
The judgment revolves around the issue of whether the value of raw materials used in providing services, specifically in the repair of LPG Gas Cylinders, should be included in the assessable value for service tax calculation. The appellant, a manufacturer of LPG Gas Cylinders providing maintenance and repair services, was paying service tax only on charges recovered from clients, excluding the cost of raw materials like Oil, Wire, Paints, VP Rings, and other items used in repair activities. The Revenue initiated proceedings against the appellant, resulting in an Order-in-Original confirming a demand and imposing penalties. However, the Commissioner (Appeals) set aside the Order-in-Original and allowed the appeal.

The Appellate Tribunal, in its analysis, highlighted that the appellant maintained separate records of consumables used for manufacturing LPG Cylinders and providing maintenance services. It was noted that the appellant paid all due taxes on parts/spares/consumables used in providing services, as evidenced by VAT payments and documentation. The Tribunal emphasized that the gross value for service tax calculation need not include goods on which tax has already been paid. Referring to relevant decisions, including those of the Hon'ble Allahabad High Court, the Tribunal rejected the Revenue's argument that all items' cost should be considered in the assessable value under Section 67 of the Finance Act.

The Tribunal found no grounds to dispute the applicability of previous decisions that excluded the value of raw materials from the assessable value for service tax calculation. It noted that the issue had been settled by the Hon'ble Allahabad High Court and Tribunal in various cases, as detailed by the Commissioner (Appeals). Therefore, the Tribunal upheld the decision of the Commissioner (Appeals) and rejected the revenue's appeal, concluding that the service tax need not be paid on goods used in the repair process on which VAT had already been discharged.

In conclusion, the judgment clarifies that the value of raw materials used in providing services, on which applicable taxes have already been paid, should not be included in the assessable value for service tax calculation. The decision aligns with previous judicial interpretations and provides clarity on the treatment of raw material costs in service tax assessments.