2019 (2) TMI 771 - AT - Service Tax

Benefit of abatement - inputs used (on which they paid VAT) while rendering services from the value of taxable services rendered - Held that - It is not in dispute that the services rendered by them were in the nature of maintenance and repair services and these services also included transfer of materials. Invoices produced by the learned counsel for the appellant also shows that they had paid VAT on the goods used and paid service tax on the service charges only. The nature of contracts is composite contract, which, as per the judgment of the Hon ble Apex Court in the case of L & T Ltd 2015 (8) TMI 749 - SUPREME COURT , became chargeable to service tax only from 01.06.2007. Thus, no service tax can be charged prior to the introduction of negative list of the services on maintenance and repair activity involving both the service and the sale/ deemed transfer of property of the goods/ components. Even otherwise, when their invoices clearly indicated the goods component separately and paid VAT on them deeming them to be sold to their client, service tax cannot be charged on such sums as they do not form part of the consideration for the service. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Entitlement to abatement on inputs used while rendering services.
2. Recovery of differential tax and imposition of penalties under Sec.78.

Analysis:

Issue 1: Entitlement to abatement on inputs used while rendering services
The appellant, engaged in maintenance and repair services, filed an appeal against an order demanding differential duty and proposing penalties under Sec.78. The department alleged that the appellant had not paid service tax on the full value of services provided. The appellant argued that they paid VAT on goods used for repair, while service tax was paid only on the service component. They contended that since invoices clearly separated goods and services, no abatement claim was necessary. The appellant cited the judgment in L & T Ltd case, asserting that pre-2007, their services were not taxable under the Finance Act, 1994. Post-2007, the definition of works contract did not cover maintenance and repair services, making them non-taxable. The appellant's invoices, reflecting VAT payments on goods separately, supported their position that service tax was not applicable on the entire amount received.

Issue 2: Recovery of differential tax and imposition of penalties under Sec.78
The department argued that the appellant, under maintenance and repair services, should have paid service tax on the full amount received, minus any abatement claimed. They claimed the appellant suppressed the value of services by not disclosing the full amounts received. However, the Tribunal found that the services provided were composite in nature, involving both maintenance and repair services and transfer of materials. Citing the L & T Ltd case, the Tribunal held that service tax was not chargeable pre-2007 and post-2007, maintenance and repair services were not covered under the works contract definition. The invoices showing separate VAT payments on goods indicated that service tax was not applicable on the entire amount received. Consequently, the Tribunal allowed the appeal, setting aside the impugned order.

In conclusion, the Tribunal ruled in favor of the appellant, holding that they were not liable to pay service tax on the full amount received for maintenance and repair services. The judgment emphasized the importance of correctly categorizing services under relevant tax provisions and ensuring proper documentation to support tax liabilities.