2019 (2) TMI 1177 - AT - Service Tax

Classification of services - tyre re-trading activity - whether covered under the category of management, maintenance or repair service or not? - consideration for charge of service tax - benefit of N/N. 12/2003 - Held that - The activity carried out by the appellant is in the nature of retreading of tyres. Evidently, such activity is in the nature of repair and maintenance of tyres. The activity includes use of certain materials in the process of retreading. The appellant is found to charge a consolidated invoice for recovery of the charges from the customer. They were found to have imposed a stamp on the invoice indicating the split up of the overall invoice value into the material and spares cost as well as labour charge and have discharged the service tax liability only to the extent of labour charges. The only reason for denying the benefit of the Notification is that the documentary proof specifically indicating the value of the said goods and services was not available on the part of the appellant - In this connection an identical activity has been considered by the Hon ble Supreme Court in the case of Safety Re-trading Co. Pvt. Ltd. 2017 (1) TMI 1110 - SUPREME COURT , where it was held that in terms of Section 67 of the Finance Act, 1994, the valuation of taxable services specifically excludes the cost of parts or other material, if any, sold to the customer while providing maintenance or repair service. The Apex Court has further held that this will include the deemed sale of material consumed in providing such service. Revenue has proceeded to deny the benefit of the Notification on the presumption that the same has been done after issuance of the invoice for manipulating the facts by showing lesser amount than shown in the invoice. No further investigation appears to have been done to substantiate the above presumption. There is no justification for denying the benefit of N/N. 12/2003 - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Dispute over service tax payment for tyre re-trading activity.
2. Denial of benefit under Notification No. 12/2003 due to lack of documentary proof.
3. Interpretation of valuation of taxable services for repair and maintenance activities.
4. Application of judgments by the Hon'ble Supreme Court and the Tribunal in similar cases.
5. Justification for denying or allowing the benefit of the Notification.

Issue 1: Dispute over service tax payment for tyre re-trading activity:
The appellant, engaged in tyre re-trading, faced a dispute regarding the category under which the activity fell for service tax payment. The Department classified it as management, maintenance, or repair service under Section 65 (64) of the Finance Act, 1994. The appellant paid service tax under this category, availing exemption under Notification No. 12/2003, which required proof of the value of goods and materials sold.

Issue 2: Denial of benefit under Notification No. 12/2003 due to lack of documentary proof:
The Department, upon reviewing the appellant's invoices, found that the split-up of material, spares, and labor charges indicated on the invoices did not meet the condition of the Notification. The Department proposed to recover the service tax differential, claiming the stamps on the invoices were not valid documentary proof. The lower authorities upheld this denial, leading to the present appeal.

Issue 3: Interpretation of valuation of taxable services for repair and maintenance activities:
The Tribunal analyzed the activity of tyre re-trading as repair and maintenance, involving the use of materials. The lower authorities contended that the appellant failed to show the value of goods and materials separately, leading to the denial of the Notification benefit. However, the Tribunal referred to the Hon'ble Supreme Court's decision, which clarified that the valuation of taxable services excludes the cost of materials sold to the customer during repair services.

Issue 4: Application of judgments by the Hon'ble Supreme Court and the Tribunal in similar cases:
The appellant's representative cited the Supreme Court's decision in Safety Retrading Co. Pvt. Ltd., emphasizing that service tax liability for re-trading old tyres should only cover labor charges, not material value. The Tribunal noted that the Apex Court's ruling excluded the cost of parts or materials sold during repair services, supporting the appellant's argument.

Issue 5: Justification for denying or allowing the benefit of the Notification:
After examining the evidence, including invoices and the ratio of material value to labor charges, the Tribunal found no basis for denying the Notification benefit. The appellant had paid service tax on labor charges and satisfied the conditions for exemption under Notification No. 12/2003. Consequently, the Tribunal set aside the impugned order, allowing the appeal.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, relevant legal interpretations, and the ultimate decision rendered by the Tribunal.