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TMI Blog2012 (6) TMI 719X X X X Extracts X X X X X X X X Extracts X X X X ..... - 1149/2011 - Dated:- 14-10-2011 - M. VEERAIYAN, MS. JYOTI BALASUNDARAM, DR. CHITTARANJAN SATAPATHY, JJ. ORDER Ms. Jyoti Balasundaram, Vice-President - The appellants herein who carry out retreading of tyres on job work basis paid service tax under the heading of "Maintenance and Repair" services only on labour charges shown in the invoices and did not include cost of tread material procured from M/s.MRF depot at Coimbatore. They paid 30% service tax only on the labour component after deducting 70% towards material cost on the gross re-treading charges billed. A show-cause notice dt. 24.1.2008 was therefore issued to the appellants alleging suppression of the value of taxable services with intention to evade payment of service tax, proposing recovery of service tax of Rs. 79,08,477/- on differential value of Rs.6,92,45,440/, during the period 16.6.05 to 31.3.07, together with interest and proposing penal action under the provisions of Sections 76, 77 and 78 of the Finance Act, 1994. The notice was adjudicated by confirmation of the demand raised together with interest and imposition of a penalty of equal amount under Section 78, penalty of Rs. 200/- per day from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re should be a documentary proof specifically indicating the value of the said goods and materials. In the absence of documentary proof, a service provider may claim deduction in an arbitrary manner. In order to avoid that the above condition has been stipulated, it should be borne in mind that there is no requirement that in each and every invoice, such values of goods and materials should be indicated. 8.4 The Punjab Color Lab. Association, Jalandar, sent representation to the Finance Minister with regard to exempting the materials consumed by the service providers while providing the taxable service. In response to their representation, the CBEC issued a clarification dated 7-4-2004. That clarification is reproduced below:- "I am directed to refer to your representation forwarded to Finance Minister vide letter dated 11-3-2003 and state that in terms of the notification 12/2003-ST dated 20-6-2003, the exemption in respect of input material consumed/sold by the service provider to the service recipient while providing the taxable service is available. However, the exemption is available only if the service provider maintains the records showing the material consumed/sold whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(n) of the local Sales Tax Act. The authorities decided that the turnover of the photographers would be exigible to the levy of Sales Tax. This issue was examined by the Hon'ble Apex Court and it was held that the job rendered by a photographer in taking photographs, developing and printing films does not amount to 'works contract' and not exigible to the levy of sales tax. In other words, the work done by the photographer is only in the nature of a service contract and not involving any sale of goods. 8.7 In the C.K. Jidheesh case, the Apex Court followed the decision of the Rainbow Colour Lab case. In the Jidheesh case, the petitioner claimed that the UOI must bifurcate the gross receipts of processing of photographs into the portion attributable to goods and that attributable to services. Then, it must tax only that portion of the receipts, which is attributable to the services rendered. While dismissing the petition, the Apex Court made the following observations in para 11. 11. There is one further difficulty in the way of the Petitioner. This Court has, in the case of Rainbow Colour Lab. v. State of M.P. [2000] 2 SCC 385, held that contracts of the type entered into by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held to apply to the entry in the Legislative List and three essential components are required to constitute a transaction of sale. They are (i) an agreement to transfer title; (ii) supported by consideration; and (iii) an actual transfer of title in the goods. In the absence of any one of these elements, it was held that there was no sale. For example, a contract under which a contractor agreed to set up a building would not be a contract for sale. It was one contract and there was no separate agreement for sale of goods justifying the levy of sales tax by the State Government. Similarly, there was difficulty in levying sales tax on hire purchase contracts and catering contracts because they were not considered to be contracts for sale of goods. The decided case-law in the subject was State of Madras v. Gannon Dunkerly 1958 (9) STC 353 (SC). Various High Court decisions held that the transactions involving work contracts, hire purchase contracts and catering contracts would not come within the purview of Sales tax and, therefore, the State Governments were not in a position to levy sales tax. In order to solve the problems confronting the states, the issue of the power of States t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement could be isolated and be subjected to sales tax." 8.12 Paras 44, 45, 46 and 47 are very relevant for the present case. They are reproduced below:- "44. In Rainbow Colour Lab. Anr. v. State of M.P. Ors. - [2000] 2 SCC 385, the question involved was whether the job rendered by the photographer in taking photographs, developing and printing films would amount to a "work contract" as contemplated under Article 366(29A)(b) of the Constitution read with Section 2(n) of the M.P. General Sales Tax Act for the purpose of levy of sales tax on the business turnover of the photographers. 45. The Court answered the questions in the negative because, according to the Court :- "Prior to the amendment of Article 366, in view of the judgment of this Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 53/AIR 1958 SC 560 the States could not levy sales tax on sale of goods involved in a works contract because the contract was indivisible. All that has happened in law after the 46th Amendment and the judgment of this Court in Builders' case (1989) 2 SCC 645 is that it is now open to the States to divide the works contract into two separate contracts by a le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any right to use any goods by providing access or telephone connection by the telephone service provider to a subscriber? (C) is the nature of the transaction involved in providing telephone connection a composite contract of service and sale? If so, is it possible for the States to tax the sale element? (D) If the providing of a telephone connection involves sale is such sale an inter state one? (E) Would the "aspect theory" be applicable to the transaction enabling the States to levy sales tax on the same transaction in respect of which the Union Government levies service tax. In para 85, the questions formulated were answered in the following manner: ** ** ** (E) The aspect theory would not apply to enable the value of the services to be included in the sale of goods or the price of goods in the value of the service. Presently, what is of interest to us is the answer to question (E). What is 'aspect theory?' This has been stated in Federation of Hotel Restaurant Association of India v. UOI - 1989 (3) SCC 634 as "Subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for disposal. 2. Assessees filed appeals against demand of tax for the period 16-6-2005 to October, 2005. Revenue filed appeals against setting aside of demand of tax for the period 1-7-2003 to 15-6-2005 and penalties by the Commissioner (Appeals). 3. The relevant facts of the case, in brief, are that the assessees are engaged in repairing of used and worn out tyres. The process of repairings, in brief, are that the vulcanizing solution are applied on bald tyre with spray gun and same are allowed to dry for some time. The rubber is then bound on tyre with binding machine. The tyre is thereafter fitted with the rim and placed on the vulcanizing machine wherein compressed air and steam are passed to vulcanize the rubber. The tyre after stipulated time are taken out from vulcanizing machine and allowed to cool in natural conditions. It is called as retreading tyre. 4. Service tax was demanded on "repair and maintenance service" introduced on 1-7-2003. Show cause notices were served on the assessees demanding tax and penalties for the period 1-7-2003 to 10-10-2005. The Adjudicating Authority confirmed the demand of tax and imposed penalties. The Commissioner (Appeals) modified th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue and assessees are rejected. " 6. From the description of the process of retreading of tyres as taken note of by the Delhi Bench of the Tribunal in paragraph 3 of its above cited order, it is very clear that the gross value of the service has to be adopted for the purpose of levy of service tax as no material is being sold by the appellants separately from rendering the service of repairing. 7. As such, I am of the view that the present appeal requires to be dismissed insofar as it relates to demand of service tax, demand of interest, levy of penalty under Sections 76 and 77 of the Finance Act, 1994. However, as regards the penalty under Section 78 of the Finance Act, 1994, I am of the view that in the facts and circumstances of the case as also keeping in view that penalty under Section 76 has been imposed, the ends of justice would be met, if the penalty under Section 78 is set aside. I order accordingly. Rex POINTS OF DIFFERENCE The following points of difference are placed before Third Member for resolution :- Whether the assessees are entitled to the benefit of deduction of cost of raw materials consumed in providing maintenance and repair services, in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s", in terms of Notification No. 12/2003-ST, dated 20.06.2003 and hence differential duty demand together with interest and penalty are to be set aside, as held by learned Vice-President OR Whether the gross value of the service has to be adopted for the purpose of levy of service tax, and hence demand together with interest and penalty under Sections 76 77 of the Finance Act, 1994 are required to be upheld, as held by the learned Technical Member." 11. (a) Learned advocate for the appellants submits old tyres were collected as per the order form and job cards were prepared with details of make, time, size, tyre number, job card number etc. They bought tread rubber from M/s. MRF Ltd. and used one pack for each tyre for retreading of the tyre. After retreading work was completed, they prepared an invoice indicating separately the actual cost of the materials used and paying sales tax on the second sales of the materials as per Tamil Nadu General Sales Tax Act, 1959 till 31.12.2006 and thereafter VAT under Tamil Nadu VAT Act, 2006. The appellants have filed sales tax/VAT in respect of materials 'sold' or 'deemed to have been sold'. They have also filed returns to the sales ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumed in rendering the services cannot be excluded from the value of taxable services. He refers to the statements of various clients to the effect that they are only concerned about getting the tyres retreaded and that they are not buying any materials. (b) He relied on the decision of the Hon'ble Supreme Court in the case of Idea Mobile Communication Ltd. v. CCE C [2011] 32 STT 262/12 taxmann.com 307 and submitted that the Hon'ble Supreme Court has clearly held that sale value of 'SIM card' should not be excluded in determining the value of services relating to activation as the same has no meaning without the 'SIM card'. In the light of ratio of the said decision, in the present case, there is no scope for inferring any in sale of materials while providing the service of retreading. (c) Regarding the decision of the Larger Bench of the Tribunal in the case of Aggarwal Colour Advance Photo System v. CCE [2011] 33 STT 33/13 taxmann.com 192 (New Delhi-Cestat) he submits that the issue regarding exclusion of value of other goods and material has been dealt with and it has been held as under:- "The value of other goods and material, it sold separately would be excluded under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 The present case, amount recovered from the customers is predominantly towards material cost and, therefore, the entire amount recovered cannot be treated as towards services rendered. 13.5 The provisions relating to Works Contract and the provisions in the Service Tax Valuation Rules are pari materia. 14. I have carefully considered the submission from both sides on the points of difference for consideration. 15.1 The appellants claim that there is sale of materials like tread rubber, patches, bonding gum to their customers. The statements of various customers relied upon by the department clearly go to show that the customers were only concerned about getting the worn out tyres retreaded and that they were not buying any materials. If there was sale of the materials, naturally, questions like what were the items sold, what quantities of the items were sold and at what rates they were sold arise. When these questions were put to the Ld. Advocate, he had no specific answers to these questions except stating that the invoices raised by the appellants indicated separately amounts towards material cost. There was also no satisfactory explanation as to how the cost of material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value. 16.3 It suffices to say that "it also cannot be disputed that even if sales tax is wrongly remitted and paid that would not absolve them from the responsibility of payment of service tax, if otherwise, there is a liability to pay the same" as held by the Hon'ble Supreme Court in the case of Idea Mobile Communication Ltd. (supra). In other words, the liability to service tax by the appellants has to be determined without being influenced by the fact of their paying sales tax/VAT on a portion of the value said to represent the material cost. 17.1 The issue involved relates to benefit of deduction of cost of raw materials consumed in providing 'Maintenance and Repairs Service'. Many decisions relating to photography services like the decisions in the case of Kerala Colour Lab Association v. Union of India [2007] 8 STT 353, decisions in the case of C.K. Jidheesh v. Union of India [2005] 2 STT 242 (SC), Rainbow Colour Lab v. State of Madhya Pradesh [2000] 2 SCC 385, have been relied upon. It is pertinent to note that in all these cases, the dispute related to photographic service which has been held to be a Works Contract by the Hon'ble Supreme Court. The Service Tax Valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicating the value of the said goods and materials so sold by them. The invoices unilaterally raised by the appellants indicating the break-up without substantiating the amount attributable to the value of the goods supplied cannot be considered as documentary proof for the purposes of the said notification. 18. The Tribunal in the case of Speedways Tyre Service cited (supra) has held that the amount charged by the service provider should include the material cost in terms of provisions under Section 67 of the Finance Act. In the present case also, in the absence of evidence produced by the appellants to substantiate their claim of sale with reference to quantum and value of such claimed sale, the ratio of the said decision shall be applicable. 19. Service tax Valuation Rules have been framed obviously within the framework of the said Section 67 of the Finance Act. In other words, the Rules only clarify the legal provision and the same cannot be treated as going beyond the provisions of Section 67. The instances, where the value of goods sold requires to be excluded can be seen from illustrations mentioned in the said Valuation Rules. For example, when a motor vehicle is sent for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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