Value of materials not includible in the value of services where the Agreement quantifies the value of materials separately from the value of services rendered

Dear Professional Colleague,

Value of materials not includible in the value of services where the Agreement quantifies the value of materials separately from the value of services rendered

We are sharing with you an important judgement of the Hon’ble High Court of Allahabad in the case of Commissioner of Central Excise Vs. Goverdhan Transformer Udyog Pvt. Ltd. [2014 (11) TMI 468 – Allahabad High Court]on following issue:

Issue:

Whether value of materials is includible in the value of services, when the Agreement quantifies the value of materials separately from the value of services rendered?

Facts and Background:

Goverdhan Transformer Udyog Pvt. Ltd. (“the Assessee”) provided Management, Maintenance and Repair services (“Repair services”) for the repair of old and damaged transformers to Dakshinanchal Vidyut Vitaran Nigam Ltd. (“DVVN”). The Department alleged that the transformer oil, HV/ LV coil and spare parts, which are goods incorporated into transformers belonging to the DVVN, should be included for the purpose of quantifying the gross consideration received by the Assessee for Repair services as constituting the taxable value.

Later, the Hon’ble Tribunal relying upon its own decision in the case of Commissioner of Customs and Central Excise Vs. J.P. Transformers [2014 (9) TMI 307 - ALLAHABAD HIGH COURT](“J.P. Transformers case”) and on Notification No. 12/2003-ST dated June 20, 2003, decided the matter in favour of the Assessee and held that the law is settled and the principle of law being that where an Agreement quantifies the value of materials separately from the value of services rendered, the value of the materials or goods would have to be excluded since that component is not liable to Service tax.

Being aggrieved, the Department preferred an appeal before the Hon’ble High Court of Allahabad.

Held:

The Hon’ble High Court of Allahabad also relied upon the J.P. Transformers case and held that when the Agreement between the Assessee and DVVN incorporated separately the value of the goods or materials from the value of the Repair services rendered, Service tax cannot be levied on the component of goods or materials. Service tax can be levied only on the value of the Repair services rendered.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks and Best Regards.

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

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