Service tax on replacement parts in maintenance contracts remained arguable where sales tax had already been paid on the goods.

Service tax on components and parts supplied under annual maintenance contracts was treated as an arguable issue where the goods had already suffered sales tax. The record showed invoices and assessment orders evidencing payment of sales tax on the replacement parts, while the contracts did not separately specify their value. In that setting, Notification No. 12/2003-ST and the distinction between taxable service elements and the value of goods required closer consideration, including the Board circular cited by the revenue. On that basis, the appellants were held entitled to waiver of pre-deposit and stay of recovery.

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Issues: Whether the appellants were entitled to waiver of pre-deposit and stay of recovery in respect of service tax demanded on the cost of components and parts supplied under annual maintenance contracts, having regard to Notification No. 12/2003-ST and the fact that sales tax had been paid on such goods.

Analysis: The demand related only to the cost of components and parts supplied during maintenance of elevators under the annual maintenance contracts. The contracts did not separately specify the cost of replacement components, but the record showed that the components and parts supplied had suffered sales tax, supported by invoices and assessment orders. The issue was considered arguable because the taxable service element and the value of goods on which sales tax had been paid required consideration in the light of Notification No. 12/2003-ST. The order also noted the relevance of the Board circular relied upon by the revenue and the assessee's reliance on the principle that service tax should not be levied on goods already subjected to sales tax.

Conclusion: The appellants were entitled to waiver of pre-deposit and stay of recovery.

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