2013 (10) TMI 1433 - AT - Service Tax

Appellant wins service tax case on maintenance charges and consumables exclusion. Stay granted during appeal.

The Tribunal ruled in favor of the appellant in a case concerning liability for service tax on various services. It held that handling charges related to ... Taxability of handling charges on supplied materials as Business Auxiliary Services - availability of Notification No. 12/2003 exclusion for value of goods sold in course of providing service - inclusion of cost of consumables in gross taxable value of repair/maintenance service - tax liability of the recipient for consulting engineer services received from abroad and timing of taxable event - application of Tribunal precedent on exclusion of material cost from service valueTaxability of handling charges on supplied materials as Business Auxiliary Services - availability of Notification No. 12/2003 exclusion for value of goods sold in course of providing service - Whether the 13% handling charge collected on paints supplied/ invoiced to shipowners is taxable as Business Auxiliary Services or excluded under Notification No. 12/2003 - HELD THAT: - On the material placed before the Tribunal, prima facie the appellants have invoiced the paint and paid VAT inclusive of the handling charge; Notification No. 12/2003 would prima facie apply. The tribunal observed that mere contractual terminology or the fact that paint was procured by the appellant on behalf of the shipowner does not conclusively convert the handling charge into a taxable procurement service where the main activity is maintenance and repair. Procurement of paint for use in providing the core maintenance/repair service, when invoiced and taxed under VAT, does not attract service tax in the manner claimed by Revenue on a prima facie review. The Tribunal therefore found the Revenue's classification of the handling charge as BAS unsustainable on prima facie consideration. [Paras 2]Prima facie case in favour of the assessee; handling charges not to be treated as BAS for the purpose of stay; benefit of Notification No. 12/2003 available.Inclusion of cost of consumables in gross taxable value of repair/maintenance service - application of Tribunal precedent on exclusion of material cost from service value - Whether the cost of paints/consumables used in repair should be included in the gross taxable value of the repair service - HELD THAT: - The Tribunal relied on its earlier decision in Shri Ram Switchgears (citing Kailash Transformers) which holds that supplies of materials incorporated in repair/maintenance are not to be included in the gross taxable value for service tax, since the Finance Act, 1994 taxes the service component and is not a commodity tax. On the prima facie facts here, and given that appellants have prima facie established eligibility for Notification No. 12/2003, the issue of including consumable material cost in taxable value is covered in favour of the assessee. [Paras 3, 4]Prima facie case in favour of the assessee; cost of paints/consumables need not be included in taxable value for the purpose of stay.Tax liability of the recipient for consulting engineer services received from abroad and timing of taxable event - Whether the appellants are liable to pay service tax as the receiver of consulting engineer services received from abroad where payment was made after 18-4-2006 but services were claimed to have been received prior to that date - HELD THAT: - The Commissioner recorded a finding that the amount was received in 2006-07 but did not record any specific finding that the services themselves were received in 2006-07. The appellants contend that the taxable event (receipt of service) occurred prior to 18-4-2006, and payment after that date does not make the transaction taxable. In the absence of a finding that the services were received in 2006-07, the appellants have made out a prima facie case for waiver of pre-deposit. [Paras 5]Prima facie case in favour of the assessee on the issue of consulting engineer services; no requirement of pre-deposit for stay on this component.Final Conclusion: On prima facie consideration the Tribunal found in favour of the appellant on all principal contentions raised for stay: the handling charges on paints are not prima facie taxable as BAS and Notification No. 12/2003 is available, the cost of consumables need not be included in taxable value in view of Tribunal precedent, and there is no prima facie finding that consulting engineer services were received post 18-4-2006. Accordingly the requirement of pre-deposit was waived and stay against recovery was granted during the pendency of the appeal. Issues involved: Determination of liability for service tax on business auxiliary services, management, maintenance or repair services, consulting engineer services, and applicability of Notification No. 12/2003.Liability for Business Auxiliary Services (BAS): The appellant, engaged in ship manufacture and repair, faced a demand for service tax on handling charges collected under BAS. The handling charges were added due to VAT Act requirements, but the Tribunal found that the handling charges were not chargeable separately for tax as they were related to the main activity of maintenance and repair. The Tribunal also noted that the value shown in the invoice need not be equal to the cost, and intent should be considered over contractual terms.Liability for Consumables in Repair Services: Another demand was made for including the cost of paints used in ship repair. The Tribunal found that the cost of consumables, like paint, should not be included in the taxable value of services provided, citing precedents where only the service component, not material costs, is liable for tax. The Tribunal ruled in favor of the appellant on this issue.Liability for Consulting Engineer Services: A demand for consulting engineer services received by the appellant was contested, with the appellant arguing that services were received prior to the taxable period. The Tribunal found that there was no specific finding that the services were received in the taxable period, leading to a prima facie case for waiver of the tax liability.Operative Order: The Tribunal waived the pre-deposit requirement and granted a stay against recovery during the appeal process, based on the prima facie cases made by the appellant on various liability issues.