2013 (9) TMI 395 - AT - Service Tax

Appellant liable for service tax on retreading charges, exemption claim rejected, Cenvat Credit allowed

The Tribunal held that the appellant was liable to pay service tax on the gross amount charged for retreading activities from 16-6-2005 onwards, rejecting ... Management, Maintenance or Repair Service - Benefit of Notification No.12/2003-ST - The Respondent was engaged in retreading of tyres and had entered into a franchisee agreement - During the period 1-7-03 to 31-3-08, the appellant did not obtain any service tax registration and failed to pay service tax on the retreading activity undertaken by them - Revenue was of the view that the service was taxable under the category of 'management, maintenance or repair service - Held that:- The appellant was not eligible for the benefit of notification No. 12/03-ST and was liable to discharge service tax liability on the gross amount charged for the transaction for the period on or after 16-6-05 along with interest thereon in terms of provisions of Finance Act, 1994 - Following Speedways Tyre Service Versus Commissioner of Central Excise, Ludhiana [2008 (12) TMI 98 - CESTAT NEW DELHI] and Safety Retreading Company (P.) Ltd. Versus Commissioner of Central Excise, Salem [2012 (6) TMI 719 - CESTAT, CHENNAI (THIRD MEMBER)]. The appellant would also be eligible to take Cenvat Credit of the excise duty/CVD, if any paid, on the materials used for the retreading service, in accordance with law - Since the issue involved interpretation of law and there were conflicting views on the subject matter, imposition of penalty was not warranted and the same was set aside - 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 purposes of notification No. 12/03-ST – Decided in favor of Revenue. Issues:- Interpretation of service tax liability on retreading activity- Applicability of Notification No.12/2003-ST on the value of goods and materials sold- Consideration of documentary proof for exemption under Notification No.12/2003-ST- Comparison of tribunal decisions on similar cases- Determination of service tax liability based on gross amount chargedInterpretation of service tax liability on retreading activity:The appeal involved a dispute regarding the service tax liability on retreading activities undertaken by a company engaged in retreading of tyres. The appellant did not obtain service tax registration or pay service tax for the period from 1-7-03 to 31-3-08. The Commissioner initially held that the service was not taxable until 16-6-2005 due to the absence of a maintenance contract. However, the Revenue contested this decision, arguing that the service tax liability should be confirmed for the period from 16-6-2005 to 31-3-08 based on the gross amount charged for the services rendered.Applicability of Notification No.12/2003-ST on the value of goods and materials sold:The dispute further revolved around the applicability of Notification No.12/2003-ST, which grants exemption from the value of taxable services equal to the value of goods and materials sold by the service provider. The appellant contended that the value of goods sold should be excluded from the service tax liability. However, the Revenue argued that the appellant's bifurcation of the invoice value into material cost and labor charges was arbitrary, and the value of goods consumed in the service process should not be considered for exemption under the notification.Consideration of documentary proof for exemption under Notification No.12/2003-ST:The Tribunal examined the sample invoice provided by the appellant for the retreading work, noting the lack of specific details regarding the goods sold. The Tribunal emphasized the requirement for documentary proof indicating the description, quantity, unit rate, and value of goods sold to qualify for the exemption under Notification No.12/2003-ST. The Tribunal referred to previous decisions and highlighted the necessity of substantiating the amount attributable to the value of goods supplied for the exemption to apply.Comparison of tribunal decisions on similar cases:The Tribunal reviewed previous decisions by different benches on similar cases related to retreading activities. The Revenue cited cases where the benefit of Notification No.12/2003-ST was denied due to insufficient proof of goods sold, supporting their argument against granting the exemption. In contrast, the appellant referenced cases where the benefit of the notification was allowed based on the payment of service tax on a portion of the gross amount, treating the balance as the value of goods.Determination of service tax liability based on gross amount charged:After considering the arguments and legal positions presented by both parties, the Tribunal concluded that the appellant was not eligible for the benefit of Notification No.12/2003-ST. The Tribunal held that the appellant was liable to discharge the service tax liability on the gross amount charged for the transaction from 16-6-2005 onwards, along with interest. The Tribunal also clarified that the appellant could claim Cenvat Credit on excise duty/CVD paid on materials used for the retreading service. Finally, the Tribunal set aside the imposition of penalties due to conflicting views on the interpretation of the law.