2013 (12) TMI 799 - AT - Service Tax

Appellant prevails in service tax appeal over material value, department fails to prove case

The Tribunal allowed the appellant's appeal regarding the levy of service tax on the value of materials used in maintenance and repair services. The ... Demand of service tax - Maintenance and repair service - Inclusion of cost of materials for the purpose of levy of service tax - Held that:- invoices the cost of materials and ATF have been shown separately. Further on verification of 2 - 3 invoices, we also find that the cost of materials and ATF have not been arrived at on a notional basis. No doubt the details of materials have not been given. Further we also take note of the fact that the show-cause notice issued by the department recognized the fact that the value of materials was shown separately in the invoices. There is no finding either in the show-cause notice or in the adjudication order that the value of materials and ATF shown in the invoice does not reflect the actual position but has been indicated on a notional basis. Thus, we find on our own verification of a few invoices as well as the show-cause notice and the order-in-original, clearly show that in this case the materials and the ATF value were shown separately and repair/service cost was shown separately. Further the learned counsel also submits that the appellants have not availed CENVAT credit. Therefore, we see that the appellant has fulfilled the conditions required to be fulfilled for availing the benefit of Notification No.12/2003-ST dated 20.6.2003 - Decided in favour of assessee. Issues: Levy of service tax on the value of materials used in maintenance and repair services provided by the appellant.Analysis:The appellant provided maintenance and repair services for aircrafts of the Defence Ministry of the Government of India and paid service tax on the service portion until September 2007. The department initiated proceedings to demand service tax on the value of materials used during the period from September 2004 to June 2007, which resulted in a confirmation of demand for differential service tax with interest. The main contention was whether the cost of materials should be included for the levy of service tax.The appellant argued that they showed the value of materials separately in the invoices and that the agreements/contracts were for overhaul services, not spare parts. They relied on previous Tribunal decisions in their favor for different periods and contended that the value of goods sold cannot be included as per Notification No.12/2003-ST dated 20.6.2003. The appellant also highlighted that they did not avail CENVAT credit, fulfilling the conditions for availing the benefit of the notification.On the other hand, the department relied on a decision in the case of Safety Retreading Company (P) Ltd. and a decision of the Larger Bench in the case of Agarwal Colour Advance Photo System to argue that the appellant was not eligible for the benefit of the notification. They emphasized the essentiality of materials used in the repair service and whether the service could have been rendered without them.After considering the submissions, the Tribunal found that the cost of materials and ATF were shown separately in the invoices, and there was no evidence to suggest that the values were not actual but notional. The Tribunal noted that the appellant had not availed CENVAT credit and had met the conditions for the notification. The Tribunal distinguished the cited cases by pointing out that the appellant's case stood on its own merits, and based on the evidence available, the department had not made a case against the appellant. Consequently, the appeal was allowed with consequential relief, if any, to the appellants.