Service tax valuation excludes spare parts sold with VAT or sales tax paid in transformer repair contracts

For service tax purposes, the value of spare parts used in transformer repair and maintenance was held not to form part of the taxable service value where the parts were separately accounted for and sales tax or VAT had been paid on their sale. The Tribunal applied its earlier decisions and Board Circular No. 96/7/2007-S.T., which recognise that goods sold on payment of VAT or sales tax are excluded from the service tax valuation base. The view that replacement of parts was a contractual condition did not alter that position, and unconditional stay was granted.

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Issues: Whether, for service tax purposes, the value of spare parts used in repair and maintenance of transformers was liable to be included in the taxable value where sales tax and VAT had been paid on the materials and sale of such materials was evidenced.

Analysis: The appellant showed that the spare parts used in the repair activity were separately accounted for and subjected to sales tax and VAT. The Tribunal relied on its earlier decisions and the Board's Circular No. 96/7/2007-S.T., which state that where goods are sold and VAT or sales tax is paid on the transaction value, the value of such goods is not to be included in the value of the taxable service. The Commissioner's view that replacement of parts was an integral contractual condition did not outweigh the legal position already declared in the cited decisions and circular.

Conclusion: The value of spare parts was not liable to be added to the value of the taxable service, and the appellant was entitled to unconditional stay.

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