Composite repair contracts: separately billed replacement parts are excluded from service tax valuation.

In composite contracts for transformer repair, where the contract and invoices separately identify repair work and replacement parts, the value of goods used for replacing old parts is treated as a separate supply and not as part of the taxable value of the repair service. The settled principle applied is that goods supplied during maintenance or repair, when their cost is separately borne, are excluded from service tax computation. The Tribunal relied on its later decisions, Supreme Court affirmation in similar matters, and the Allahabad High Court's view on transformer repair contracts, confirming that service tax was not payable on the goods component.

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Issues: Whether, in a composite contract for repair of transformers, the value of goods used for replacement of old parts was liable to be included in the taxable value of the repair service.

Analysis: The contract and invoices showed separate identification of the repair work and the supply of parts, with the value of goods used for replacement being separately reflected. The Tribunal followed the settled principle that where goods are supplied during execution of a maintenance or repair contract and the cost is borne separately, the goods component is to be treated as a sale and not as part of the service value. The later decisions of the Tribunal, the Supreme Court's affirmation in similar matters, and the Allahabad High Court's ruling on transformer repair contracts supported exclusion of the goods value from service tax computation.

Conclusion: The value of goods used in the repair activity was not includible in the value of taxable services, and service tax was not payable on that portion.

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