2014 (4) TMI 995 - AT - Service Tax

Service tax not applicable on goods used for repair, only on service/labour charges. Split contracts for goods & services. Rule 5(1) struck down.

M/s. Samtech Industries and others Versus CCE. Kanpur and others

The Tribunal held that service tax was chargeable only on the service/labour charges, excluding the value of goods used for repair. It found that the ... Valuation of goods - Revenue contends that service tax is chargeable on the gross amount charged for repair of the transformers including value of consumables like transformer oil and the component parts like HV/LV coil etc. used - Held that:- in respect of the supply of the goods used for providing the service of repair, Sales Tax/VAT is paid. This fact is clear from the invoices placed on record. In view of this, the appellants contracts with their customers have to be treated as split contracts for supply of goods and rendering the service. When the value of the goods used has been shown separately in the invoices and Sales Tax/VAT has been paid on the same, the supply of the goods would have to be treated as sale and the transactions which are sale, cannot be the part of service transaction. In view of this, we hold that Service Tax would be chargeable only on the Service/Labour charges i.e. on service component and the value of goods used for repair would not be includible in the assessable value of the service - Following decision of Intercontinental Consultants & Technocrafts Pvt. Vs. Union of India & Others Ltd. reported in [2012 (12) TMI 150 - DELHI HIGH COURT] - value of goods used for providing the service, which had been shown by the appellant separately in their invoices and on which Sales Tax/VAT had been paid, cannot be included for assessable value and no Service Tax can be charged on the same. The impugned orders, therefore, are not sustainable - Decided in favour of assessee. Issues:Service tax liability on repair of transformers including value of consumables and components used.Analysis:The appellants, engaged in transformer repair, were charged with service tax demands based on the gross amount charged for repair, including the value of consumables like transformer oil and component parts like HV/LV coils. The Department contended that service tax should be levied on the entire repair amount. Various orders confirming service tax demands were passed against the appellants by different Commissioners.Argument by Appellants:The appellants argued that the value of goods used for repair should not be included in the assessable value of the service as they charged separate amounts for service/labour charges and goods used for repairs. They claimed that the goods used were sold separately, satisfying conditions for exemption under a specific Notification. They cited a High Court judgment supporting their position.Argument by Respondent:The Jt. CDR defended the impugned orders, stating that service tax should be charged on the gross amount for repair services, including the value of goods used. He referred to a Tribunal judgment and provisions of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 to support his argument.Judgment:After considering both sides, the Tribunal found that the appellants' contracts were split contracts for supply of goods and rendering services. As the value of goods used was shown separately in the invoices and Sales Tax/VAT was paid on them, the supply of goods had to be treated as a sale and not part of the service transaction. The Tribunal held that service tax was chargeable only on the service/labour charges, excluding the value of goods used for repair. It was noted that Rule 5(1) had been struck down by the Delhi High Court, supporting the appellants' position. Consequently, the impugned orders were set aside, and the appeals were allowed.This detailed analysis outlines the core issues, arguments presented by both parties, and the Tribunal's reasoning leading to the judgment in favor of the appellants.