Service tax valuation excludes spare parts sold separately in transformer repairs when VAT or sales tax is paid and evidenced.

Spare parts used in transformer repairs were not required to be included in the taxable value of the service where the appellant showed the material cost separately from repair charges and had paid sales tax and VAT on the parts. The Tribunal applied the principle that goods sold by a service provider and evidenced by VAT or sales tax payment are treated as a sale of goods, so their value is excluded from service tax valuation. Supported by precedent and the Board's circular, this entitled the appellant to the stay relief sought.

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Issues: Whether the value of spare parts used in repairing transformers was liable to be included in the value of the taxable service for service tax purposes, and whether the appellant was entitled to the benefit of the exemption governing such material value.

Analysis: The appellant had shown the cost of spare parts separately from repair charges and had paid sales tax and VAT on the material used. The Tribunal noted that, where sales tax and VAT are paid on the material, the transaction is treated as a sale of goods and the value of such goods is not includible in the taxable value of the service. This view was supported by precedent decisions and by the Board's circular clarifying that spare parts sold by a service provider are not to be included in the value of taxable service when VAT or sales tax has been paid and the sale is evidenced.

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

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