Separate valuation of repair materials excludes their value from service tax when documented and taxed as goods.

Goods and materials used in transformer repair and maintenance were held outside service tax where the contract and invoices separately showed their value and indirect tax had already been paid on them. The separate identification of the material component was not displaced by the contract's price-variation mechanism, and Notification No. 12/2003-ST excluded the value of goods sold by the service provider from the taxable value when supported by documentary proof. On the admitted facts, the material portion could not be included in the service tax base, and the demand on that component was unsustainable.

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Issues: Whether service tax was leviable on the value of goods and materials used in the repair and maintenance of transformers where their value was separately shown in the agreement and invoices and excise duty or VAT had been paid thereon.

Analysis: The contract and invoices separately disclosed the value of the materials used in repairs, including items such as coils and transformer oil. The factual finding accepted below was that the assessee had paid the applicable indirect tax on those goods, and the segregation of the material component was not negated merely because the contract also used a price-variation mechanism. Under Notification No. 12/2003-ST, the value of goods and materials sold by a service provider is not includible in the taxable value where documentary proof specifically indicates that value. On the admitted facts, the component attributable to materials could not be subjected to service tax.

Conclusion: Service tax was not payable on the value of the goods and materials used in the repair work; the demand on that component was unsustainable.

Ratio Decidendi: Where goods used in the course of repair and maintenance are separately identifiable and their value is duly documented and taxed as goods, that value is excluded from the taxable value for service tax.

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