Invoice-wise recovery of material costs can qualify for service tax exemption when records sufficiently prove the claim.

Separate recovery of the value of materials used in providing service, when shown distinctly in invoices and supported by records, qualifies for exemption under Notification No. 12/2003-S.T. The document states that out-of-pocket expenses and material costs recovered from clients were adequately evidenced, and that such documentary proof was sufficient to establish entitlement to the exemption. On that basis, the service tax demand could not be sustained and consequential relief followed.

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Issues: Whether the appellant was entitled to the benefit of Notification No. 12/2003-S.T. in respect of cost of materials and out of pocket expenses recovered from clients, and whether the documents produced were sufficient to establish such entitlement.

Analysis: The demand arose from the view that the appellant had not proved eligibility for the exemption. The records showed that the invoices for the relevant period separately reflected the cost of materials used during the provision of service and that the amounts were recovered on that basis. Where the material cost is separately indicated in the invoice and the recovery represents the price of goods sold in the course of service, the exemption under the notification is attracted. The documents produced were found sufficient to establish the claim.

Conclusion: The appellant was entitled to the benefit of Notification No. 12/2003-S.T., and the demand could not be sustained.

Final Conclusion: The appeal succeeded and the confirmation of service tax demand was set aside with consequential relief.

Ratio Decidendi: Separate recovery of the value of goods sold during the course of providing service, when reflected in the invoice and supported by records, qualifies for exemption under the relevant notification.

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