Composite tyre retreading contracts require fact-based separation of service and material elements for exemption and taxability analysis.

In a composite tyre retreading contract involving labour and materials, the service tax issue turned on whether the material portion qualified for exemption under Notification No. 12/2003-ST and how the service component was to be identified. The Tribunal noted that, consistent with G.D. Builders, service tax may apply to the service element of a contract that also involves sale of goods, and the absence of a fixed computation formula does not by itself defeat taxability. The impugned order was set aside and the matter remanded to the adjudicating authority for fresh determination of exemption and taxability on the facts.

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Issues: Whether the benefit of Notification No. 12/2003-ST dated 20.06.2003 was available on the value of materials used in tyre retreading under the head of maintenance or repair service.

Analysis: The dispute concerned service tax on retreading of tyres, where tax had been paid on labour charges and exemption was claimed for the material portion under Notification No. 12/2003-ST dated 20.06.2003. The Tribunal noted that the question had to be examined in the light of the decision in G.D. Builders, which recognised that service tax may be levied on the service component of contracts involving both service and sale of goods, and that computation of the service component is a matter of calculation. The matter was therefore required to be reconsidered on its own facts and in accordance with law.

Conclusion: The impugned order was set aside and the matter was remanded to the adjudicating authority for fresh on the disputed exemption and taxability issue.

Ratio Decidendi: In a composite service involving materials and labour, the service tax liability and exemption claim must be determined by examining the service component on the facts of the case, and the absence of a computation formula does not by itself negate taxability.

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