Exclusion of material cost from service tax value upheld for composite maintenance contracts under settled Supreme Court precedent.

In a composite maintenance or repair contract, the cost of materials used in execution could be excluded from the taxable value under Notification No. 12/2003-ST where the assessee discharged service tax on the labour component separately. The analysis followed settled Supreme Court authority on similar composite contracts, and on that basis the inclusion of material cost in the assessable value was not sustainable. Accordingly, the demand based on such inclusion could not be upheld.

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Issues: Whether the cost of materials used in executing the composite maintenance or repair contract could be excluded from the taxable value for service tax under Notification No. 12/2003-ST.

Analysis: The appellant had discharged service tax on the labour component after excluding the cost of materials. The entitlement to deduct the value of materials under Notification No. 12/2003-ST was directly supported by the Supreme Court's ruling in a similar composite contract situation. In view of that settled position, the demand based on inclusion of material cost in the assessable value could not be sustained.

Conclusion: The cost of materials was allowable for exclusion from the taxable value, and the demand was unsustainable.

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