Separate sale of materials in tyre re-treading allows exclusion from service tax value and supports Notification 12/2003-S.T.

In tyre re-treading services, material value separately identified in purchase invoices, customer invoices and sales tax records could be excluded from the service tax base where the transaction showed distinct elements of sale of goods and provision of service. The material component was shown to be valued on an actual basis from MRF invoices, and sales tax had been paid on that component. On those facts, the value of goods sold could not form part of the taxable value, and Notification No. 12/2003-S.T. was held applicable. The service tax demand was therefore unsustainable.

---

---

Issues: Whether, in respect of tyre re-treading services, the value attributable to materials sold to customers could be excluded from the taxable value for service tax purposes and whether the benefit of Notification No. 12/2003-S.T. was admissible.

Analysis: The appellants produced purchase invoices, customer invoices and sales tax records showing separate identification of material cost and service charges. The record also showed that the value of materials was arrived at on an actual basis from MRF invoices and that sales tax had been paid on the material component. The transaction was therefore found to contain distinct elements of sale of goods and provision of service. In such a situation, the taxable value could not include the value of goods sold, and the exemption under Notification No. 12/2003-S.T. was held applicable.

Conclusion: The exclusion of the value of goods sold from the taxable value was admissible and the demand could not be sustained.

---