2017 (3) TMI 1507 - AT - Service Tax

Appeal Dismissed on Transfer of Material Costs & VAT Payment; Emphasizes Distinction between Goods Sold & Services Rendered

The appeal challenging the Order-in-Appeal regarding the transfer of material costs to the principal in repair work was dismissed. The Commissioner found ... Material, used in repair, transferred to principal - levy of tax - job-work - Held that: - the ld. Commissioner (Appeals) has rightly held that there is transfer of materials in the repair and maintenance done by the respondent-assessee and accordingly no service tax is eligible on the same - appeal dismissed - decided against Revenue. Issues:1. Appeal against Order-in-Appeal regarding transfer of material cost to principal in repair work.2. Appeal on grounds of VAT payment on goods not sold, leading to alleged underpayment of tax.Analysis:1. The first issue revolves around the appeal challenging the Order-in-Appeal, where it was held that the respondent had transferred material costs to their principal in the repair work, citing the ruling of the Supreme Court in Imagic Creative Private Ltd. vs. Commissioner of Commercial Taxes. The Commissioner (Appeals) noted that the contract specified the payment of service tax separately, and after considering various legal precedents, concluded that materials used in maintenance services should be considered as sold. The Commissioner found that the respondent had paid service tax on 42% of the total contract value, which was deemed reasonable, leading to the dismissal of the appeal and granting of consequential relief.2. The second issue pertains to the appeal based on the alleged underpayment of tax due to VAT payment on goods not sold. The appellant argued that VAT was paid on the cost of goods, but as the goods were not actually sold separately and were part of a complete repair package, there was a shortfall in tax payment. However, the Commissioner (Appeals) found that the payment of sales tax on goods used in maintenance services precluded the imposition of service tax on the same, and the appellant's payment of service tax on 42% of the contract value was deemed reasonable. Consequently, the appeal of the revenue was dismissed, and the order in appeal was upheld.In conclusion, the judgment highlights the importance of differentiating between goods sold and services rendered in contracts involving repair and maintenance work, emphasizing the legal implications of VAT and service tax payments in such scenarios. The decision underscores the need for a balanced approach in determining tax liabilities based on the nature of transactions and prevailing legal interpretations.