Service tax valuation excludes separately billed materials in tyre retreading works contracts, with Notification No. 12/2003-ST applying.

In tyre retreading treated as a works contract, the separately identified value of materials sold in the course of providing the service was not includible in the service tax base when VAT had been paid on those materials. The Tribunal applied the principle that a service tax valuation cannot include the value of goods transferred as part of the transaction where the material component is separately shown in the invoice and taxed as goods. It also held that Notification No. 12/2003-ST extends to goods and materials sold by the service provider to the recipient, so the material portion was deductible from the gross taxable value and the exemption was available.

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Issues: Whether, in tyre retreading activity treated as works contract, the separately shown value of materials on which VAT was paid was includible in the value of taxable services for service tax, and whether exemption under Notification No. 12/2003-ST was available.

Analysis: The activity was found to involve transfer of property in goods as well as rendering of service, with the invoices separately showing material charges and the assessee paying VAT on the materials. The Tribunal relied on earlier decisions holding that the value of goods/materials sold in the course of providing the service cannot be included in the service tax base when such value is separately identified and tax is paid on it. The Tribunal also held that the exemption under Notification No. 12/2003-ST covered the value of goods and materials sold by the service provider to the recipient of service, and that the Commissioner had wrongly included the material portion in the gross taxable value.

Conclusion: The separately shown value of materials was not includible in the service tax valuation, and the assessee was entitled to the benefit of Notification No. 12/2003-ST.

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