Separate sale of replacement parts and VAT payment exclude their value from service tax, with exemption support available.

Where parts used in repair and maintenance at an authorised service station were separately invoiced as sale of goods and VAT was paid, their value was excluded from the taxable value of the service. The text further states that even if the replaced parts were treated as part of the service, separate disclosure in the invoice brought the transaction within the exemption for the value of goods sold while providing service under Notification No. 12/2003-S.T. On that basis, the service tax demand was not sustainable and the impugned order was set aside.

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Issues: Whether the value of parts used for replacement in an authorised service station, on which VAT was paid and which were separately shown in the invoice, was includible in the taxable value of the service.

Analysis: The parts used during repair and maintenance were separately billed as sale of goods and VAT was paid thereon. Such parts therefore did not form part of the taxable service. Even if the replaced parts were treated as part of the service, their separate disclosure in the invoice brought the transaction within the scope of the exemption under Notification No. 12/2003-S.T., which exempts the value of goods sold while providing service.

Conclusion: The value of the replaced parts was not liable to service tax. The demand could not be sustained.

Final Conclusion: The impugned order was set aside and the appeal was allowed.

Ratio Decidendi: Where goods used in providing service are separately sold, separately invoiced, and VAT is paid, their value is excluded from service tax liability, and in any event is protected by the exemption for the value of goods sold while providing the service.

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