2018 (7) TMI 429 - AT - Service Tax

Supreme Court clarifies service tax treatment on material costs under VAT, aligning with legal provisions.

Commissioner of Central Excise, JSR Versus M/s. CIO Tyres (P) Ltd.

The Supreme Court upheld the Tribunal's decision to exclude material costs subject to VAT from service tax calculation, aligning with legal provisions and ... Valuation - re-trading charges fixed in terms of the contract were cumulative values i.e. towards the total of material costs and the service costs - Held that:- The respondent was maintaining sales tax assessment order, purchase orders, stock registers, sellers’ invoices etc. for retrading and the said material costs normally worked out to 70% of the total retreading charges on which the respondent has paid VAT/CST under the said law - It is undisputed fact that the materials consumed were treated as sale/deemed sale in terms of the local sales tax/Central Sales Tax Act, 1956 which is reflected in the sales tax returns. For the remaining 30% the appellant already paid the service tax. Similar views were expressed by the Hon’ble Supreme Court in the case of Safety Retreading Co.(P) Ltd. vs. Commissioner of C.Ex., Salem [2017 (1) TMI 1110 - SUPREME COURT], where it was held that Section 67 of the aforesaid Act deals with valuation of taxable services and specifically mentions that the same does not include the cost of parts or other material, if any, sold to the customer during the course of providing maintenance or repair service. Appeal dismissed - decided against Revenue. Issues:Service tax on re-trading charges - Inclusion of material costs in total valueAnalysis:The appeal was filed against an Order-in-Appeal dated 30.01.2009, concerning the imposition of service tax on re-trading charges. The respondent had entered into rate contracts to provide re-trading and used tyre services, with the department demanding service tax on the total cumulative value. However, the Commissioner (Appeals) allowed the appellant's claim that material costs subject to VAT should not be included in the total value for service tax calculation. The respondent had maintained sales tax assessment orders, purchase orders, and invoices, with material costs typically constituting 70% of the total re-trading charges. The appellant had already paid service tax on the remaining 30%. The Tribunal referred to Notification no.12/2003-ST and a Supreme Court case, emphasizing the exclusion of material costs from service tax valuation if already taxed under local laws.The Supreme Court case highlighted that service tax should only apply to the service component quantified at 30% under State Act, not the entire gross value of the service. The Court noted the Department's focus on the appellant's alleged liability for service tax on the gross value, with no dispute regarding the VAT payment on the 70% component. The Court rejected the argument that the appellant failed to provide evidence on the value of goods sold to customers, citing the assessment under local laws and the Department's own case details. The Court upheld the impugned order based on the Supreme Court's ruling, finding no grounds for interference.In conclusion, the Tribunal dismissed the appeal, following the Supreme Court's precedent on service tax valuation. The judgment emphasized the exclusion of material costs subject to VAT from service tax calculation, aligning with the legal provisions and past judicial interpretations. The decision maintained the Commissioner (Appeals) ruling in favor of the appellant, highlighting the importance of consistent tax treatment based on clear legal principles and established case law.