Vehicle servicing consumables sold separately with VAT not included in service tax per Tribunal ruling

The Tribunal held that consumables sold separately during vehicle servicing, with VAT paid, should not be included in the gross value of the service for service tax purposes. The Tribunal referenced precedents and concluded that when consumables are sold on a principal-to-principal basis and VAT is paid, they constitute a sale of goods, not part of the service transaction. Therefore, service tax should only be levied on the service component. The Tribunal allowed the appeal, emphasizing that the issue has been settled and the value of goods subject to VAT cannot be included in the assessable value for service tax.

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Issues Involved:
1. Inclusion of value of consumables in the gross value of service for service tax purposes.
2. Applicability of VAT on consumables sold separately during vehicle servicing.

Summary:

Issue 1: Inclusion of value of consumables in the gross value of service for service tax purposes.
The appellants operate service stations providing vehicle services, raising separate invoices for servicing and consumables (e.g., lubricating oil). They paid service tax on the service bill and VAT on the consumables. The department contended that the value of consumables should be included in the gross value of the service, leading to a differential service tax demand. The Adjudicating Authority and Commissioner (Appeals) upheld this view. The appellant argued that consumables sold on a principal-to-principal basis, with VAT paid, should not be included in the service's gross value. The Tribunal, referencing various judgments, including *Samtech Industries v. Commr. C.Ex. Kanpur* and *Tanya Automobiles (P) Ltd v. Commr. C.Ex., & ST., Meerut-I*, concluded that when consumables are sold separately and VAT is paid, they should be treated as a sale of goods, not part of the service transaction. Thus, service tax should only be charged on the service component.

Issue 2: Applicability of VAT on consumables sold separately during vehicle servicing.
The Tribunal found that the appellant raised separate sales bills for consumables and paid VAT on them, indicating a sale of goods. This practice aligns with previous rulings, such as *Commr. C.Ex., & ST., Meerut-II v. Krishna Swaroop Agarwal*, where it was established that consumables sold separately with VAT paid are not subject to service tax. The Tribunal emphasized that the value of goods used for providing services, shown separately in invoices and subjected to VAT, cannot be included in the assessable value for service tax purposes. Consequently, the Tribunal set aside the impugned order and allowed the appeal with consequential relief, reaffirming that the issue is no longer res integra.

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