Handling and forwarding charges excluded from service tax where included in sale value and VAT discharged if treated as sale of goods.

Handling and forwarding charges billed within a motor vehicle sale invoice on which VAT/sales tax has been discharged do not constitute a taxable service; where the transaction is treated as a sale of goods and tax on the total invoice value has been paid, elements of consideration included in that sale (including handling and forwarding and spare parts shown as sale) form part of the sale value and are excluded from the value of taxable services. The consequence is that service tax demand on such charges is not maintainable and is set aside in favour of the assessee.

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Issues: Whether handling and forwarding charges billed and collected by the seller as part of the sale invoice of motor vehicles, on which VAT/sales tax has been discharged, constitute a taxable service liable to service tax.

Analysis: The question is governed by Section 67 of the Finance Act, 1994 and clarifications in Circular No. 96/07/2007-ST dated 23.08.2007 which distinguish between sale of goods subject to VAT/sales tax and taxable services. Prior decisions of the Tribunal and the Supreme Court establish that where a transaction is treated as sale of goods and VAT/sales tax is paid on the total invoice value, elements of consideration included in that sale (including handling and forwarding charges) are part of the sale value and are not includible in the value of services for levy of service tax. The authorities cited apply this principle to handling charges and to spare parts shown as sale of goods with VAT discharged, holding that such amounts are excluded from taxable service value.

Conclusion: Handling and forwarding charges that are included in the sale value of the vehicle and on which VAT/sales tax has been paid are not liable to service tax; the demand is set aside and the appeal is allowed in favour of the assessee.

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