Repair and maintenance service tax cannot include separately invoiced materials value where sales tax is shown on the goods component.

Where repair and maintenance invoices separately showed materials charges, labour charges, and payment of Central Sales Tax on the materials component, the materials value was held to be a distinct sale element rather than part of the taxable service. The service tax base therefore could not include the value of parts and materials merely because they were used in the course of repair work. On those facts, the exclusion of the materials component from the service value was upheld and the demand to that extent was unsustainable.

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Issues: Whether the value of parts and materials used in providing maintenance or repair services is includible in the taxable value for Service Tax purposes when invoices separately show materials charges, labour charges, and payment of sales tax on materials.

Analysis: The invoices placed on record showed a distinct bifurcation between materials charges and labour charges, and also reflected discharge of Central Sales Tax on the materials component. On those facts, the value of the materials could not be treated as part of the service element. The exclusion of the materials component from the service tax base was supported by the principle that a sale element cannot be converted into a taxable service merely because it occurs in the course of repair activity.

Conclusion: The value of parts and materials was not includible in the taxable value of the repair and maintenance service, and the demand to that extent was unsustainable.

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