Supply of bought-out spares under lifetime contracts not taxable as Business Auxiliary Service

CESTAT Ahmedabad held that supply of bought-out spares under lifetime supply contracts does not constitute Business Auxiliary Service. The tribunal found transactions occurred on principal-to-principal basis without commission payments or agency relationship. Appellant purchased spares in their name and supplied to customers as contractual obligation without charges for facilitation. Since sale involved goods transfer without commission element and was not principal-to-agent transaction, it fell outside service tax ambit even post-negative list period. Impugned order set aside, appeal allowed.

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Issues involved:
The issue involved in the present appeal is whether service tax is payable on the act of selling/supplying bought out goods (spares) by the Appellant for their buyers, while selling drilling rigs and ancillary equipment produced by them, and whether it amounts to rendering service under the category of "Business Auxiliary Service."

Details of the Judgment:

Issue 1: Applicability of Service Tax on Sale of Spares
The Tribunal had previously dropped the demand towards sale of bought out spares where it was not mandatory to provide life-time spare supply. The Notification No.12/03-ST is similar to Section 66D(e) of the Finance Act, 1994, stating that trading or mere sale of goods is outside the purview of "service" and not liable for Service Tax. The Adjudicating Authority in the remand proceedings dropped the demand on all counts, which was accepted by the revenue department. The Tribunal held that for contracts without stipulations for lifetime spares, no service tax can be demanded. The Revenue Authorities did not appeal against this portion of the order.

Issue 2: Appeal Against Adverse Findings
The appellant filed the present appeal against adverse findings by the Commissioner (Appeals) on various grounds. The appellant relied on several case laws to support their arguments. During the hearing, the appellant emphasized that the goods were supplied on a principal-to-principal basis and not as part of Business Auxiliary Service. The appellant argued that the demand was based on goods purchased and sold with a profit margin, without any element of service tax for the sale of spares.

Conclusion:
The Tribunal found that the transactions were made on a principal-to-principal basis without an agency relationship, and there was no element of commission. The goods were sold without any charge for facilitation, and the transactions were not on a "Principal to Agent" basis. Therefore, the impugned transactions were considered as sales and not within the ambit of any services. The Tribunal held that the impugned order is liable to be set aside, and the appeal was allowed with consequential relief.

(Pronounced in the open Court on 15.05.2024)

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