Service tax cannot be levied on resale margin of goods where VAT is paid and transactions are separately recorded.

Service tax could not be imposed on the margin between the purchase price and resale price of goods where the supplies were separately treated as sale of goods, VAT was discharged, and the records showed distinct sale transactions supported by documentary evidence. The Tribunal held that the value of goods already sold could not be recharacterised as taxable service merely because incidental costs and profit were loaded into the sale price. It also found that extended limitation was unavailable because the assessee was registered, filed returns, disclosed the transactions in its books, and there was no material of suppression, wilful misstatement, or intent to evade tax.

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Issues: (i) Whether service tax could be levied on the margin between the purchase price and sale price of goods supplied under the contract. (ii) Whether the extended period of limitation was invocable.

Issue (i): Whether service tax could be levied on the margin between the purchase price and sale price of goods supplied under the contract.

Analysis: The demand arose from the difference between the appellant's purchase price of third-party goods and the higher sale price charged to customers, after loading incidental costs and profit margin. The supplies were treated as sales of goods, VAT was discharged, and the invoices and accounts showed a separate transaction of sale. The Tribunal also noted that the adjudicating authority did not rebut the Chartered Accountant's certificate or the documentary material showing VAT/CST treatment. On the settled principle that the value of goods sold cannot be subjected to service tax again, the margin on sale of goods could not be taxed as service.

Conclusion: The demand of service tax on the difference between purchase price and sale price of goods was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the extended period of limitation was invocable.

Analysis: The appellant was registered, had filed returns, and had disclosed the transactions in its books of account and tax records. The demand was worked out from verified records, and there was no material showing positive suppression, wilful misstatement, or deliberate intent to evade tax. On these facts, the invocation of the extended period was not justified.

Conclusion: The demand for the extended period was time-barred and was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded in full, with the confirmed service tax demand annulled and limitation also decided against the Revenue.

Ratio Decidendi: Where goods are separately sold and VAT is paid on the sale value, the profit margin or cost loading on such goods cannot be recharacterised as service tax, and the extended period cannot be invoked in the absence of suppression or intent to evade.

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