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Issues: (i) Whether service tax could be sustained on invoices where the supply was of goods only and VAT had been paid; (ii) whether service tax could be levied on the remaining service portion when the turnover was below the threshold exemption limit.
Issue (i): Whether service tax could be sustained on invoices where the supply was of goods only and VAT had been paid.
Analysis: The invoices showed that two invoices represented supply of materials only, with VAT discharged on the goods supplied. The materials formed the substantial value of the disputed transactions, and the service element was not established on those invoices.
Conclusion: Service tax was not payable on the goods component and the demand on those invoices could not be sustained, in favour of the assessee.
Issue (ii): Whether service tax could be levied on the remaining service portion when the turnover was below the threshold exemption limit.
Analysis: For the invoice containing both goods and labour components, the service element was only Rs. 5,96,156. Even on inclusion of that amount, the turnover for the relevant period remained below Rs. 10 lakhs, attracting the threshold exemption.
Conclusion: No service tax was payable on the service portion also, in favour of the assessee.
Final Conclusion: The demand was set aside and the appeal succeeded, with consequential relief left open under law.
Ratio Decidendi: Where the goods component of a composite transaction is supported by VAT payment and the remaining taxable service turnover falls within the exemption threshold, service tax demand cannot be sustained.
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