2025 (8) TMI 865 - AT - Service Tax

Invoices for goods with VAT paid don't attract Service Tax if turnover is below Rs. 10 lakh under 2016-17 rules

CESTAT Kolkata held that invoices primarily for supply of goods with VAT paid do not attract Service Tax. The service portion identified was Rs. 5,96,156, ... Maintenance and Repair Service - Works Contract Service - demand based on Income Tax Returns and the Form 26AS - applicability of Rule 2A(ii) of Service Tax Determination of Value Rules, 2006 - demand confirmed where proper documentary evidence was not placed - HELD THAT:- It is seen that in respect of the Invoice No. 3085 dated 16/01/2017 and Invoice No. 3086 dated 17/01/2017, the entire invoice is for supply of materials only wherein the appellant has paid the VAT on the applicable rate. No Service whatsoever is involved in these invoices. In respect of the Invoice No. 3090 dated 03.02.2017, the value of service is only to the extent of 5,96,156/-. Thus, it is seen that in respect of the above invoices, the value of goods supply is more than Rs.1.08 Crores, which has been taken as service portion to confirm the demand. The value of service is only to the extent of Rs. 5,96,156/-. Since VAT has been paid on the sale of goods, no Service Tax demand can be sustained on these Invoices for the goods supplied. It is found that the turnover of the appellant is less than Rs.10 lakhs for the period 2016-17, even if the service portion of Rs. 5,96,156 is considered as part of the turnover. Therefore, in the normal course, Service Tax while would be payable on this amount. However, in view of the threshold limit exemption, no Service Tax is required to be paid by him in this case. The impugned order is set aside - appeal allowed. 1. ISSUES PRESENTED and CONSIDERED Whether the Service Tax demand raised on the appellant for Maintenance and Repair Service and Works Contract Service is sustainable, considering the valuation rules and abatement provisions under the Service Tax Determination of Value Rules, 2006. Whether the value of goods supplied as part of the works contract should be excluded from the Service Tax demand, given that VAT has been paid on such goods. Whether the service portion of the turnover falls within the threshold exemption limit under Service Tax law, thereby exempting the appellant from paying Service Tax on that portion. The applicability and interpretation of Rule 2A(ii) of the Service Tax Determination of Value Rules, 2006, in relation to the valuation of works contract service involving supply of goods and services. Whether the Adjudicating Authority's partial confirmation of Service Tax demand is justified in light of documentary evidence submitted by the appellant. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of Service Tax on Works Contract Service and Valuation under Rule 2A(ii) of the Service Tax Determination of Value Rules, 2006 - The legal framework involves the Service Tax Determination of Value Rules, 2006, specifically Rule 2A(ii), which governs the valuation of works contracts involving supply of goods and services. - The Court examined whether the appellant's activities fall within the ambit of works contract service and whether the valuation method applied by the Adjudicating Authority was appropriate. - The appellant contended that since the value of goods supplied exceeded 60% of the contract value, the valuation under Rule 2A(ii) should apply, allowing abatement accordingly. - The Adjudicating Authority had followed Rule 2A(ii) but confirmed a demand for a portion of the amount, alleging insufficient documentary evidence. - The Court reviewed the invoices and documentary evidence submitted, noting that the appellant supplied goods on which VAT was paid, and the service portion was distinct and relatively small. - The Court held that where the value of goods supplied is substantial and VAT paid, the Service Tax demand on such goods supply cannot be sustained under Rule 2A(ii). - Conclusion: The valuation for Service Tax purposes must exclude the value of goods supplied on which VAT is paid, and Rule 2A(ii) applies to allow abatement accordingly. Issue 2: Exclusion of Goods Supply from Service Tax Demand Due to VAT Payment - The appellant produced invoices showing VAT payment on goods supplied under the works contract. - The Court analyzed the invoices, particularly Invoice Nos. 3085 and 3086, which were exclusively for supply of materials with VAT paid and no service component. - The Court found no service involved in these invoices; hence, Service Tax cannot be levied on these transactions. - The value of goods supply exceeded Rs. 1.08 Crores, which was incorrectly included as service value by the Adjudicating Authority. - The Court emphasized that VAT payment on goods supply precludes the imposition of Service Tax on the same value to avoid double taxation. - Conclusion: Service Tax demand on the value of goods supply where VAT is paid is unsustainable and must be excluded. Issue 3: Applicability of Threshold Exemption Limit on Service Portion - The appellant argued that the service portion of Rs. 5,96,156/- falls below the threshold exemption limit of Rs. 10 Lakhs for Service Tax. - The Court considered the turnover on account of service alone, excluding goods supply, and found it to be below the exemption threshold for the relevant period (2016-17). - Though Service Tax is generally payable on the service portion, the threshold exemption protects small service providers from tax liability. - The Court held that since the service turnover was below the threshold, no Service Tax is payable on that amount. - Conclusion: The appellant is exempt from Service Tax on the service portion due to the threshold exemption limit. Issue 4: Justification of the Adjudicating Authority's Partial Confirmation of Demand - The Adjudicating Authority confirmed a demand of Rs. 7,78,151/- where documentary evidence was not placed before it. - The appellant challenged the confirmation on the ground that sufficient documentary evidence was submitted to establish the nature and value of goods and services. - The Court reviewed the evidence and found that the major portion of the demand was rightly dropped by the Adjudicating Authority. - For the disputed amount, the Court found that the appellant had adequately demonstrated that the service turnover was below the exemption limit and that VAT was paid on goods. - The Court concluded that the partial confirmation of demand was not justified in the absence of contrary evidence. - Conclusion: The Adjudicating Authority's partial confirmation of Service Tax demand is set aside due to sufficient documentary proof and applicable exemptions. Cross-Reference and Overall Conclusion - The issues relating to valuation under Rule 2A(ii), exclusion of goods supply due to VAT payment, and threshold exemption for service turnover are interlinked and collectively determine the Service Tax liability. - The Court's analysis confirms that proper valuation excluding goods supply and applying threshold exemption results in no Service Tax liability for the appellant. - The Tribunal accordingly allowed the appeal and set aside the impugned order confirming Service Tax demand.