2009 (3) TMI 135

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.... 2. We heard both sides. 3. The appellants are carrying out retreading of old tyres used in motor vehicles. Revenue proceeded against the appellants on the ground that they were not including the value of materials such as tread rubber, cushion gum, vulcanizing solution, which were used/consumed in the activity of retreading/reconditioning of tyres in the value of taxable services for the purpose of payment of Service Tax. The invoice issued by them contained information regarding the charges towards 'Material Charges' and charges towards 'Labour & Other Charges'. On the material charges, the invoice indicated VAT. Revenue issued a show-cause notice on the ground that the gross amount charged by the appellants should be the value of tax....

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....e Act for the period prior to 18-4-2006 and at the rate of 200 per day or 2 per cent of the tax whichever is higher from 18-4-2006 till the date of actual payment. The appellants are highly aggrieved over the impugned order. 3.1 'Tyre Retreading' is a composite contract involving both sale of materials and rendering of services. It is specified as Works Contract under the Karnataka Value Added Tax Act (KVAT), 2003 and listed as Sl. No. 21 under Schedule VI to KVAT Act, 2003. The appellants are paying VAT on that portion of their turnover attributable to transfer of property. For the purpose of arriving at the value of service, sales value, as separately charged in the tax invoice on which VAT is paid is claimed as exempted under Explanat....

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.... (d) Tyre retreading activity is considered as 'Works Contract' involving transfer of property in goods chargeable to Sales Tax under section 5B of the Karnataka Sales Tax Act, 1995 (up to 31-3-2005) and thereafter chargeable to VAT with effect from 1-4-2005. (e) If Tyre retreading activity were not to be Works Contract, the question of levying sales tax/VAT would not have arisen. Sales tax/VAT could be levied only when there is sale. (f) There is a mis-conception that the entire amount collected by the appellants is only towards service and this mis-conception, if pressed into action, will result in unjustified and illegal collection of service tax on consideration received towards sale of materials or transfer of property in goods i....