Benefit of Notification No. 12/2003-ST available only on documentary proof of sale of goods.

PJ/CASE LAW/2014-15/2522

Case:- COMMR. OF CUS. & C. EX., AURANGABAD VERSUS NEW HINDUSTAN RUBBER WORKS

Citation:- 2015 (37) S.T.R. 120 (Tri. - Mumbai)

Brief facts:- Revenue filed the appeal against the order passed by the Commissioner (Appeals). The respondents are undertaking the activity of retreading of tyres. The activities were covered under the Management Maintenance & Repairs Service. The Respondents were paying Service Tax only on the labour charges towards retreading tyres excluding the cost of the rubber utilized towards retreading of tyres. The adjudicating authority confirmed the demand by taking into consideration the gross amount received including the cost of rubber with interest and also imposed penalties. On appeal filed by the respondent, the Commissioner (Appeals) held that the cost of the rubber used for retreading of tyres was not to be taken into consideration while arriving at the assessable value for the purpose of Service Tax in view of Notification No. 12/2003-S.T.Revenue challenged the order whereby the Commissioner (Appeals) allowed the benefit of Notification No. 12/2003-S.T.
Appellant’s contention:- The contention of Revenue was that respondents were providing the service of retreading of tyres and charging the gross amount. Therefore, the impugned order was not sustainable. Revenue also submitted that as per the provisions of Notification No. 12/2003-S.T., the value and materials sold by the service provider to the service recipient were not to be taken into consideration subject to the condition that there was documentary proof specifically indicating the value of such materials. In the present case, the respondents, in the invoice, were showing the deemed sale of materials to the extent of 60% and 40% towards labour charges. Respondents were not indicating the value of goods and materials actually sold. Revenue relied upon the final order, dated 5-4-2013 of M/s. Ador Fontech Ltd. v. CCE, Nagpur in Appeal No. ST/100/2009 - 2014 (36)S.T.R.146 (Tribunal),’ wherein this issue had already been decided in favour of Revenue.

Respondent’s contention:- Respondent relies upon the decision of the Hon’ble Supreme Court in the case of L & T Ltd. reported in 2014 (34)S.T.R.481 (S.C.) = 2014 (303)E.L.T.3 (S.C.) to submit that the activity undertaken by the respondents came under the category of works contract which included transfer of properties, goods etc. Hence the value of goods and materials used for retreading of tyres were not to be taken into consideration for arriving at the assessable value for the purpose of Service Tax.

Reasoning of judgment:- The commissioner found that in the present case issue involved was whether the respondents were entitled for the benefit of Notification No. 12/2003-S.T. For ready reference the provisions of the Notification are reproduced below:
“In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the Service Tax leviable thereon under Section (66) of the said Act, subject, to condition that there is documentary proof specifically indicating the value of the said goods and materials.”
They found that as per the provisions of the Notification, there was a specific condition that there should be documentary proof specifically showing the value of material sold. In the present case, the respondents were clearing the goods under the consolidated invoice and uniformly charging taking 60% towards the value of the material and 40% towards service. There was no separate invoice regarding the actual sale of goods and material. They found that this issue is now settled by the Tribunal in the case of Ador Fontech Ltd. (supra) and the Tribunal held that in the case of retreading of tyres where the invoices were showing deemed sale of certain percentage of material the benefit of Notification No. 12/2003 was not available. The Tribunal further held that the material used for repairs of tyres cannot be considered as spare. In view of the above decision, they found merit in the contention of Revenue and the impugned order whereby the Commissioner (Appeals) allowed the benefit of Notification No. 12/2003-S.T was set aside and the order passed by the adjudicating authority in this regard was restored.
In respect of penalties, they found that in the case of Safety Products Retreading Company (P) Ltd. v. CCE, Salem reported in 2012 (26)S.T.R.225on the same issue there was difference of opinion and the matter was referred to a third Member and in view of this they found that the respondents were not liable to any penalty in view of the provisions of Section 80 of the Finance Act, 1994.

The appeal was disposed of as above.

Decision:- Appeal disposed of.

Comment:- The substance of this case is that if the benefit of notification no. 12/2003-ST is available only if there is documentary proof specifically showing the value of material sold. The benefit cannot be extended on ad hoc basis if the sale of materials is without any documentary evidence.

Prepared by:-Prayushi Jain

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PJ/CASE LAW/2014-15/2522

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