No service tax payable on parts replaced if VAT paid and separately indicated in invoices.

PJ/Case Law/2013-14/2329

Case:-COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD VERSUSSHIV ENGINEERING

Citation:-2014 (34) S.T.R. 236 (Tri. - Del.)

Brief facts:-These are six appeals filed by the Commissioner of Central Excise and Customs and Service Tax, Allahabad as per details given below :-

Sl. No.	Respondents	Appeal No.	OIA No.
1.	Shiv Engineering	ST/468/2012	51/2011 dated 20-12-2011
2.	Kumar Electrical	ST/453/2012	3/2012 dated 25-1-2012
3.	Anand Transformer	ST/469/2012	48/2011 dated 16-12-2011
4.	Power Electrico	ST/451/2012	2/12 dated 24-1-2012
5.	Ashish Electrical	ST/470/2012	49 & 54/2011 dated 19-12-2011
6.	Kamala Transformer	ST/471/2012	53 & 54/2012 dated 23-12-2011

Since issue involved in these appeals is common, these are being taken up together for decision.
Respondents are engaged in the activity of repair of old and damaged transformers and are registered with the Department for rendering the taxable service namely Management, Maintenance or Repair service falling under Section 65(64) of the Finance Act.
An intelligence was gathered by the Department that respondents are paying Service Tax only on Labour Charges under Management, Maintenance or Repair service and are not paying Service Tax on entire cost of repair including the cost of various items replaced during the repair of transformers though said repair is being done under a composite agreement. Accordingly Show Cause Notices were issued to the Respondents demanding Service Tax along with interest and proposing penalties on them under the relevant provisions of Finance Act, 1994. These Show Cause Notices were adjudicated by the original authority against Revenue and proceedings against Respondents were dropped. Revenue has challenged these Orders-in-Original in these appeals.

Appellant’s contentions:-Ld. DR appearing for Revenue submits that as per agreement Respondents are providing service of Repair or Maintenance of transformers and main job of the Respondent is repair and testing of transformers and replacement of parts during the process of repair is only ancillary to main work of repairs of transformers. He submits that contract being composite, it is obligatory on the Respondents to replace certain parts which are used/consumed during the repair and this process of replacement is only ancillary to main work of repair. He submits that Notification 12/2003 is also not applicable as replaced parts are not sold by the Respondents. He points out that original authority has relied on the decision of Tribunal in case of Wipro GE Medical System Ltd. - 2009 (14)S.T.R.43but since Section 67 has been amended with effect from 19-4-2006, ratio of this decision is not applicable to post 19-4-2006 period. He states that Orders-in-Original are not proper and legal and need to be set aside.

Respondent’s contentions:-None appeared for Respondents except Sh. K. S. Gupta who appeared for M/s. Kamala Transformers. He submitted that replaced parts are being cleared on payment of Sales Tax/VAT and value of these parts is being shown separately in the contract itself. Therefore Commissioner has rightly dropped the proceeding against the Respondents.

Reasoning of judgment:-The Hon’ble tribunal have gone through appeal records and find that Respondents have entered into agreements with various customers for repairs/testing of transformers. During the course of repairs, Respondents are replacing LV/HV Leg coils, Transformer Oil and other items. They are paying Service Tax only on Labour Charges whereas it is contention of Revenue that Respondent should pay Service Tax on entire cost including of HV/LV Leg coils, Transformer oil etc., and Respondents are also not eligible for benefit of exemption Notification 12/2003-ST, dated 20-6-2003.
On going through contract, it is noticed that total repair cost, constitutes of total Labour Charges, cost of LV/HV Leg Coil, Cost of Transformer Oil, Cost of other supply items. Contract also shows that rates quoted in contract are exclusive of Excise duty, VAT/Sales Tax and Service tax. There is no dispute that the VAT has been paid by the Respondents on cost of LV/HV Leg coil, Transformer oil other supplies items
Notification No. 12/2003-Service Tax dated 20-6-2003.
“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.”
Under this Notification value of goods and material sold by the service provider to service recipient is exempted subject to the condition that there is documentary evidence indicating value of goods/material. We note the value of these goods/material is separately shown in contract itself for each category of transformers. Moreover VAT has been paid on these goods/materials. Therefore there is no reason to deny the benefit of Notification No. 12/2003, dated 20-6-2003 to the Respondents.
Contention of the Revenue that Section 67 has been amended with effect from 19-4-2006 and ratio of Wipro GE Medical System is not applicable in this case is also not acceptable as Notification No. 12/2003, dated 20-6-2003 continues to be in force and Respondents are eligible for this exemption.
In view of above we uphold Orders-in-Original and reject the appeals filed by Revenue. Cross objections are also disposed of.

Decision:- Appeal rejected.

Comment:-The analogy of the case is that the value of parts replaced is not includible in the taxable value of repair and maintenance service if VAT is being paid on such items and the parts are separately indicated in the invoice. Further, according to notification no.12/2003-ST, the value of goods and material sold by the service provider to service recipient is exempted subject to the condition that there is documentary evidence indicating value of goods/material. Consequently, the benefit of the above cited notification was extended and the appeal filed by the revenue department was rejected.

Prepared by:- Monika Tak

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PJ/Case Law/2013-14/2329

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