Whether service tax is payable on total cost of work contract when value of material is separately shown in the invoice.

PJ/CASE LAW/2015-16/3013

Case:- TECHNOCRATE TRANSFORMERS VersusCOMMISSIONER OF C. EX., KANPUR

Citation:-2015 (39) S.T.R. 996 (Tri. - Del.)

Brief facts: - Appeal has been filed against order-in-original No. 01/ST/Comm/2012, dated 29-3-2012 in terms of which service tax demand of Rs. 2,38,10,463/- for the period 16-6-2005 to March, 2011 was confirmed along with interest and penalties.
The facts of the case in brief are as under:
The appellant was engaged mainly in the repair work of old and damaged transformers and was paying service tax on labour charges under the service head ‘management, maintenance and repair service’. However, they were not paying service tax on the entire cost of repair including the cost of various items replaced during the repair of transformers, although the repair work was done under a composite agreement. The primary Adjudicating Authority clearly noted that the appellant entered into a composite agreement with M/s. Dakshinanchal Vidyut Vitran Nigam Limited (DVVNL) according to which the appellant was to repair damaged transformers which inherently included replacement of certain items viz HV/LV leg oil, transformer oil and other supply items but held that “in the absence of any specific clause in the contract specifying their quality make, specification of the items, it would be difficult to concede these a ‘sales’ even though the service provider has paid trade tax/VAT on the same”. The Adjudicating Authority further held that as per the condition of Notification No. 12/2003-S.T., dated 20-6-2003, documentary proof specifically indicating the value of the material sold is required for granting such exemption and denied the benefit of the said notification and confirmed the demand on the ground that the said condition was not satisfied.

Appellant’s contention:- The appellant has contended that the value of materials supplied is clearly mentioned in the contract itself and the VAT has been paid thereon and therefore it was entitled for exemption under Notification No. 12/2003-S.T. as it was not availing Cenvat credit on such goods and material, and wherever Cenvat credit on transformer oil was availed; the same was reversed before effecting the sale of transformer oil, and payment of U.P. VAT was made on such value at the time of clearance.

Respondent’s contention:- Learned DR reiterated the reasoning of the Adjudicating Authority.

Reasoning of judgment:- Theyhave considered the contention of both sides and also perused the records including some invoices. They find that the invoices raised by the appellant clearly indicate the value of the goods separately. Not only that the contract itself while giving the rate of repair package clearly stated the value of labour charges and the value of HV/LV leg oil, transformer oil and supply items. The adjudicating authority has also conceded that the appellant has paid VAT on the items supplied. In these circumstances, they do not find the observation of the Adjudicating Authority to the effect that “in the absence of any specific clause in the contract specifying the quality, make, specification of the items, it would be difficult to concede these a ‘sale’ even though the service provider has paid VAT on the same” legally valid and sustainable. In the case of CC & CE v. Balaji Tirupati Enterprises - 2013 (32)S.T.R.530 (All.)the Allahabad High Court held that goods used during repair were deemed to be sold in the execution of works contract. The Allahabad High Court in that case held that the goods which were deemed to be sold in the execution of works contract shall not enter into the purview of the levy of Service Tax.
In the light of the foregoing, they find that the appellant was entitled for deduction of the value of the goods supplied during repair of the transformer in which case the impugned demand would not survive as the demand has been computed on the value of such goods on the ground that the value thereof was not excludible from the assessable value. Resultantly they set aside the impugned order and allow the appeal.

Decision:-Appeal allowed.

Comment:- The analogy of the case is that Invoices are clearly indicating value of goods separately. Contract while giving rate of repair package clearly stating value of labour charges and value of HV/LV leg oil, transformer oil and supply items and also, payment of VAT made on value of goods supplied. Therefore, Assessee is entitled for deduction of value of goods and service tax liability arises on labour portion only.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/3013

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