Whether spares used during provision of service includible in taxable value?

PJ/CASE-LAW/2015-16/2755

Case:-COMMR.OF C.E. &S.T., MEERUT-II VERSUS KRISHNA SWAROOP AGARWAL

Citation: - 2015(37) S.T.R. 647(Tri.- Del.)

Brief facts:- M/s. Ashish automobiles (proprietor Krishna swaroop Agarwal) provided the ‘authorized service station’ service. It was alleged that during the period January 2007 to march 2009 they discharged their service tax liability on the value of gross services but they did not take into account of cost of spare parts or accessories or consumable such as lubricants ,coolants used during the service of the vehicles. Adjudicating authority confirmed the demand amounting toRs.11, 83,832/- along with interest and mandatory penalty. The commissioner (appeals) set aside the said order-in-original on the following grounds.
(i)                    Under section 67 of the finance Act, the taxable value is the gross amount charged for the taxable service.
(ii)                   Even in terms of Notification No. 12/2003-S.T., the value of the goods and material sold by the service provider to the service recipient of service is exempt from service tax .
(iii)                  As per the C.B.E & C Circular No.699/15/2003-CX, dated 5-3-2003 the price charged by the authorised service station for engine oil, gear oil and coolants, etc. is towards the sale of these consumables to the customer. Therefore, the sale of consumable during course of service is akin to sale of parts/ accessories and therefore value of such consumable is not includible in the value of taxable services provided value of such consumables is shown separately.
(iv)                  The respondents had provided to the commissioner (appeals) their assessment orders of the trade tax department , Moradabad, for the financial tear 2006-07 &2007-08 showing sale value of spare parts/ accessories/consumables and it is this value of which has been taken for computing impugned demand.

Appellant’s contention:- The revenue has filled the appeal on the following grounds:
(i)                    Board Circular No. 96/7/2007-S.T.,dated 23-8-2007 (para 36.03) has specifically clarified that service tax is not leviable on a transaction treated as sale of goods and stipulated to levy of sale tax/VAT. Whether given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of transaction. Payment of VAT/sales tax on a transaction indicates that the said transaction is treated as sale of goods.
“Any goods used in the course of providing service are to be treated as inputs used for providing the service accordingly, cost of such inputs used for providing the service and accordingly, cost of such inputs from integral part of the value of the taxable service”
Where spare parts are used by service station for servicing of vehicles, service tax should be levied on the spare parts, including the value of spare parts, raised by the service provider, namely, service station. However, the device provider is entitled to take input credit of excise duty paid on such parts or any goods used in providing the service wherein value of such goods used in providing the service wherein value of such goods has been included in the bill. The service provider is also entitled to take input credit of excise duty paid on such parts or any goods used in providing the service wherein value of such goods has been included in the bill. The service provider is also entitled to take input credit of service tax paid on any taxable service for servicing of vehicles.

(ii)                   The respondent did not show proof of sale of spare parts to the service recipients.
(iii)                  The Notification No. 12/2003-S.T. is not applicable the value of spare parts to the service recipients.

Reasoning of judgment: - The Board circular referred to above in effect actually states that service tax is not leviable on the transaction traded as sale of goods and subjected to levy of sales tax/VAT. It is seen that as recorded by the Commissioner (appeals), respondent were able to establish that amount on which the impugned service tax has been demanded actually pertains to the sale of spare parts/accessories/consumables like lubricants etc. by showing copies of the vat assessment orders for the financial years 2006-07&2007-08. It would clearly entitle them to the benefit of notification No. 12/2003-S.T. Indeed even the provision of section 67 lay down that the value for the purpose of levy of service tax is gross amount charge for taxable service. Thus, we do not find any merit in the revenue’s appeal which is hereby quashed.

Decision:-Appeal dismissed.

Comment:- The gist of the case is that the service tax is payable only on the service charges charged by the authorised service station for servicing of vehicles. The cost of spares and accessories used during the course of providing service is required to be excluded from the taxable value of service because sales tax was paid on such goods which indicates that it is sale of spares and accessories which cannot be leviable to service tax.

Prepared by: Anas Kachaliya

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PJ/CASE-LAW/2015-16/2755

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