Goods used for Providing Services shown Separately in Invoice on Which Sales Tax /VAT Paid Cannot be Included in Assessable Value, No Service Tax Demandable: CESTAT [Read Order]

The Allahabad bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that no service tax is demandable when the goods used for providing services are shown separately in invoices on which Sales Tax /Value Added Tax (VAT) is paid.

Based on third-party information, the investigation was conducted against the Appellant M/s Fast Track Auto Care (India) Pvt. Ltd for the period from 2011-12 to 2014-15. A show cause notice was issued demanding service tax amounting to Rs.4,06,44,637/- alongwith interest and for imposition of penalty under section 78 of the Finance Act, 1994.

Service tax amounting to Rs.270,79,523/- was demanded on the value of material/spare parts sold by the Appellant during the servicing of motor vehicles. A written reply to the show cause notice was submitted wherein Appellant inter-alia contested the demand of service tax on sale material/spare parts. The demand as proposed in the show cause notice was confirmed alongwith interest and a penalty under section 78 was imposed. Being aggrieved, the Appellant is in appeal before the Tribunal. 

The appellant viewed that the service tax demanded on the value of spare parts, lubricants, oil etc. sold during servicing of motor vehicles done by the Appellant for its customers, is uncalled for since the Appellant has already deposited under the provisions of Uttar Pradesh Value Added Tax, 2008 on the value of such materials sold by them during servicing of motor vehicles.

It was argued that the invoice demonstrates that VAT has been charged on 100% value of material utilized during the servicing and service tax has been charged on 100% value of labour charges/service cost.

A two-member bench observed that Mr P K Choudhary, Member (Judicial) and Mr Sanjiv Srivastava, Member (Technical) observed that Appellants have paid Rs.1,59,419/- towards their liability of service tax under reverse charge mechanism (RCM).

Since the demand for service tax against the Appellant for the cost of the goods supplied during repair/service does not appear to be sustainable. The CESTAT set aside the demand, interest and the penalties imposed.

Further, the Demand for service tax on the Appellant company is set aside along with Penalties imposed under section 78 A upon the directors Shri Devendra Pal Singh and Shri P. C. Suman who were the two directors of the appellant company.

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