The Chandigarh bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has quashed a service tax demand on an auto service provider, ruling that transactions on which Value Added Tax (VAT) has already been paid cannot be subjected to service tax.
Coming to the facts of the case, the department issued a show cause notice on 22-10-2021, demanding service tax of Rs. 23,01,562 along with interest and penalty, invoking the extended period of limitation. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld the decision. Due to this, the assessee appealed before the CESTAT for relief.
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During the hearing, assessee’s counsel contended that the demand was unsustainable as the transactions in question were subject to VAT, which had already been paid. He cited Section 66D(e) of the Finance Act, 1994, which excludes trading of goods from the service tax net. The counsel also referenced several tribunal decisions, including Tanya Automobiles P Ltd vs. CCE, Meerut-I and Ocean Interior Limited vs. CGST, Chennai, which held that service tax could not be levied on transactions already subjected to VAT.
The Revenue’s representative reiterated the findings of the lower authorities.
The CESTAT observed that the adjudicating authority had misinterpreted a 2007 circular and failed to consider the full text, which was later clarified in the case of M. G. Motors vs. CCE, Alwar.
The bench was of the view that when invoices show the value of goods and service charges separately and VAT is paid on the goods, service tax should only be levied on the service component.
CESTAT also relied on the case of Samtech Industries vs. CCE, Kanpur, where it was held that if VAT is paid on goods used in providing a service, those goods cannot be included in the assessable value for service tax.
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The bench held that the impugned order was unsustainable and allowed the assessee to appeal, granting him consequential relief as per law. The CESTAT, comprising S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), set aside the impugned order.
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