The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) observed that the service tax is not leviable on sale of goods or by way of including value of goods in service.
Show cause notices were issued to the Appellant, demanding service tax on the said price differential in respect of the goods sourced from independent suppliers and supplied to the customer’s site. It was alleged that the said supply of goods is a part of the works contract carried out by the Appellant.
The Adjudicating Authority vide its Orders-in-Original confirmed the demand for service tax along with interest and penalties. Further, the Commissioner ( Appeals ) also upheld the demand for service tax along with interest and penalties.
The entire case of the department is that the appellant should have included the cost of material for which they have raised the separate bill in providing the services for the reason that the service is classifiable under ‘works contract service’ and accordingly all the goods used for providing such ‘works contract service’ should be included in the gross value of the service under the composition scheme.
The counsel for the appellant submitted that in terms of the Explanation to Rule 2(e) of the Cenvat Credit Rules, 2004, as it stood prior to 01.07.2012, the term exempted services includes trading. Further, post 01.07.2012, in terms of Section 66D(e) of the Act, trading of goods is specified under the negative list on which no service tax is leviable.
It was submitted that in the present case, undisputedly, the Appellant has purchased the subject goods from independent suppliers and sold the same to its customers. Thus, irrespective of whether the said goods were sold in transit or by way of high seas sale, when the provisions itself prescribes non-taxability of trading of goods, no service tax can be levied on the profit margin arising from such trading of goods.
A Two-Member Bench of Ramesh Nair, Judicial Member and Raju, Technical Member observed that “In the present case undisputedly there is a separate transection of sale of goods right from beginning that is much before of execution of contract and the appellant have discharged the VAT/CST. Therefore, in view of the above settled legal position the sale of goods by any stretch of imagination cannot be brought into for levy of service tax. Having observed as above we find that no service tax is payable on trading of goods in the present case, the trading of goods is not in dispute. Even post 01.07.2012 in terms of section 66D(e) of the Act trading of goods is specified under the negative list on which the service tax is not leviable.”
“We are of the clear view that no service tax can be demanded on the sale of goods or by way of including the value of goods in the service. Further as per the contract and the transaction made thereunder there is clear distinction between the provision of service and transaction of sale of goods therefore the service has been correctly classified under erection commissioning and installation service and paid the service tax correctly” the Tribunal noted.
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