Service Tax not leviable on Sale of Goods subjected to levy of Sales Tax or VAT: CESTAT [Read Order]

The Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Service Tax is not leviable on sale of goods subjected to levy of sales tax or VAT.

The Appellant, M/s Express Engineers & Spares supplies diesel generators to customers on hire basis. The issue involved in the Appeals is whether the Appellant renders ‘supply of tangible goods for use4 service, which is leviable to service tax under section 65(105)(zzzzj) of the Finance Act for the period upto June 30, 2012 and under section 66E(f) of the Finance Act for the period from July 01, 2012 till 2014-2015.

A show cause notice was issued to the Appellant proposing to recover service tax for the period 2011-12 to 2014-15 with interest and penalties.

The main contention of the Department is that the appellant was responsible for loading, unloading, installation, commissioning, repair and maintenance of the diesel generator sets and the appellant was also providing an operator for running the diesel generator sets.

The transportation and installation of diesel generator sets at the site of the customers cannot lead to a conclusion that the Appellant was rendering STGU service. The Agreement itself provides that the Appellant would be responsible for providing diesel generator sets to the customers. It was, therefore, imperative for the Appellant to ensure that the diesel generator sets were transported and installed at the site of the customer.

The finding in the impugned order that since the Appellant was responsible for the maintenance and repair of the diesel generator sets, the Appellant has retained effective control, cannot also be sustained because once the control and possession of the diesel generator sets was transferred to the customers, mere maintenance or repair work will not change the nature of the transaction

The coram of Justice Dilip Gupta and P.V.Subba Rao held that the payment of VAT/Sales Tax on a transaction has to be treated as sales of goods and levy of service tax on such transaction would not arise. 

“It is more than apparent that the supply of diesel generator sets to the customers would not amount to STGU service for the period from 01.04.2011 to 30.06.2012, or a declared service from 01.07.2012 to 2014-15. The orders passed by the Commissioner (Appeals), therefore, cannot be sustained,” the CESTAT said.

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