No Service Tax on Value of Materials on which Sales Tax is already paid: CESTAT [Read Order]

Service Tax

The CESTAT Chennai held that the spare parts etc, which have been used in the course of maintenance service, are definitely considered to be sold and when sales tax has been paid on the value of such goods, simultaneously, one cannot charge them to service tax.

The ruling was made by the division bench comprising of members Smt. Sulekha Beevi C.S, Member (Judicial) Shri P. Anjani Kumar, Member (Technical) in the case of M/s. Novotron Broadband (P) Ltd. Vs Commissioner of GST & ST. The appellants are engaged in providing service of annual maintenance of set-top boxes “Sun Direct”, on the basis of the agreement entered by them.  As per the agreement, Annual Maintenance Fees, per box, per year was fixed as Rs.40/- out of which, Rs.22/- was towards service charges and Rs.18/- towards materials cost. They discharged the service tax on the service portion and paid sales tax on material components.

However, the department was of the view that the being composite contract the entire value including the material component has to be taken for the purpose of determining the taxable value of services and that service tax has to be paid on such value up to 30th June 2012.  that with effect from 01.07.2012, the activity has to be treated as Works Contract Service and 70% of the composite value has to be considered for payment of service tax.  A show-cause notice was issued demanding differential service tax of Rs.56,88,580/- for the period from Dec.’09 to Mar.’14.   After due process of law, the original authority confirmed the demand along with interest and imposed an equal penalty.

Appellant submitted they have discharged VAT on the value of materials and during the relevant period, the rate of tax under VAT was much higher than service tax.  The present demand has been raised alleging that the appellants have discharged service tax not on the actual value of materials but only on notional value.  He relied upon the decision of the Tribunal in M/s. WIPRO GE Medical Systems Pvt. Ltd., Vs Commissioner of Service Tax, Bangalore reported in 2009 (14) S.T.R.43 (Tri.- Bang.) to argue that when sales tax had been paid on materials representing 70% of the value,  service tax is not leviable simultaneously on the same amount.

While allowing the appeal, the Tribunal pointed out that in any annual maintenance contract, the spare parts etc., which have been used in the course of maintenance service, are definitely considered to be sold and when sales tax has been paid on the value of such goods, simultaneously, one cannot charge them to service tax.  The court cited the judgment in the case of M/s. Safety Retreading Co. (P) Ltd., Vs Commissioner of Central Excise, Salem reported in 2017 (48) S.T.R.97 (S.C.), wherein the said issue has been decided, that the spare parts/materials used for repairs and maintenance cannot be said to have been not sold to the customers. Following the settled position, in this case, the demand cannot sustain.  The impugned order is set aside.

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