Service Tax Cannot be Levied on the Value of Parts Sold during the Repair/Service of Vehicles: CESTAT

CESTAT, West Zonal Bench has ruled that the Department cannot demand service tax on the value of spare parts sold during the servicing or repair of vehicles, on which Sales Tax/VAT has been paid, if the value of spare parts is shown separately in the invoice. The order comes as a big relief for scores of automobile dealers throughout the country, who have been issued show cause notices by the Service Tax Department for payment of service tax on the total bill, including value of spare parts. The order is reproduced hereinbelow for the information of automobile dealers.



In the Customs, Excise and Service Tax Appellate Tribunal West Zonal Bench at Mumbai

Application No. ST/Stay-92444/2013

Appeal No. ST/85261/2013

[Arising out of order-in-original No: 62/ST/2012/C dated 04/10/2012 passed by the Commissioner of Customs, Central Excise & Service Tax, Nagpur]

Ketan Motors Ltd - Appellant


Commissioner of Customs, Central Excise & Service Tax, Nagpur - Respondent

Appearance: Shri Ashok Chandok, Chartered Accountant for the Appellant; and Shri V K Agarwal, Addl. Commissioner (AR) for the respondent

CORAM: Hon’ble Shri P R Chandrasekharan, Member (Technical); and Hon’ble Shri Anil Choudhary, Member (Judicial)

Date of decision: 18/02/2013


ORDER NO:  S/238/13/CSTB/C-I and A/321/13/CSTB/C-I

1.P R Chandrasekharan: The appeal and stay application are directed against Order-in-Original No: 62/ST/2012/C dated 04/10/2012 passed by the Commissioner of Customs, CEST, Nagpur.

2.M/s Ketan Motors Ltd, Nagpur are authorized service agents for Hyundai Motor cars and they undertake maintenance/service of motor cars. They also supply spare parts of these vehicles. During the course of scrutiny of the records of the Appellant, it was noticed that the Appellant was selling spare parts for motor vehicles during the course of undertaking repair services on which they were paying VAT. However, the value of these spare parts were not included in the consideration received for repair services and service tax liability had not been discharged on the value of such spare parts. Accordingly, a notice dated 17/10/2011 was issued demanding service tax on the entire value of spare parts sold as shown in their Balance Sheets amounting to Rs. 3,41,19,496 for the period 2006-07 to 2010-11. Notice also proposed demand of interest and imposition of penalties under Sections 76, 77 and 78 of the Finance Act, 1994. The notice was adjudicated and the demands were confirmed along with interest. Penalties were also imposed on the Appellant under all the above sections and, hence, the Appellant is before us.

3.The learned counsel for the Appellant submits that the department has computed service tax demand on the basis of sales figures of spare parts reflected in their Balance Sheets for the respective years. The sale figures reflected in the Balance Sheet include sale of spare parts as such without any rendering of any service, on which they had discharged sales tax/VAT liability. Further, sale of spare parts might also occur in the course of repair of motor vehicles. In such cases also, they have disclosed the value of spare parts in the bills raised and have discharged sales tax liability on such sales. Since sale and services are distinct and different, service tax cannot be levied on the sale of spare parts undertaken by the Appellant. He relied on the circular No. B.11/1/2001-TRU dated 09/07/2001, wherein it has been clarified that cost of parts and accessories supplied during the course of repair and servicing of vehicles will not be includable in the taxable value if such cost is shown separately in the bills/invoices. He also relies on the decision of this Tribunal in the case of (Uttam Toyota vs. Commissioner of Central Excise, Ghaziabad 2011 (22) STR 425 wherein a similar issue came up for consideration and the Tribunal prima facie took the view that cost of sale of spare parts would not be includable in the value of services rendered and accordingly granted stay. Accordingly, he pleads for waiver of pre-deposit of the dues adjudged.  He also produced specimen copies of invoices showing sale of spare parts as such, wherein VAT/CST liability has been discharged as also specimen copies of invoices where both sale of spare parts as also service were involved and in those cases also, they have discharged sales tax liability on the spare parts sold to the customer.

4.The learned Additional Commissioner (AR) appearing for the Revenue, on the other hand, submits that as per master Circular No. 96/7/2007-ST dated 23/08/2007, which has superseded all the previous circulars, it has been clarified that any goods used in the course of providing service has to be treated as inputs used for providing the service and accordingly cost of such inputs forms integral part of the value of taxable service and the service provider is entitled to take input credit of excise duty paid on such parts or any goods used in providing the service wherein value of such goods have been included in the bill. In view of this clarification, the learned Additional Commissioner (AR) submits that the claim of the Department for service tax in the case of composite service, on the aggregate value including the value of spare parts sold in the course of rendering of service, would be sustainable in law.

5.We have carefully considered the rival submissions. As the issue lies in a narrow compass, after dispensing with the requirement of pre-deposit, we take up the appeal itself for consideration.

5.1In para 3.2 of the impugned order, it is stated that the Appellant had furnished the following information and documents vide letter dated 21/09/2011:

i)Yearwise details of value of spare /parts used during the course of servicing of motor vehicles for the period 2006-07 to 2010-11;

ii)Copy of Balance Sheet, Profit & Loss Account for the years 2006-07 to 2009-10; and 

iii)Copy of ST-3 returns for the period 2006-07 to 2010-11.

5.2However, while confirming the demand, the learned Commissioner has taken the value of sale of spare parts as reflected in the Balance Sheets. This is incorrect. If a transaction involves only sale of spare parts, the question of levying service tax would not arise at all and, therefore, the Commissioner should have excluded those transactions involving pure sale of spare parts. As regards levy of service tax on transactions involving both sales of spare parts as also rendering of service, in the master circular dated 23/08/2007, it is stated that “Service tax is not leviable on a transaction treated as sale of goods and subjected to levy of Sales Tax/VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/Sales Tax on a transaction indicates that the said transaction is treated as sale of goods.”

5.3From the reading of the above circular, it would appear that even in a case of composite transaction involving sale of goods and rendering of service, if the bill/invoice issued clearly shows payment of Sales Tax/VAT on the spare parts, then the value of such spare parts would not be includable in the gross consideration received for rendering of service. The Commissioner has not considered these submissions made by the Appellant and also the clarifications issued on the matter. Therefore, we are of the considered view that the matter has to go back to the adjudicating authority for fresh consideration. First of all, all the transactions involving only sale of spare parts should be excluded for the purpose of computation of service tax demand. Secondly, even in a case where the transaction involves both sale of spare parts and also rendering of service, the value of sale of spare parts should be excluded if Sales Tax/VAT has been discharged on such sales as is evident from the invoices/bills issued in this regard. The Appellant is directed to produce before the adjudicating authority all the evidences they would like to rely upon in support of their above contention.

6.Thus, the appeal is allowed by way of remand. The stay application is also disposed of.





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