- (1.) The appeal by the Revenue is from a decision of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) dated 25 April 2014. The following questions of law have been formulated:- "(i) Whether the Hon'ble CESTAT erred in holding that Excise Duty, VAT paid goods used in the repairing process were sold to the customers as such service tax is not demandable on the value of the said goods ignoring the fact that as per contract the respondents were under obligation to replace the damaged parts and to return the transformers in a proper working condition. (ii) Whether the Hon'ble CESTAT has erred in not observing the fact that the issue involved in M/s Balaji Tirupati Enterprises decided by CESTAT vide Final Order No.ST/A/735/12 dated 21.11.12 relied upon is related with "works contract service" whereas in the instant case the issue is related with "maintenance and repair service" (iii) When the Hon'ble Apex Court in the case of Idea Mobile Communication, 2011 23 STR 433 (SC)] has held that value of SIM Cards form part of activation charges as no activation is possible without valid functioning of SIM card and the value of taxable service is calculated on the gross total amount and the present transactions to BSNL and payment by BSNL were different, whether the Hon'ble CESTAT has erred in dropping the demand in the instant case when the ratio of the Apex Court Judgment equally applies in as much as contract is aimed at to repair/overhaul transformer and package amount is agreed to be paid including cost of parts replaced for the repair of transformers. The payment of VAT on certain parts of transformers may not deprive the Service Tax department to levy and collect its dues as per the interpretation of gross value concept stipulated in Section 67 of the Finance Act, 1994 and composite nature of Service Contract entered by the respondent in this case."
(2.) The assessee provided Management, Maintenance and Repair services for the repair of old and damaged transformers to Dakshinanchal Vidyut Vitaran Nigam Limited. The issue before the Tribunal was whether transformer oil, HV/LV coil and spare parts which are goods incorporated into transformers belonging to the Nigam, should be included for the purpose of quantifying the gross consideration received, as constituting the taxable value. The Tribunal has relied upon its own decisions and come to the conclusion that the law is settled; the principle of law being that where an agreement quantifies the value of materials separately from the value of services rendered, the value of the materials or goods would have to be excluded since that component is not liable to service tax.
(3.) A similar issue has been considered by a Division Bench of this Court in Commissioner of Customs and Central Excise Vs. J.P. Transformers (Central Excise Appeal No.159 of 2014) decided on 25 August 2014. The relevant part of the judgment reads as follows:- "In appeal, the Tribunal has held that that there was no dispute about the following factual aspects: (i) the contract showed the cost of each and every item separately; (ii) as a matter of fact, the Commissioner had accepted that the invoices reflected separately the value of various items such as HV/LV Leg Coils and Transformer Oil on which the assessee paid tax including value added tax. In this background, the Tribunal held that merely because the segregation of various items was shown in the contract for the purpose of price variation, the contract would not be regarded as one for providing services inclusive of the value of the goods which were used. The Tribunal relied upon Notification 12/2003-ST, dated 20 June 2003 under which the value of goods and materials sold by the service provider to the recipient of services stands exempted from the service tax leviable thereon subject to the condition that there should be documentary proof specifically indicating the value of the goods and materials. In the present case, it has been found as a matter of fact that the value of the goods and materials utilized for repair of the transformers is separately disclosed in the agreement and is separately mentioned in the invoices of the assessee. The assessee has paid excise duty or, as the case may be, value added tax on goods used in the repairing process. It was in this factual background, on which there is no dispute, that the Tribunal held that service tax could not be demanded on that component representing the value of the goods and materials used for carrying out repairs. The mere fact that the cost of the various items was shown for the purpose of price variation was held not to make any difference to the legal position. In this view of the matter, the conclusion of the Tribunal that the agreements and invoices reflected the cost of materials and labour separately, and that the assessee had duly paid VAT/CST and excise duty on the goods sold, is not in dispute. It was in this background that it was held that no service tax would be leviable on the value of the materials.";