No Service Tax Is Applicable When Sales Tax/VAT Is Paid on Goods Used for Providing Repair Service: CESTAT

The Allahabad CESTAT has clarified that service tax does not apply when Sales Tax or VAT has been paid on goods used for providing repair services. According to CESTAT, when the invoice clearly lists the value of goods used for motor vehicle servicing and Sales Tax or VAT has already been paid on those goods, it is considered a sale of goods, not a taxable service.

An investigation was conducted against the Appellant/assessee.

Based on a review of the documents submitted by the Appellant, the Revenue Department issued a Show Cause Notice, requesting service tax payment on the value of materials/spare parts sold by the Appellant during motor vehicle servicing.

The Appellant responded to the Show Cause Notice, arguing against the service tax demand on the sale of materials/spare parts. However, the Adjudicating Authority, through an order, upheld the service tax demand, added interest, and imposed a penalty under Section 78 of the Finance Act.

The Appellant's argument centered on the fact that their invoices clearly indicated that VAT had been applied to the full value of spare parts, lubricants, oil, etc., sold during motor vehicle servicing. 

Since Sales Tax/VAT had already been paid on these items, they contended that these amounts should not be included in the assessable value, and therefore, no Service Tax should be applied to them.

The main question in this case revolved around whether service tax could be applied to materials/spare parts sold by the assessee during the servicing of motor vehicles. 

The tribunal based its decision on a precedent set in the case of Samtech Industries v. Central Excise Commissioner – 2015 (38) S.T.R. 240 (Tri.-Del.).

In the Samtech Industries case, the assessee provided services for repairing transformers and used items like transformer oil and component parts such as coils. 

The Tribunal in that case determined that when the value of goods used is clearly displayed separately in the invoice and Sales Tax/VAT has been paid on those goods, the supply of those goods should be considered a sale. Transactions that are classified as sales cannot be considered part of a service transaction.

Also Read: CBDT: Income Tax Department Successfully Processes 88% of Validated Tax Returns

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