Service tax not leviable on goods used in repairing if VAT is paid

The CESTAT, Allahabad in M/s Fast Track Auto Care (India) Pvt. Ltd. v. Commissioner of Central Goods & Services Tax, Noida [Service Tax Appeal No.70752 of 2017 dated August 02, 2023] set aside the demand order and held that, no service tax is demandable when the goods used for providing repair service are shown separately in invoices and Sales Tax/Value Added Tax ("VAT") is paid on such goods.

Facts

An Investigation was conducted against M/s. Fast Track Auto Care (India) Pvt. Ltd. ("the Appellant").

On the basis of scrutiny of the documents submitted by the Appellant, the Revenue Department ("the Respondent") issued a Show Cause Notice ("the SCN") demanding service tax on the value of material/spare parts sold by the Appellant during servicing of motor vehicles.

The Appellant filed reply of the SCN inter-alia contested the demand of service tax on sale material/spare parts. However, the Adjudicating Authority vide order ("Impugned Order") confirmed the demand of service tax along with interest and imposed the penalty under Section 78 the Finance Act.

Aggrieved by the Impugned Order the Appellant filed an appeal before the CESTAT, Allahabad.

The Appellant contended that invoice clearly demonstrates that VAT has been charged on 100% value of spare parts, lubricants, oil etc. sold during the servicing of motor vehicles on which Sales Tax/VAT has been paid, cannot be included in assessable value and no Service Tax can be charged on the same. Issue:

Whether service tax can be imposed on material/spare parts sold by the assessee during servicing of motor vehicles?

Held

The CESTAT, Allahabad in Service Tax Appeal No.70752 of 2017 held as under:

• Observed that, when the value of goods used in motor vehicle servicing is shown separately in the invoice and on the same Sales Tax/VAT has been paid, the supply of the goods will be treated as sale of goods.
• Relied upon the judgement of Samtech Industries v. Commissioner of Central Excise - 2015 (38) S.T.R. 240 (Tri.-Del.), wherein the assessee was providing the service of repairing transformer and was using consumables like transformer oil and also component parts being coil etc.,the Tribunal held, when the value of goods used is shown separately in the invoice and on the same Sales Tax/VAT has been paid, the supply of the goods would have to be treated as sale and the transaction which are sale cannot be a part of the service transaction.
• Held that, demand of service tax against the Appellant for the cost of the goods supplied during repair/service is not sustainable.
• Set aside the demand of tax, interest and the penalties.