No Service Tax Can Be Demanded On Sale Of Goods Or By Way Of Including Value Of Goods In The Service: CESTAT
The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax can be demanded on the sale of goods or by way of including the value of goods in the service.The bench of Ramesh Nair (Judicial Member) and Raju (Technical Member) has observed that as per the contract and the transaction made thereunder there is clear distinction between...
The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax can be demanded on the sale of goods or by way of including the value of goods in the service.
The bench of Ramesh Nair (Judicial Member) and Raju (Technical Member) has observed that as per the contract and the transaction made thereunder there is clear distinction between the provision of service and transaction of sale of goods therefore the service has been correctly classified under erection commissioning and installation service and paid the service tax correctly.
The appellant/assessee is in the manufacture of cooling towers and parts. The appellant also provides consulting engineers, maintenance & repairs, erection, commissioning and installation services, works contract services etc. The Appellant is registered with the department under excise registration and as service provider. The Appellant either enters into three types of contracts for supply of parts of cooling towers or executes works contracts for erection, installation and commissioning of cooling towers at their customer's site.
Irrespective of the type of contract entered into by the Appellant, separate values of the goods supplied and the values towards erection, commissioning and installation services of cooling towers are available, which are separately disclosed in the executed contracts and on the invoices raised. Thus, there is clear basis of bifurcation between the supply of goods and the supply of services. The Appellant discharges the appropriate excise duty / sales tax / VAT in respect of the value of transfer of property and goods and service tax in respect of the value of erection, commissioning, installation services etc.
The Appellant manufactures certain parts of the cooling towers in their manufacturing unit for execution of contract entered into for installation of cooling towers, while other parts required are procured from independent suppliers and supplied directly to the customer's site on sale-in-transit basis, Goods purchased from independent suppliers are supplied directly to the customer's site and corresponding invoices are issued at contracted value, which is higher than the Appellant's purchase value.
With respect to the goods purchased from independent suppliers and supplied to customer's site directly on a sale-in-transit basis or by way of high seas sale, the Appellant issued corresponding commercial invoices for the supply of goods as per the contract value, which was higher than the purchase price of the said goods. Thus, the Appellant has invoiced distinct amounts with respect to the supply of Goods as well as the supply of services, of installation. Accordingly, the tax leviable on these distinct transactions is calculated and the Sales Tax/VAT/ Service Tax are all discharged by the Appellant.
During the course of an EA-2000 Audit for the period of September 2010 to October 2011, it was observed that the Appellant failed to pay Service Tax on the gross taxable value, being the additional value charged by the Appellant to its customers on the goods purchased from independent suppliers and supplied to the customer's site. Consequently, a demand of service tax was made on the profit margin, i.e., the difference in the sale price and purchase price of the subject goods.
The show cause notices were issued to the Appellant, demanding service tax on the said price differential in respect of the goods sourced from independent suppliers and supplied to the customer's site. It was alleged that the said supply of goods is a part of the works contract carried out by the Appellant. The Adjudicating Authority confirmed the demand for service tax along with interest and penalties. The Commissioner (Appeals) also upheld the demand for service tax along with interest and penalties.
The court stated that even if it is assumed that the subject contract amount to works contract the value of goods cannot be included in the value of taxable services on which service tax is payable in terms of Rule 2A of the Service Tax (Determination of Value) Rules, 2006. In terms of Rule 2A(i) of the Valuation Rules, as it stood both before and after 01.07.2012 provides that the value of works contract service determined shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the works contract.
The court held that the sale of goods by any stretch of imagination cannot be brought into for levy of service tax. No service tax is payable on trading of goods in the present case, the trading of goods is not in dispute. Even post 01.07.2012 in terms of section 66D(e) trading of goods is specified under the negative list on which the service tax is not leviable.\
Counsel For Appellant: Prakash Shah, Mohit Rawal
Counsel For Respondent: Rajesh Nathan
Case Title: Hamon Shriram Cottrel Pvt. Ltd. Versus Commissioner of C.E. & S.T.-Vapi
Case No.: Service Tax Appeal No. 12657 of 2013- DB