ST - Authorised service station - Section 67 mandates levy of ST on value or consideration received for rendering services - any consideration received for supply of goods is not covered within its scope: CESTAT

Income Tax Department

MUMBAI  THE appellant is an authorised dealer of Maruti Udyog Ltd., and are registered with the department as an authorised service station for Maruti cars and they have been discharging service
tax liability on servicing/repairing of the vehicles undertaken by them.

While reparing or servicing of the vehicles, they also sometimes used parts on which sales tax/VAT liability is discharged. The parts and components are procured from M/s Maruti Udyog Ltd. and they have lifted these parts from the warehouse/depots of Maruti Udyog Ltd. For bringing these parts to their service station, they have to incur octroi and other local taxes, freight, loading and unloading charges etc. Therefore, while selling these parts to the clients as part of servicing activity, they include the cost incurred by them towards freight, loading, unloading etc. as ‘handling charges' and pay sales tax on the goods on the value inclusive of handling charges. Sometimes they sell the parts as such without undertaking any service/repair activity and in such cases also they collect handling charges and discharge the sales tax liability.

The jurisdictional CE authorities at Nagpur were of the view that these handling charges collected by the appellant are liable to service tax since a composite activity of sale as well as service has been carried out.

Vide an order-in-revision the CCE, Nagpur confirmed the Service Tax demand of Rs.4.86 lakhs and, therefore, the appellant is before the CESTAT.

It is submitted that the handling charges form part of the value of the goods sold on which sales tax/VAT liability has been discharged and this is towards the freight/loading and unloading charges involved in handling of the automobile components procured from M/s Maruti Udyog Ltd and these have nothing to do with the service/repair of the motor vehicles of Maruti Suzuki. Reliance is also placed on the Board's Circular no. 96/7/2007-ST dated 23/08/2007 wherein it is clarified that service tax is not leviable on a transaction treated as a sale of goods and subject to levy of sales tax/VAT when spare parts are sold by a service station during the servicing of vehicles. The appellant also relied on the decision in Dynamic Motors 2011-TIOL-1876-CESTAT-DEL in support.

The AR submitted that since the handling charges are service rendered, service tax is leviable and hence the demand needs to be sustained.

The Bench observed -

++ We notice that the appellant are charging handling charges whenever automobile parts are sold either independently or as part of the service and repair of automobiles. In both the situations, invoices are issued for the sale of the goods as well as for collection of service charges for the services rendered.

++ Handling charges were incurred in connection with the procurement of the goods and are included in the value of the goods sold and sales tax/VAT liability is discharged on the value inclusive of the handling charges. Therefore, we do not understand how service tax levy would apply especially when the goods are subject to sales tax/VAT on a value inclusive of handling charges. It is not in dispute that the handling charges are incurred in connection with the procurement of the parts. If that be so they will obviously form part of the value of the goods when they are subsequently sold.

++ Section 67 of the Finance Act, 1994 mandates levy of Service Tax on a value or consideration received for rendering the services. Therefore, any consideration received for supply of goods is not covered within the scope of section 67. The decisions of the Tribunal in the case of Ketan Motors Ltd. and Dynamic Motors cited supra also support this view.

Holding that the order is clearly unsustainable in law, the same was set aside.

The appeal was allowed.