By TIOL News Service

MUMBAI, JULY 28, 2014: THIS is a Revenue appeal.

The respondents are undertaking the activity of retreading of tyres. The activities are covered under the Management Maintenance & Repairs Service. The Respondents were paying service tax only on the labour charges towards retreading the tyres excluding the cost of the rubber utilized towards retreading.

The adjudicating authority confirmed the service tax demand with interest and also imposed penalties.

The Commissioner (Appeals) held that the cost of the rubber used for retreading of tyres is excludible in view of Notification No. 12/2003-ST.

As mentioned, Revenue has challenged this order on the following ground –

++ Benefit of notification 12/2003-ST is available provided there is documentary proof specifically indicating the value of such materials. In the present case, the respondents, in the invoice, are showing the deemed sale of materials to the extent of 60% and 40% towards labour charges and not indicating the value of goods and materials actually sold. [M/s AdorFontech Ltd vs CCE, Nagpur 2013-TIOL-1968-CESTAT-MUM decided in favour of Revenue relied upon.]

The respondent submitted that in view of apex court decision in L & T 2013-TIOL-46-SC-CT-LB the activity undertaken by them comes under the category of Works Contract and hence the value of goods and materials used for retreading of tyres is not to be taken into consideration for arriving at the assessable value for the purpose of service tax.

The Bench extracted the notification in question and while observing that the issue is now settled by the Bench in the case of AdorFontech cited by Revenue, further noted –

++ There is a specific condition that there should be documentary proof specifically showing the value of material sold. In the present case, the respondents were clearing the goods under the consolidated invoice and uniformly charging taking 60% towards the value of the material and 40% towards service. There is no separate invoice regarding the actual sale of goods and material. 

Inasmuch as holding that there is merit in the contention of the Revenue the impugned order whereby the Commissioner (Appeals) allowed the benefit of Notification No. 12/2003-ST was set aside and the order passed by the adjudicating authority in this regard was restored.

In the matter of imposition of penalties, the CESTAT observed that on the issue involved, there was a difference of opinion in the case of Safety Products Retreading Company (P) Ltd.2012-TIOL-697-CESTAT-MAD and the matter was referred to a Third Member and, therefore, the respondents are not liable to any penalty in view of the provisions of Section 80 of the Finance Act, 1994.

The Revenue appeal was disposed of as above.

(See 2014-TIOL-1349-CESTAT-MUM)