By TIOL News Service

MUMBAI, SEPT 26, 2014: PURSUANT the remand proceedings ordered by the CESTAT, the CCE, Raigad has passed the impugned order by which he has confirmed a service tax demand of Rs.13,75,68,767/- along with interest & penalties.

The appellants had entered into an agreement with the principal for repair of containers used for transportation of goods by sea. During the process of repair, they use raw materials and consumables and also labour for the repairs undertaken. On labour charges and consumables, they had discharged the service tax liability. On the raw materials used in the repair of the containers on which VAT/sales tax liability accrued, appellant did not discharge service tax liability on the ground that the said activity amounts to supply/deemed sale of the goods. It is their contention before the CESTAT in the second round of proceedings that they are eligible for abatement of the value of the goods supplied under Notification 12/2003-ST or 1/2006-ST. It is further submitted that supply of goods is not subject to levy of service tax as the same is constitutionally prohibited. Reliance is also placed on the decisions in Hindustan Aeronautics Ltd. 2013-TIOL-1764-CESTAT-MAD-LB, G.D. Builders 2013-TIOL-908-HC-DEL-ST, Wipro GE Medical Systems P. Ltd. 2008-TIOL-631-CESTAT-BANG to submit that confirmation of service tax demand by including the value of the goods sold or deemed to have been sold is clearly unsustainable in law.

The AR relied on the apex court decision in Rainbow Colour Lab & Anr. 2002-TIOL-373-SC-CT and submitted that in the case of photography service it is held that there is no sale of goods involved and the entire consideration received would be liable to service tax. Therefore, in the present case also since the goods are consumed while rendering the service, they become part and parcel of the service rendered and, therefore, the demands are sustainable.

The Bench observed -

“5.1 As observed by us in our earlier order, the short question for consideration is whether the cost of goods supplied while rendering a service can be subjected to levy of service tax. The issue has been settled by the larger bench of the Tribunal in the case of Hindustan Aeronautics Ltd. (supra) which has considered all the relevant decisions and has come to the conclusion that there cannot be a service tax levy on supply of goods. Respectfully following the said decision in the present case also, we are of the prima facie view that the cost of goods supplied while rendering a repair service cannot be subjected to levy of service tax. Thus the appellant has made out a case for grant of stay.”

Resultantly, the CESTAT granted unconditional waiver of pre deposit of the adjudged dues and stayed the recovery.

(See 2014-TIOL-1854-CESTAT-MUM)