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ST - Notfn. 12/2003-ST speaks of 'value' of materials and not 'cost' of materials - no reason to demand service tax on 10% profit at which material is sold by appellant: CESTAT

By TIOL News Service

MUMBAI, JUNE 20, 2018: THE Appellant had provided Management, Maintenance or Repair Service to Indian Air Force (IAF) and are also supplying materials (purchased from vendors or from the IAF store) along with the said services.

The Appellant were availing the benefit of Notification No. 12/2003-ST dt. 20.06.2003 on the services provided to IAF.

It is the case of the department that the Appellant are eligible for the exemption under Notification No. 12/2003-ST ONLY to the extent of the acquisition cost of the goods and materials procured by them for providing service to the IAF. Inasmuch as since the appellants were recovering more amount than the acquisition cost of the material used in providing the said service to the IAF; that they were adding 10% profit on the value of material and, therefore, this “10% profit” is addable in the taxable value in terms of s.67 of the FA, 1994.

The Show Cause Notice proposed to deny the benefit of exemption Notification No. 12/2003-ST to the extent of 10% profit element on material by demanding Service Tax of Rs.6,45,37,011/- u/s 73(2) of the FA, 1994. The demand was confirmed with interest and penalty was imposed by the impugned order dated 24.12.2012 passed by the CCE, Nashik.

In appeal before the CESTAT, the appellant submitted that Notification No. 12/2003-ST speaks of ‘Value of materials' and not ‘cost of materials', hence the Value of material includes the element of Profit; that they have maintained proper records and fulfilled conditions of the said Notification. Reliance is placed on the judgment in their own case reported as - 2010-TIOL-209-CESTAT-BANG.

The AR reiterated the findings of the impugned order.

The Bench while adverting to the cited decision observed -

"4. … We find that the Appellant is showing the values of raw materials and labour separately in their invoices. They also pay VAT/ Sales Tax as may be applicable on such value of material. In such case, there is no reason to demand service tax on 10% profit or profit on which material is sold by them…"

Concluding that the impugned order is not sustainable, the same was set aside and the appeal was allowed with consequential relief.

(See 2018-TIOL-1897-CESTAT-MUM)


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