The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the spare parts cost is not a part of repair and maintenance services under composite works contract.
The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) has observed that the Commissioner was not justified in including the value of spare parts in the assessable value of service, as the contract was a composite contract involving supply of goods (spare parts and consumer bills) as well as provision of services (repair and maintenance). It needs to be noted that service tax was not leviable on composite contracts up to 01.07.2012 and the period involved in this appeal is from April 2009 to June 2012.
Background
The appellant/assessee is a public sector undertaking of the Government of India under the Ministry of Defence and is engaged in maintenance and repair services of Heavy Earth Moving Machinery.
The repair and maintenance also entail supply of spare parts and consumables in respect of such Heavy Machinery. The appellant entered into Maintenance and Repair Contracts with its customers to whom Heavy Machinery machines were supplied from its manufacturing units.
The appellant entered into Agreement with M/s. Northern Coalfields Ltd in relation to the Heavy Machinery namely hydraulic Face Shovel of bucket for a period of 7 years starting after the completion of warranty period of Heavy Machinery.
The contract was a composite contract for supply of spare parts and consumables as well as repair and maintenance services, for which the appellant charged ‘spares and consumables charges’ and ‘overhead and supervision charges’ at a rate per working hour of the Heavy Machinery.
The appellant undertook rehabilitation and repair services of Heavy Machinery Machines at its service centre pursuant to work orders placed on the appellant by the customers, such as Rajasthan Rajya Vidyut Utpadan Nigam Limited. The work orders pertain to the supply of spare parts and repair/overhauling services in respect of Heavy Machinery of customers.
The appellant raised separate invoices for the supply of spare parts and for the provision of the services and discharged VAT/CST on the entire value of spare parts and consumables supplied to customers. The appellant also paid the applicable service tax for undertaking the repair and maintenance services.
A show cause notice was issued to the appellant proposing a service tax demand by invoking the extended period of limitation. The basis for issuing the show cause notice was that the Repair Contracts of the appellant, in their very nature and substance, were pure service contracts for repair work and labour in which spare parts and materials were used incidentally, and so of the amount received by the appellant towards cost of spare parts should form part of the value of repair services.
The show cause notice was adjudicated upon. Service tax demand has been confirmed with interest and penalty holding that the contract entered by the appellant with the customers is an instrument to escape the service tax liability by attributing a disproportionate amount to the cost of spares and consumables. The service tax has been held to be recoverable on the amount of cost of spare parts.
Issue Raised
The appellant raised the issue whether the cost of spare parts should form part of the repair and maintenance services provided by the appellant under the composite works contract.
Arguments
The assessee contended that the activity of repair and maintenance, if provided along with material, merits classification under works contract service and the amount on which VAT has been discharged by the assessee has to be excluded from the value of works contract to ascertain the value of taxable services provided by the assessee.
The department contended that the Commissioner was justified in confirming the demand of service tax by invoking the extended period of limitation as the appellant had willfully suppressed facts from the department to evade payment of service tax.
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Conclusion
The tribunal while allowing the appeal held that when invoices are issued showing the value of the goods used and the service charges separately, service tax would be chargeable only on the service/labour charges and the value of goods.
Case Title: M/s. BEML Ltd. Versus Commissioner of CGST, Central Excise & customs
Case No.: Service Tax Appeal No. 53585 of 2018
Date: 13/09/2024
Counsel For Appellant: B.L. Narasimhan
Counsel For Respondent: Sangeet Kumar Meena
