SAFETY RETREADING COMPANY (P) LTD. versus COMMISSIONER OF CENTRAL EXCISE, SALEM
[2017] 4 S.C.R. 714, Supreme Court of India, 2017
Outcome: Disposed off
Segment: Ratio
'A 
[2017] 4 S.C.R. 714 
SAFETY RETREADING COMP~NY (P) LTD. 
v. 
COMMISSIONER OF CENTRAL EXCISE, SALEM 
(Civil Appeal No. 641 of2012) 
B 
JANUARYlS,2017 
[RANJAN GOGOi AND ASHOK BHUSHAN, JJ.] 
Finance Act, 1994 - ss. 65(64), 65(105)(zzg), 66 and 67 -
Service Tax - Exigibility to - Whether in a contract for retreading 
C of tyres, service tax is leviable on the total amount charged for 
retreading including the value of materials/goods used/sold in 
execution of contract or only on the service component - Held: 
Assessee liable to pay tax only on the service component which 
under the State Act is quantified at 30% - Assessee had paid service 
tax under the local Act, whereunder it was registered as a Works 
· D Contractor, in respect of the component of gross turnover - Thus, 
in view of s.67, which exempts costs of parts or other material, if 
any, sold (deemed sale) to the customer while providing maintenance 
or repair service, the finding of CESTAT, per majority that in a 
contract of the kind under consideration there is no sale/deemed 
E sale of parts or other materials ·used in execution of contract of 
repairs and maintenance and that the entire gross value of service 
rendered is liable to service tax, does not lay down correct 
proposition of law - Finance Act, 2003 - Customs and Excise. 
F 
Service Tax - Notification/Circular - Benefit under - When 
available - Notification No.1212003-ST dated 20
117 June, 2003 and 
CBEC circular dated 7th April, 2004 - Held:
s.67, Finance Act, 
1994 deals with valuation of taxable services for charging service 
tax, specifically excluding the costs of parts or other material, if 
any, sold (deemed sale) to the customer while providing maintenance 
or repair service - The same is provided by Notification/Circular in 
· G question, subject to the condition that the assessee provides 
adequate and satisfactory proof in this regard - In the present case, 
the invoices which the appellant-assessee brought on record by way 
of illustration show the break up of gross value received - The 
same was not contested - Thus, respondents plea with regard to 
lack of proof of incurring expenses on goods and materials 
H 
714
SAFETY RETREADING COMPANY (P) LTD. v. 
715 
COMMISSIONER OF CENTRAL EXCISE 
transferred to the recipient of the service provided, is an afterthought A 
- Finance Act, 1994 - s.67. 
Disposing of the appeals, the Court 
HELD: 1.1 The exigibility of the component of the gross 
turnover of the assessee to service tax in respect of which the 
assessee had paid taxes under the local Act whereunder it was 
B 
registered as a Works Contractor, was no longer in doubt in view 
of the clear provisions of Section 67 of the Finance Act, 1994, as 
amended, which deals with the valuation of taxable services for 
charging service tax and specifically excludes the costs of parts 
or other material, if any, sold (deemed sale) to the customer while c 
providing maintenance or repair service. This, in fact, is what 
was provided by the Notification dated 20th June, 2003 and CBEC 
Circular dated 7th April, 2004, subject, however, to the condition 
that adequate and satisfactory proof in this regard is fort~coming 
from the assessee. On the very face of the language used in 
Section 67 of the Finance Act, 1994 the view held by the majority D 
in the appellate Tribunal that in a contract of the kind under 
consideration there is no sale or deemed sale of the parts or 
other materials used in the execution of the contract of repairs 
and maintenance, cannot be subscribed to. The finding of the 
appellate Tribunal that it is the entire of the gross value of the 
E 
service rendered that is liable to
service tax, does not lay down 
the correct proposition of law, which is, that an assessee is liable 
to pay tax only on the service component which under the State 
Act has been quantified at 30%. [Para 10) [719-H; 720-A-D] 
1.2 An argument was advanced by respondent that there 
F 
was no evidence forthcoming from the side of the assessee that 
the value of the goods or the parts used in the contract and sold 
to the customer amounts to seventy per cent (70%) of the value 
of the service rendered which is the taxable component under 
the State Act. The aforesaid argument overlooks certain basic 
features of the case, namely, the undisputed assessment of the G 
assessee under the local Act; the case projected by the 
Department itself in the show cause notice; and thirdly the affidavit 
filed before this Court by Commissioner of Central Excise, Salem. 
[Para 11] [720-E-F] 
H
• 
716 
SUPREME COURT REPORTS 
[2017) 4 S.C.R. 
A 
1.3 No~dispute was raised with regard to the assessment of 
the appellant on its turnover under the local/State Act, insofar as 
payment of value added tax on that component (70%) was 
concerned. A reading of the show cause notice shows that the 
entire thrust of the Department's case is the alleged liability of 
B 
the appellant-assessee to pay service tax on the gross value. In 
the show cause notice, the details of the value of the goods, raw 
materials, parts, etc. and the value of the services rendered were 
mentioned and service tax was sought to be levied at the 
prescribed rate of ten per cent (10%) on the differential amount. 
It is now stated that the aforesaid figures were furnished by the 
C assessee himself and, therefore, must be understood not to be 
authentic. This, indeed, is strange. No dispute was raised with 
regard to the correctness of the said figures furnished by the 
assessee in the show cause notice issued to justify the stand now 
taken before this Court; at no point of time such a plea was 
D advanced. [Para 12] [720-G-H; 721-A-B] 
E 
1.4 Besides the above, the affidavit of the Commissioner, 
proceeded on the basis that the appellant-assessee was also liable 
to pay service tax on the remaining seventy per cent (70%) 
towards material costs in addition to the 30% of the retreading 
charges. Further, the invoices which the appellant-assessee had 
brought on record by way of illustration show the
break-up of the 
gross value received. There was no contest to the same. The 
case now projected, with regard to lack of proof of incurring of 
expenses on goods and materials which were transferred to the 
recipient of the service provided, appears to be an afterthought, 
F 
even on examination of the same on merits it is found to be wholly 
unsm;tainable. [Para 13] (721-B-C, G] 
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 641 of 
2012 . 
From the Order dated 12.09.2011 by the High Court of Gujarat at 
G Ahmedabad in Civil Application No. 199 of20 II 
WITH 
C. A. Nos. 6375-6376 of2014 and 6062-6063 of2013. 
Ms. Pinky Anand, ASG, Arvind P. Datar, K. Radhakrishnan, 
H Sr. Advs., S. Durairaj, S. Sukumaran, Anand Sukumar, Bhupesh Kumar
SAFETY RETREADING COMPANY (P) LTD. v. 
717 
COMMISSIONER OF CENTRAL EXCISE 
Pathak, Ms. Meera Mathur, Ms. Yovini Rajesh Rohra, Balaji Srinivasan, A 
Sandeep Narain, P. Chandnm Nair, M. H. Patil (For M/s. S. Narain 
&Co.), Ms. Nisha Bagchi, Ajay Singh, Rajiv Nanda, H. R. Rao, 
Ms. Pooja Sharma, B. Krishna Prasad, Adys. for the appearing parties. 
The Judgment of the Court was delivered by 
RANJAN GOGOI, J. 
CIVIL APPEAL N0.641 OF 2012 
B 
1. The main issue for consideration in this appeal is whether in a 
contract for retreading of tyres, service tax is leviable on the total amount 
charged for retreading including the value of the materials/ goods that 
C 
have been used and sold in the execution of the contract. 
2. The definition of 'taxable service' contained in Section 
65( 1 OS)(zzg) of the Finance Act, 1994, as amended by Finance Act, 
2003 may be noticed at this stage. 
"65. Definitions 
In this Chapter, unless the context otherwise requires.-
* 
* 
* 
(1 OS) 'taxable service' means any service provided-
* 
* 
* 
D 
(zzg) to a customer, by any person in relation to maintenance or 
E 
repair;" 
3. The expression "maintenance or repair" is defined by Section 
65(64) of the Finance Act, 1994 is in the following terms: 
"65. Definitions 
In this Chapter, unle,ss the context otherwise requires.-
(1) .... 
F 
(64) "management, maintenance or repair" means any service 
G 
provided by-~ 
(i) any person under a contract or an agreement; or 
(ii) a manufacturer or any person
authorized by him, in relation 
to,-
H
718 
A 
B 
c 
D 
SUPREME COURT REPORTS 
[2017] 4 S.C.R. 
(a) management of properties, whether immovable or not; 
(b) maintenance or repair of properties, whether immovable or 
not; or 
( c) maintenance or repair including reconditioning or restoration, 
or servicing of any goods, excluding a motor vehicle;" 
4. Section 66 which is the charging section brought about by the 
2003 Amendment to the Finance Act, 1994, authorizes the levy of service 
tax, at the prescribed rate, on the value of taxable services referred to 
in, inter alia, sub-clause (zzg) of Clause 105 of Section 65 of the Finance 
Act, 1994. 
5. Section 67 of the aforesaid Act deals with valuation of taxable 
services and specifically mentions that the same does not include the 
cost of parts or other material, if any, sold to the customer during the 
course of providing maintenance or repair service. 
6. There is a government notification bearing No.12/2003-ST dated 
th 
d 
c . 
th 
• 
20 June, 2003 an a CBE C!fcular dated 7 Apnl, 2004 dealing with 
the instant matter which may also be noticed and extracted below: 
"Notification No.12/2013-ST dated 20'h June, 2003. 
'Valuation (Service Tax) - Goods and materials sold by service 
E 
provider to recipient of service - Value thereof, exempted .. 
In exercise of the powers conferred by section 93 of the Finance 
. Act, 1994 (32 of 1994), the Central Government, being satisfied 
that it is necessary in the public interest so to do, hereby exempts 
so much of the
value ofall the taxable services, as is equal to the 
F 
value of goods and materials sold by the service provider to the 
recipient of service, from the service tax leviable thereon under 
section (66) of the said Act, subject to condition that there is 
documentary proof specifically indicating the value of the said 
goods and materials. 
G 
2. This notification shall come into force on the 1" day of July, 
2003 (Notification No.12/2003-S.T. dated 20.6.2003)' 
H 
CBEC Circular dated 7
1
h April. 2004 
'I am directed to refer to your representation forwarded to Finance 
Minister vi de letter dated 11-3-2003 and state that in terms of the
SAFETY RETREADING COMPANY (P) LTD. v. 
719 
COMM:CSSIONER OF CENTRAL EXCISE [RANJAN GOGOi, J.] 
notification 12/2003-ST dated 20-6-2003, the exemption in respect A 
of input material consumed/sold by the service provider to the 
service recipient while providing the taxable service is available. 
However. the exemption is available only ifthe service provider 
maintains the records showing the material consumed/sold while 
providing the taxable service. The value of such material should 
B 
also be indicated on the bill/invoice issued in respect of the taxable 
service provided." 
7. A demand for levy of tax on the gross value of the service 
rendered including the cost of materials used and transferred was raised 
and answered against the assessee leading to an appeal before the 
Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench 
C 
at Chennai (hereinafter referred to as "appellate Tribunal"). The learned 
_appellate Tribunal returned a split verdict with the Technical Member 
taking the view that the gross value of the service rendered would be 
exigible to tax under the Act. The third member (Technical) to whom 
the matter was referred held as follows: 
D 
"21. From the foregoing, the following emerges: 
a) There is no evidence of sale of materia_ls in rendering the 
impugned service of"Maintenance and Repairs". 
b) "Maintenance and Repair Service" being as specific service 
E 
cannot be treated· as service under the category of "Works 
Contract" for
the service tax purposes. 
c) The concept of "deemed sales" is relevant only in respect of 
services under the category of"Works Contract" and not in respect 
of"Maintenance and Repair Service". 
d) The assessee has not proved that the conditions under 
Notification 12/03 ST dated 20.06.2003 have been satisfied ant~ 
therefore, they are not entitled to the benefit of deduction of cost 
ofraw materials consumed in providing the impugned service." 
F 
8. Aggrieved, this appeal has been filed. 
G 
9. We have heard the learned counsels for the parties. 
10. The exigibility of the component of the gross turnover of the 
assessee to service tax in respect of which the assessee had paid taxes 
under the local Act whereunder it was registered as a Works Contractor, 
H
720 
SUPREME COURT .REPORTS 
[2017] 4 S.C.R. 
A would no longer be in doubt in view of the clear provisions of Section 67 
of the Finance Act, 1994, as amended, which deals with the valuation of 
taxable services for charging service tax and specifically excludes the 
costs of parts or other material, if any, sold (deemed sale) to the customer 
while providing maintenance or repair service. This, in fact, is what is 
provided by the Notification dated 20
1
h June, 2003 and CBEC Circular 
B dated l April, 2004, extracted above, subject, however, to the condition 
that adequate and satisfactory proof in this regard is forthcoming from 
the assessee. On the very face of the language used in Section 67 of the 
Finance Act, 1994 we cannot subscribe to the view held by the Majority 
in the appellate Tribunal that in a contract of the kind under consideration 
C there is no sale or deemed sale of the parts.or other materials used in the 
execution of the contract ofrepairs and maintenance. The finding of the 
appellate Tribunal that it is the entire of the gross value of the service 
rendered that is liable to service tax, in our considered view, does not lay 
down the correct proposition of law which, according to us, is that an 
D assessee is liable to pay tax only on the service component which unqer 
the State Act has been quantified at 30%. 
E 
F 
11. An argument has been advanced by Ms. Pinky Anand, learned 
Additional Solicitor General that there is no evidence forthcoming
from 
the side of the assessee that the value of the goods or the parts used in 
the contract and sold to the customer amounts to seventy per cent (70%) 
of the value of the service rendered which is the taxable component 
under the State Act. The aforesaid argument overlooks certain basic 
features of the case, namely, the undisputed assessment of the assessee 
under the local Act; the case projected by the Department itself in the 
show cause notice; and thirdly the affidavit filed before this Court by 
one S. Subramanian, Commissioner of Central Excise, Salem. 
12. No dispute has been raised with regard to the assessment of 
the appellant on its turnover under the local/State Act, insofar as payment 
of value added tax on that component (70%) is concerned. Areading of 
the show cause notice dated 2l January, 2008 would go to show that 
G the entire thrust of the Department's case is the alleged liability of the 
appellant - assessee to pay service tax on the gross value. In the 
aforesaid show cause notice, the details of the v~lue of t!ie goods, raw 
materials, parts, etc. and the value of the services reQdere~ have been 
mentioned and service tax has been sought to be lQvied at the prescribed 
rate of ten per cent ( l 0%) on the differential amount. It is now stated 
H
SAFETY RETREADING COMPANY (P) LTD. v. 
721 
COMMISSIONER OF CENTRAL EXCISE [RANJAN GOGOI, J.] 
before us that the aforesaid figures have been furnished by the assessee A 
himself and, therefore, must be understood not to be authentic. This, 
indeed, is strange. No dispute has been raised with regard to the 
correctness of the said figures furnished by the assessee in the show 
cause notice issued to justify the stand now taken before this Court; at 
\ 
no point of time such a plea had been advanced. 
B 
13. Besides the above, the affidavit of the learned Commissioner, 
referred to above, proceeds on the basis that the appellant assessee is 
also liable to pay service tax on-the remaining seventy per cent (70%) 
towards material costs in addition to the 30% of the retreading charges. 
This is clear from tlie following averments made in the said affidavit of 
the learned Commissioner: 
C 
"The relevant bills showed that the Appellant had paid service tax 
only on the labour component after deducting 70% towards material 
cost on the gross tyre Retreading charges billed and received for 
the period from 16.06.2005. In short, they have paid service tax 
only on the 30% of the tyre Retreading charges received from 
D 
the customers, by conveniently omitting 70% of the consideration 
received towards Retreading charges to avoid tax burden. 
The verification of invoices of the Appellant for the period from 
Jan-2007 to March-2007, the officers noticed that the Appellant 
have shown
material cost, patch cost and misc. charges i.e. Labour 
E 
charges separately in their invoices. However, on the follow-up 
action the customers of the Appellant revealed that they have 
neither purchased nor received raw materials intended for 
Retreading and they had paid'only the Retreading charges for 
carrying out the Retreading activity." 
F 
The invoices which the appellant assessee has also brought on 
record by way of illustration show the break up of the gross value 
received. There is again no contest to the same. Leaving aside the 
question that the case now projected, with regard to lack of proof of 
incurring of expenses on goods and materials which has been transferred G 
to the recipient of the service provided, appears to be an afterthought, 
even on examination of the same on merits we have found it to be wholly 
unsustainable. 
14. We, therefore, in the light of what has been discussed above, 
set aside the majority order of the appellate Tribunal dated 14th October, 
H
722 
SUPREME COURT REPORTS 
[2017] 4 S.C.R. 
A 2011 and hold that the view taken by the learned Vice President of the 
appellate Tribunal is correct and the same will now govern the parties. 
All reliefs that may be due to the appellant- assessee will be afforded 
to it forthwith and without any delay. All amounts, as may have been, 
deposited pursuant to the order( s) of this Court shall be returned forthwith 
B to the appellant, however, without any interest. Bank guarantee furnished 
insofar as the penalty amount is concerned shall stand discharged. 
The appeal is allowed in the above terms. 
CIVIL APPEAL NOS. 6375-6376 OF 2014 AND CIVIL APPEAL 
NOS. 6062-6063 OF 2013 
C 
15. Order of this Court passed today i.e. dated 18
1
h January, 2017 
in Civil Appeal No.641 of2012 will govern the proceedings in Civil Appeal 
Nos.6375-6376 of 2014 and Civil Appeal Nos.6062-6063 of 2013. 
Consequently, the appeals are disposed of on the same terms. 
"Divya Pandey 
Appeals disposed of.