[2017] 4 S.C.R. 714

SAFETY RETREADING COMP~NY (P) LTD.

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.

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

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 fortcoming 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]

A 1.3 Nodispute 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]

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

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

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- * * *

(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) ....

(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

(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.

2. This notification shall come into force on the 1" day of July, 2003 (Notification No.12/2003-S.T. dated 20.6.2003)'

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."

8. Aggrieved, this appeal has been filed.

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

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%.

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 vlue 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.

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

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 appellantassessee 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

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.