[2014] 41 taxmann.com 254 (Mumbai – CESTAT) Jaika Motors Ltd. vs. CCEST, Nagpur

Facts:
The Appellant, an authorised service agent for Hyundai Motor cars undertook maintenance/service of motor cars. It also supplied spare parts of these vehicles. During the course of scrutiny of the records, it was noticed that the Appellant was selling spare parts for motor vehicles during the course of providing repair services on which it was paying VAT. However, the value of these spare parts was not included in the consideration received for repair services and Service tax liability was not discharged on the value of such spare parts.

The department demanded Service tax on sales portion on the grounds that, any goods used in the course of providing service has to be treated as inputs used for providing the service and accordingly, the cost of such inputs formed integral part of the value of taxable service. The Appellant contended that the sale figure in the balance sheet included sale of spare parts simplicitor as well as sale of spare parts that may occur in the course of repair of motor vehicles. It also relied upon Circular No. B. 11/1/2001-TRU, dated 09-07-2001, wherein it was clarified that the cost of parts and accessories supplied during the course of repair and servicing of vehicles would not be includable in the taxable value if such cost was shown separately in the bills/ invoices. Further, they discharged Sales tax/VAT liability on the sale of spare parts.

Held:
The Tribunal referring to above circular held that, if a transaction involves only sale of spare parts, the question of levying Service tax would not arise at all. It further held that, even in a case of composite transaction involving sale of goods and rendering of service, if the bill/invoice issued clearly shows payment of Sales tax/VAT on the spare parts, then the value of such spare parts would not be included in the gross consideration for the service.