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Issues involved: Service tax liability on the cost of materials used in repairs and maintenance of tyres u/s Notification No. 12/2003-ST.
Summary: The Appellate Tribunal CESTAT CHENNAI, comprising of P.G. Chacko, Judicial Member and P. Karthikeyan, Technical Member, heard the case where the learned Commissioner demanded service tax of over Rs. 70 lakhs from the appellants for the period 16-6-2005 to 30-9-2006, along with imposing a penalty. The demand was based on the gross amount collected by the assessee for retreading old/used tyres, categorized as 'maintenance or repair service'. The appellants claimed exemption u/s Notification No. 12/2003-ST for service tax paid only on repair/maintenance charges, not on materials used. They argued that they were undertaking 'works contract' not divisible into sales tax and service tax components, thus entitled to the exemption. The Tribunal noted that the appellants had paid tax on service charges, not on materials, and granted waiver of pre-deposit and stay of recovery for service tax, interest, and penalty, as the cost of materials used in providing taxable service is not chargeable to service tax. The appellants contended that they were undertaking 'works contracts' which were not divisible into sales tax and service tax components, thus entitled to exemption u/s Notification No. 12/2003-ST. They argued that they paid service tax only on service charges, not on materials used in repairs and maintenance of tyres. The Tribunal agreed that the cost of materials used in providing a taxable service is not chargeable to service tax, granting waiver of pre-deposit and stay of recovery for service tax, interest, and penalty. The appellants relied on the Supreme Court's judgment in Bharat Sanchar Nigam Ltd. v. Union of India and the Tribunal's decision in Shilpa Color Lab v. Commissioner of Central Excise to support their claim that they were not liable to pay service tax on the cost of materials sold to customers during repairs and maintenance of tyres. They also referred to Notification No. 12/2003-ST, which required separate indication of the value of goods and materials used in taxable service in invoices, and no CENVAT credit taken on such goods. The revenue did not dispute that these conditions were met by the assessee. The Tribunal, after considering the submissions, agreed with the appellants' claim that they were undertaking 'works contracts' not divisible into sales tax and service tax components, thus granting waiver of pre-deposit and stay of recovery for service tax, interest, and penalty. They emphasized that the cost of materials used in providing a taxable service is not chargeable to service tax, which the appellants had already paid on service charges collected from customers.
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