2022 (2) TMI 360 - AT - Service Tax

Levy of VAT / sales tax - works contract Service - liability of service tax on the amounts on which the appellant has paid VAT - Department entertained a view that value adopted by the appellant for payment of VAT was not the actual value of the goods supplied while providing lift / escalators and that it was only a notional value - HELD THAT - The composite activity of design supply erection testing commissioning of lift / elevators fall under the category of WCS both under VAT law and Finance Act 1994. The appellant has to design and supply the materials involved in providing the lift / elevator. Since the activity is composite in nature involving both supply of materials and rendering of service including labour of construction of pit etc. the Tamil Nadu VAT Act provides for arriving at a notional value for payment of VAT. The appellants have paid VAT on 85% of the contract value as per the category of invoices issued for supply of material. The department is of the view that this is only notional and not the actual value of materials supplied. The SCN proposes to levy service tax on 40% of the entire contract value. This means levying service tax on the amounts on which the appellant has paid VAT. The appellants have also filed VAT returns periodically complying with the mandate in the State Act. It is settled position that VAT and service tax are mutually exclusive and cannot be simultaneously levied. The demand of service tax cannot sustain - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether the contract for providing lifts/elevators is composite in nature involving both supply of material and rendering of services.
- Whether the appellant correctly discharged VAT on 85% of the contract value and service tax on the remaining 15%.
- Whether the department's proposal to demand service tax on 40% of the entire contract value is valid.
- Whether the principles laid down in previous judgments regarding the levy of service tax on works contract services are applicable to the present case.

Analysis:
1. Nature of Contract: The appellants were engaged in the business of supply, erection, commissioning, and maintenance of lifts/elevators. The contracts entered into by the appellants involved both the supply of material and the rendering of services. The department contended that the contracts were composite in nature, as per CBEC instructions, and should be treated as works contracts for the levy of service tax.

2. Payment of VAT and Service Tax: The appellants discharged VAT on 85% of the contract value and service tax on the remaining 15% as per the provisions of Rule 8 (5) (d) of the Tamil Nadu VAT Rules, 2007. The department proposed to demand service tax on 40% of the entire contract value, arguing that the value adopted by the appellants for VAT payment was not the actual value of the goods supplied.

3. Legal Precedents: The appellants argued that VAT and service tax are mutually exclusive and cannot be simultaneously levied. They relied on previous judgments, including one by the Tribunal in a similar case, which held that when VAT has been paid on a notional value, the same amount cannot be subjected to service tax.

4. Judicial Decisions: The Tribunal referred to various judicial decisions, including the case of Johnson's Lift, to support the appellants' contention. The Tribunal held that the demand for service tax on 40% of the contract value was unsustainable. The Tribunal set aside the impugned orders, stating that the demand of service tax could not sustain, and allowed the appeals with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellants, setting aside the demand for service tax on 40% of the contract value and allowing the appeals. The judgment emphasized the principle that VAT and service tax are mutually exclusive and cannot be levied simultaneously on the same transaction involving a composite contract for supply of material and rendering of services.