SAFETY RETREADING COMPANY (P) LTD.versusCOMMISSIONER OF CENTRAL EXCISE, SALEM

                            [2017] 4 S.C.R. 714


'A            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.
           Service Tax - Notification/Circular - Benefit under - When
    available - Notification No.1212003-ST dated 20 117 June, 2003 and
  F
    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]
                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
    E     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.                                                         B

      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( 1OS)(zzg) of the Finance Act, 1994, as amended by Finance Act,
2003 may be noticed at this stage.
      "65. Definitions                                                          D
      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                                                         F
       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
718            SUPREME COURT REPORTS                           [2017] 4 S.C.R.


A              (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;"
B
              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.
 c
            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
      20 th June, 2003 and a CBEc C!fcular
                                      .
D
                                              dated 7th 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)'
                                     1
             CBEC Circular dated 7 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
 H
      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".
                                                                              F
       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.                              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 repair1 service. This, in fact, is what is
  provided by the Notification dated 20 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%)
 E 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
 F 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
                                                              1
C            15. Order of this Court passed today i.e. dated 18 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.