Denial of exemption only on the basis of a presumption without supportive evidence is invalid: CESTAT

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Fact: M/s. Unique Precured Retreaders (“The Appellant”) is engaged in tyre re-trading activity. The Appellant was availing benefit of Notification No. 12/2003 and discharging service tax on the remaining amount under the category of management, maintenance or repair service. The Appellant were found to have imposed a stamp on the invoice indicating the split up of the overall invoice value into the material and spares cost as well as labour charge and have discharged the service tax liability only to the extent of labour charges.

The Revenue Department issued show cause notice on ground that Appellant was discharging service tax only on the labour charge component of the invoices. One of the conditions for availing benefit of the Exemption Notification was that there had to be documentary proof specifically indicating the value of the said goods and materials. Therefore, the Revenue Department took a view that the Appellant would not be entitled to the benefit of the Notification in as much as the stamps could not be considered as documentary proof indicating the value of the said goods and materials. Original Authority upheld the demand of service tax.

Issue Involved: Whether benefit of Exemption Notification can be denied solely on the basis of a presumption?

Held: The Hon’ble CESTAT found that the activity carried out by the assessee was in the nature of re-treading of tyres, where the nature of activity was ‘repair & maintenance of tyres’ which included use of certain material in the process of re-treading. It observed that the Appellant had furnished a table indicating the material value and labour charges separately for the period in dispute. Moreover, VAT was paid under composition scheme. From the material and return furnished it was seen that duty was duly discharged by the Appellant.

Further, it opined that the reason for denying benefit was simply that the documentary proof specifically indicating the value of the goods and services was not available on the part of the Appellant. The Hon’ble Tribunal relied on principle laid down by the Supreme Court in case of Safety Re-trading Co. Pvt. Ltd. wherein it was held that valuation of taxable services specifically excludes the cost of parts or other materials, if any, sold to the customer while providing maintenance or repair service and shall include deemed sale of material consumed while providing such service.

In addition, no further investigation was undertaken by the Revenue Department to substantiate the presumption that benefit of Exemption Notification was not available to the Appellant. Hence, the demand was set aside and the Hon’ble Tribunal allowed the benefit of Notification No. 12/2003.

Citation: [ TS-241-CESTAT-2019-ST ]