2025-VIL-1092-CESTAT-ALH-ST
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SERVICE TAX CESTAT Cases

Service Tax – Majority Order - Supply of Tangible Goods for Use (STGU) — Deemed Sale - Service Tax vs. VAT/CST - The assessee, a manufacturer, entered into "Parts Management Programme Contracts" to store its spare parts at its customers' premises for ready availability. For this arrangement, the assessee received a periodic consideration upon which it charged and paid VAT/CST, treating the transaction as a "deemed sale" - Revenue contended that since ownership and effective control of the goods were not transferred, the activity constituted a "Supply of Tangible Goods for Use" (STGU) service and demanded service tax on the consideration - Whether the services provided by the appellant would be classifiable as Supply of Tangible Goods Services for the purpose of levy of service tax as held by Member (Technical) or otherwise as held by Member (Judicial); and whether payment of sales tax/ vat be the necessary test for non levy of service tax, as held by Member (J) or otherwise as held by Member (T) – HELD - The issue is barred by res judicata, as an identical matter for the same assessee for prior periods had been decided in its favour by the Tribunal, and that order had attained finality as it was not appealed by the Revenue - when the matter was being argued before the Divisional Bench of the Tribunal, it was incumbent upon appellant to bring to the knowledge of Division Bench that identical issue in case of the same appellant already stands decided by the Allahabad Bench - Secondly, on the merits of the case, the transaction cannot be taxed as a service because the contractual agreement and invoices explicitly show that the assessee treated it as a "deemed sale" and discharged the applicable VAT/CST. The CBIC Circular No. 334/1/2008-TRU clarifies that a transaction leviable to sales tax/VAT as a deemed sale is not covered within the scope of STGU service. The circular further states that the payment of VAT/sales tax on a transaction is a key indicator that the transaction is treated as a sale of goods. Since the consideration for the activity was already subjected to VAT/CST, levying service tax on the same would be unsustainable. Therefore, the payment of sales tax/VAT is a valid test for the non-levy of service tax in this context, and the transaction falls outside the scope of taxable service - the services rendered by the Appellant is not classifiable under “supply of tangible goods service” and no service tax is required to be paid – Ordered accordingly
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