CESTAT, NEW DELHI BENCH
XEROX India Ltd.
Commissioner of Service Tax, Delhi
Stay Order No. ST/3/475/2012-CUS
SERVICE TAX STAY NO. 2167 OF 2011
SERVICE APPEAL NO. 1045 OF 2011
Date of Pronouncement – 11.04.2012
Mathew John, Technical Member
The appellants are engaged in the business of manufacture/ import and sale of photocopiers, printers, scanners, fax machines etc.. The appellants also undertake maintenance of such machines sold to their customers. They carry out maintenance under four different types of contract and also provide Business Support Services as detailed below.-
(1) Full Service Maintenance Agreements (‘FSMA’ for short) – Such an agreement involved the following :
(a) Maintenance and servicing of the customer’s equipment.
(b) Repairs of the equipment. This also involves replacement of worn-out parts with new parts.
(c) Provision of xerographic supplies (i.e. toner, developer and fuser oil).
(2) Spares and Services Maintenance Agreement (“SSMA’ .for short)
The scope of this type of agreement is identical to that under FSMA except that SSMA does not involve supply of any xerographic materials like toner, developer and fuser oil.
(3) Volume Based Service Agreement (‘VBSA’ for short) – The scope of work under VBSA is identical to that under FSMA. The difference is basically in the billing pattern, which is based on a guaranteed minimum volume. In this type of contract there has been substantially hardly any billing during the period and is not relevant for the dispute presently to be considered.
(4) Annual Maintenance Contract (‘AMC for short) – This is a pure service contract wherein no material is supplied by the appellants. There has been hardly any billing in the subject period based on this type of contract and hence is not relevant for the dispute raised.
(5) Business Support Services (‘BSS’ for short) – This type of contracts are for providing printing solution to customers. BSS contracts generally involved the following activities .-
(a) Pre-printing – which involves colour printing of standard images such as customer logo, advertisements or other information? Printing of final variable data, such as blling information, credit card statements etc. is done on pre-printed paper;
(b) Supply of plain paper or pre-printed paper for printing;
(c) Printing.- The variable data provided by the customer is printed on plain paper or pre-printed paper as per contract. e.g. printing of bills for Airtel, Hutch, BSNL, Credit Card statements for SBI Credit Cards, study material for ISB etc;
(d) Other activities namely copying, scanning and facing
(e) Post-printing activities such as sorting, stuffing, perforation etc.
2. The dispute involved in the present matter is that the appellants were not paying service tax on the full value realised under the contracts but were deducting value of materials supplied under each of the contract and was paying service tax only on the service component, as determined by the appellants. Revenue was of the view that since the essential character of these contracts are for providing service of maintenance and business support and since such services could not have been provided without supply of the materials involved the contract could not be split into service component and component of supply of materials. Revenue was of the view that the appellants should have paid service tax on the entire amounts billed to their customers. Based on such reasoning, a Show-Cause Notice was issued for the period 1.5.2006 to 31.3.2008 demanding service tax on such value of materials on which tax was not paid. The Show Cause Notice has been adjudicated confirming the demand of Rs.14,97,00,886/-towards service tax along with interest. Further, a penalty of Rs. 15 crores has been imposed under Section 78 of the Finance Act 1994 and a penalty of Rs.5000/- has been imposed under Section 77 of the Finance Act, 1994. Aggrieved by the said order, the appellants have filed this appeal before the Tribunal.
3. They point out that the question whether there is any sale of such material in the impugned contract and whether such materials sold can be separately subjected to VAT was decided initially by the Karnataka High Court in the case of Modi Xerox Ltd. v. State of Karnataka  114 STC 424 (Kar.). The decision of the Karnataka High Court was further affirmed by the Hon’ble Supreme Court in the case of Xerox Modicorp Ltd. v. State of Karnatka  142 STC 209 and in the case of Imagic Creative (P.) Ltd. v. Commissioner of Commercial Taxes  12 STT 392.
4. The ld. Counsel also points out that this issue has been examined in the context of service tax in the following cases =-
(1) Wipro GE Medical Systems (P.) Ltd. v. CST  18 STT 508 (Bang-Cestat)
(2) Sri Abirami Retreading Co. v. CCE  18 STT 547 (Chennai-Cestat).
(3) PLA Tyre Works v. CCE  19 STT 362 (Chennai-Cestat).
(4) Hindustan Aeronautics Ltd. v. CST  23 STT 120 (Bang-Cestat)
5. Further, he points out that the decision of the Tribunal in the case of Wipro GE Medical Systmes (P.) Ltd. (supra) has been affirmed by the Supreme Court vide dismissing Appeal No. 8764/2009 filed by the department.
6. The Counsel points out that once it is recognised that there is sale of goods involved in such contracts and the sale can be treated as a separate component they were eligible for the exemption under Notification No. 12/2003-ST providing exemption from goods sold in the course of providing service. In view of the above position, the counsel requested for waiver of pre-deposit of dues arising from the impugned order for hearing the appeal.
7. The Counsel also submits that they have paid VAT on the basis of deemed apportionment of value of materials and value of service as provided in the laws in different States and on the remaining portion of the value realised they have paid service tax. They submit that in actual fact the value of materials sold by them is more than the value calculated as per the deemed provisions and if they were to calculate the value’ of materials sold on actual basis the value of service component will be much less than the value of which they have paid service tax.
8. The ld. A.R. on the other hand argues that for claiming exemption under Notification No. 12/2003-ST for material sold in the course of providing service, the appellants should support the claim with necessary documents proving value of goods sold. The appellants have not done so. Instead the appellants deducted the value on which they paid VAT. Payment of VAT on a particular value cannot be taken as the basis for providing exemption under Notification No. 12/2003-ST.
9. We have considered arguments on both sides. In view of the various decisions quoted by the Counsel for appellants, it is no longer, res integra that in a contract for providing service of the type involved in this case the service component and value of materials can be separated. Notification 12/2003-ST also recognises this principle. The only dispute that remains is whether value of materials sold “can be segregated based just on the value on which VAT is paid. This issue can be examined during final hearing. We note the submission of the appellants that the value of material sold is actually more than the value for which exemption is claimed. Nothing to the contrary comes out from case records. So at this prima facie stage, we accept the submission made by the appellants. That results in a situation where no further service tax is due from the appellants. So we grant waiver of pre-deposit of dues arising from the impugned order for admission of appeal and stay collection of such dues during pendency of appeal.