T.K. Jayaraman, Technical Member. - These appeals have been filed against the following Orders-in-Original Nos. passed by the Commissioner of Service Tax, Bangalore :

2. Mr. G. Shiva Dass, the learned Advocate, appeared on behalf of the appellants and Ms. Sudha Koka, the learned SDR, for the revenue.

3. We heard both sides.

4. The appellants undertake installation of various medical equipments. They enter into Annual Maintenance Contract with their customers for maintenance of such equipments. In the present case, we are concerned with an agreement called "Maxicare and Comprehensive Annual Maintenance Contract". In this the appellants apart from supplying labour, also supply the materials which have to be used in the maintenance contract. In other words, for the maintenance of the equipments at certain times the spare parts etc. have to be replaced and the contract covers these spares also. The contention of the department is the entire amounts received by the appellants in these cases are liable to service tax under the category of "Annual Maintenance and Repair Service". It is the contention of the appellants that they are not liable to pay service tax on the cost of the materials supplied in the course of the service. In fact, the appellants have paid service tax only on 30 per cent value of the gross receipt. In respect of the remaining 70 per cent, they have stated that they had paid the sales tax to the State Government. According to them, in any works contract the transfer of property in the course of the works contract will be considered as sale. For this they have relied on the Constitutional provision in article 366(29)(B) of the Constitution. However, the Commissioner, Service Tax has not accepted the contention of the appellants and he has demanded the service tax on the entire receipt towards the Annual Maintenance Contract. Apart from demanding interest, he has imposed penalties under the various provisions of the Finance Act, 1994.

5. The learned Advocate for the appellants invited our attention to section 67 of the Valuation Rules which provide as to how the services have to be valued for purposes of service tax. Our attention was invited to the provision which states that the value does not include the cost of the parts or other materials if any sold to the customers during the course of providing maintenance or repair service. Therefore, they had taken 70 per cent abatement on the gross receipt and they have also stated that on the 70 per cent, they had paid sales tax. They have given all the evidences before the authorities. However, the Commissioner, Service Tax has not accepted the same. The main contention of the appellant is on the entire receipt only 30 per cent is towards the service therefore they would pay only service tax on 30 per cent of the receipt. In fact, this matter was initially before this Bench, and this Bench issued the final order dated 20-7-2006 remanding the matter to the Commissioner of Service Tax. On the said order revenue approached the Hon’ble High Court of Karnataka and in terms of the decision of the Hon’ble High Court of Karnataka the Commissioner had to hear the appeals de novo and he has passed the impugned Order-in-Original de novo. In the impugned order, the Commissioner has stated that the Constitutional article 366(29A)(B) cited by the appellant has absolutely no application. He says that the contract is only for maintenance and repair and there is no involvement of any sale of the material. This is the thrust of his argument. Ther