Free servicing during warranty period by dealer out of their margin is not liable for service tax

By | November 9, 2015

Facts of the case

Appellant are holders of services tax registration under the category of authorized service station for Maruti Udyog Ltd., they were undertaking servicing of the vehicles one free service provided during the warranty period and paid service provided after the warranty period.

Issue :-

It was observed by the authorities that the appellant had received an amount from Maruti Udyog Ltd. for free servicing during warranty period and paid service tax for the amount received after the warranty period hence. It was concluded by the lower authorities that the amount recovered and received from Maruti Udyog Ltd. is included in the taxable value in terms of section 67 of the Finance Act, 1994

Assessee Claim :-

The amount received by the appellant from Maruti Udyog Ltd. for free servicing during the warranty period and the handling charges were included in the invoices raised by the appellant to the customers. He would submit that they had purchased the vehicles from the Maruti Udyog Ltd. and sold their customers hence the free services are given by the appellant to their customers, they have not received any amount for free servicing as such.

Held

The amounts received by the appellant are recorded by Maruti Udyog Ltd. as well as the appellant as dealers margin and the handling charges received by the appellant from the customers are shown in the invoices as charges and value added tax is paid on such amount.

Providing of free services by assessee-dealer out of its margin was a part of its duty .Hence, assessee had not provided any authorised service station services to Maruti .Demand was set aside

CESTAT, MUMBAI BENCH

Chowgule Industries (P.) Ltd.

v.

Commissioner of Central Excise, Pune-III

M.V. RAVINDRAN, JUDICIAL MEMBER
AND C.J. MATHEW, TECHNICAL MEMBER

ORDER NOS. A/3039 & 3041/2015/STB

AUGUST  26, 2015

L. Badrinarayan, Adv. for the Appellant. A.B. Kulgod, Addl. Commissioner (AR) for the Respondent.

ORDER

M.V. Ravindran, Judicial Member – These appeal are directed against Order-in-Appeal No. P-III/VM/45-46/2010 dated 12.03.2010.

2. The relevant facts that arise for consideration of appellant are holders of services tax registration under the category of authorized service station for Maruti Udyog Ltd., they were undertaking servicing of the vehicles one free service provided during the warranty period and paid service provided after the warranty period. It was observed by the authorities that the appellant had received an amount from Maruti Udyog Ltd. for free servicing during warranty period and paid service tax for the amount received after the warranty period hence. It was concluded by the lower authorities that the amount recovered and received from Maruti Udyog Ltd. is included in the taxable value in terms of section 67 of the Finance Act, 1994. Two show cause notices were issued, which, after following due process of law demands got confirmed with interest and penalties were also imposed on an appeal the first appellate authority has rejected the appeal.

3. Learned counsel would take us through the entire case records and submit that the amount received by the appellant from Maruti Udyog Ltd. for free servicing during the warranty period and the handling charges were included in the invoices raised by the appellant to the customers. He would submit that they had purchased the vehicles from the Maruti Udyog Ltd. and sold their customers hence the free services are given by the appellant to their customers, they have not received any amount for free servicing as such. He would rely upon the judgment of the Tribunal in the case of CCE. v. Jabalpur Motors Ltd. [Final Order No. ST/A/52771/2014, dated 26-6-2014] and submit that the issue involved in that case and the case is in hand and the same on in respect of same Maruti Udyog Ltd. Making the judgment for free servicing during the warranty period.

4. Learned departmental representative reiterates the findings of the lower authorities.

5. We have considered the submissions made at length by both sides and perused the records.

6. The issue involved in this case is whether the amount received by the appellant from Maruti Udyog Ltd. as dealers margin for can be considered as an amount received for free servicing undertaken by the appellant on behalf of Maruti Udyog Ltd. and the handling charges which have been recovered by the appellant from their customers would be includable in the taxable value for recovery of service tax.

7. Undisputedly, the amounts received by the appellant are recorded by Maruti Udyog Ltd. as well as the appellant as dealers margin and the handling charges received by the appellant from the customers are shown in the invoices as charges and value added tax is paid on such amount.

8. On this background, we find that the entire case of the revenue is misdirected, in as much is the very same issue was in the case before the Tribunal in the case of Jabalpur Motors Ltd. (supra) we reproduce the entire judgment:

‘2. Briefly staled, the demand in column 4 is in respect of the amount of salary of drivers of mobile vans used for providing mobile services to the car buyers as this salary amount was reimbursed by M/S. Maruti Udyog Ltd. The demand in respect of column 5 of the table above is on account of the amount allegedly received from M/s Maruti Udyog Ltd. (MUL) towards free services provided to the car purchasers in the form of servicing those cars free. The Revenue contends that service tax is leviable as per Cols. 4 & 5 of the table above and the Commissioner (Appeal) order dropping these two components of the service tax demand needs to be set aside and the Order-in-Original restored in respect of these two components of service tax demand along with penalties relating thereto.

3. The respondent have contended that M/s. MUL have not reimbursed any amount towards providing free services to car buyers as it is their (the respondents’) duty as car dealers to do so and M/s MUL has also confirmed not having made any such reimbursements. Also no service is being provided to M/s. MUL for reimbursing the salary of mobile van drivers. They further contended that there has been no wilful misstatement or suppression of facts.

4. We have considered the facts of the case. Authorised Service station is defined as under :

” ‘authorities services station’ means any services station, or centre, authorised by any motor vehicle manufacturer, to carry out any service, repair, reconditioning or restoration of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer”

and the related taxable service is defined as “a service rendered to a customer, by an authorised service station, in relation to any service, repair, reconditioning or restoration of motor cars, light motor vehicles or two wheeled motor vehicles in any manner.”

5. It is evident from the above definition that the liability to service tax is on account of the said service provided to a customer. The service is provided to the car buyers who are the customers. For the free services, no amount is charged from the customers. As regards the contention that amount towards the free services is reimbursed by Maruti Udyog Ltd., it is seen that Maruti Udyog Ltd. have categorically stated that they do not reimburse any amount towards such free services to the dealers. The respondents have also stated that providing such free services is part of the function and duties of dealers who are entitled to the dealership commission. Also the free services are rendered to the car buyers and not to M/s MUL and the car buyers pay nothing therefor. Seen in this light it is evident that the demand of service tax as per column 5 of the table above is misconceived. Coming to the demand of service tax on the amount received on account received on account of salary of drivers of vans used for providing mobile service to the car owners shown in column 4 of the table, it is evident that the customer in this case is the car owner who is the recipient of service. M/s MUL receive no service nor are M/s MUL, the respondents’ customers. Thus the respondents have not provided the service of authorised service station to them (i.e. M/s MUL), Accordingly this amount cannot be made liable to service tax under the category authorised service station service.’

It can be seen that the Tribunal has specifically gone into the very same issue and held in the favour of assessee. The said ratio is applicable in this case before us.

9. Accordingly, in the facts and circumstances of this case, we hold that the impugned order is unsustainable and liable to be set aside and do so. The impugned order is set aside and the appeals are allowed.

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