Tribunal Rules Free Warranty Materials Not Taxable, Manufacturer Liable for Extended Warranty

The Tribunal ruled in favor of the applicant on both issues. It held that the cost of materials provided during free warranty service was not subject to service tax. Additionally, the consideration for extended warranty services should be taxed in the hands of the manufacturer, not the dealer. The Tribunal waived the predeposit requirement for the service tax amount confirmed against warranty service provided during the free warranty period and stayed the collection of dues during the appeal process.

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Issues:
1. Whether service tax is applicable on the cost of materials provided during free warranty service.
2. Whether the applicant is liable to pay service tax on the consideration received for providing extended warranty service.

Analysis:

Issue 1:
The applicant, a dealer of vehicles, provided free service during the warranty period and was reimbursed for the cost of services and materials. The Revenue contended that service tax should have been paid on the value of services inclusive of the cost of materials. The advocate for the applicant argued that previous Tribunal stay orders supported excluding the cost of spare parts from the taxable value. The Tribunal agreed, noting that the applicant had already paid service tax on the commission received for canvassing business related to extended warranty services. Therefore, the Tribunal waived the predeposit requirement for the service tax amount confirmed against warranty service provided during the free warranty period.

Issue 2:
Regarding the extended warranty scheme, the Revenue claimed that the applicant should pay service tax on the entire consideration received from buyers of vehicles. The applicant argued that they were merely canvassing business for the extended warranty provided by Maruti Suzuki Ltd., and the warranty service was actually provided by the manufacturer. The Tribunal examined the terms and conditions of the extended warranty, which indicated that the service was provided by Maruti Suzuki Ltd. The Tribunal agreed that the consideration for such services, if taxable, should be taxed in the hands of Maruti Suzuki Ltd. rather than the applicant. As the applicant had already paid service tax on the commission received for canvassing the business, the Tribunal admitted the appeal without requiring any predeposit and stayed the collection of dues during the appeal process.

In conclusion, the Tribunal ruled in favor of the applicant on both issues, holding that the cost of materials provided during free warranty service was not subject to service tax and that the consideration for extended warranty services should be taxed in the hands of the manufacturer, not the dealer.

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