2013 (12) TMI 1434 - AT - Service Tax

Warranty service deemed sale of goods, exempt from service tax under Notification No.12/03-ST.

Sree Saradambal Automobiles (P) Ltd. Versus Commissioner of C. Ex., & Service Tax, Coimbatore

The Tribunal held that the service provided during the warranty period, though termed as 'free service,' was not actually free as the manufacturer paid ... Stay Application - Free service provided during the warranty period - Benefit of exemption notification No.12/03-ST - Held that:- The entire dispute arises out of the fact that this service being provided is commonly referred to in this industry as free service. This is not free service at all. This is rendered at a cost both for the services and for the parts which are paid by the manufacturer to the appellant. However, the owner of vehicle is one of the beneficiaries of the activity. The vehicle manufacturer is also a beneficiary because such services enhances his brand value and the reputation of his goods and customer satisfaction which helps in further business. So the manufacturer pays for it and naturally it is a service provided to the manufacturer of vehicles. Similarly the person who pays for the parts is the person to whom goods are sold. Therefore, we are of the view that there is sale of goods in this case and the benefit of exemption notification No.12/03-ST dt. 20.6.2003 is prima facie available to the applicant - Prima facie case in favour of assessee - Stay granted. Issues:1. Whether the value of goods used in providing free services during the warranty period is subject to service tax.2. Whether the reimbursement received from the manufacturer towards the cost of parts used in providing services should be considered as part of the taxable service value.3. Whether the benefit of exemption under Notification No.12/03-ST applies in this case.Analysis:1. The dispute in this case revolves around the free services provided during the warranty period by the applicant, who is an authorized agent of a vehicle manufacturer. The Revenue contended that the cost of parts used in providing these services should be subject to service tax. Proceedings were initiated, resulting in the confirmation of service tax amounts along with interest and penalties under Section 76 of the Finance Act, 1994.2. The counsel for the applicant argued that the Revenue considered the value of parts as reimbursable expenses, citing Rule 5 of the Service Tax Valuation Rules. The counsel referred to a case where this rule was struck down by the Delhi High Court and another case where waiver of pre-deposit was granted on a similar issue. Additionally, it was highlighted that VAT had been paid on the parts used, and the reimbursement received should not be part of the taxable service value as per Notification 12/03-ST.3. The Revenue contended that there was no sale of goods involved in this case, therefore, the exemption under Notification No.12/03-ST could not be extended. A previous decision was cited to support this argument.4. The Tribunal considered both arguments and concluded that the service provided, though termed as 'free service,' was not actually free as the manufacturer paid for the services and parts. It was noted that the service benefited both the vehicle owner and the manufacturer by enhancing brand value and customer satisfaction. The Tribunal held that there was a sale of goods involved, making the applicant eligible for the exemption under Notification No.12/03-ST.5. Based on the discussion and precedent orders, the Tribunal granted a waiver of pre-deposit of dues arising from the impugned orders for the admission of appeals and stayed the collection during the pendency of appeals.