Free warranty services and service tax: demand fails where no separate consideration or reimbursement is proved.

Service tax on free warranty services was held unsustainable because the warranty cost had already been built into the vehicle price and no separate consideration was received from customers. The record also lacked evidence that the manufacturer had reimbursed the service charges. On that basis, the demand for service tax failed, and the consequential penalties also could not stand. The appeals were allowed and the impugned tax and penalty demands were set aside with consequential relief.

---

---

Issues: Whether service tax and penalties were leviable on the value of free warranty services allegedly reimbursed by the manufacturer.

Analysis: The value of the warranty services was already included in the vehicle price and had been taken into account for excise duty and sales tax. The customers paid nothing for the services rendered, and no evidence was produced to show that the manufacturer had specifically reimbursed the service charges. In the absence of proof of receipt of service consideration or reimbursement, the demand of service tax could not be sustained, and the consequential penalties also failed.

Conclusion: The issue was decided in favour of the assessee; the demand of service tax and the penalties were held unsustainable.

Final Conclusion: The appeals succeeded and the impugned tax and penalty demands were set aside with consequential relief.

Ratio Decidendi: Service tax cannot be sustained where no consideration for the service is received and there is no evidence of reimbursement of the service charge; penalties based on such unsustainable demand also fail.

---