Appellants Liable for Service Tax on Extended Warranty, Exempt from Fleet Management Tax

The Tribunal held that the appellants providing Optional Extended Warranty Service were liable to pay service tax as the service was classified as repair and restoration during the warranty period, making it taxable. The appellants were directed to deposit 10% of the service tax demanded. However, regarding Fleet Management Service, the Tribunal found that it did not fall under Business Support Service and the appellants were granted a waiver for the service tax demanded. The Member (Judicial) agreed with the waiver for the Optional Extended Warranty Service, classifying it under 'Works Contract service' based on the Larsen & Toubro Limited case. The matter was referred to a third member for resolution.

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Issues Involved:
1. Optional Extended Warranty Service
2. Fleet Management Service

Issue No. 1: Optional Extended Warranty Service

The appellants were found to be providing Optional Extended Warranty Service under Motor Repair Related Service without paying service tax from 01.05.2011 to 30.06.2012. The appellants argued that they were merely providing assurance and not undertaking repair or replacement services directly, and that the actual repair work was done by dealers. They contended that the activity should be classified under works contract, which was not taxable before 2012, and not under service tax. They also argued that the service tax demand was incorrectly confirmed by the Commissioner. The appellants cited several judgments to support their claim.

The Tribunal found that the extended warranty was a mechanical and electrical breakdown warranty covering the cost of repairs/replacement of specified parts. The Tribunal held that the essential character of the contract was repair and restoration during the period of extended warranty, and the payment made by the customer was for the taxable service of repair/replacement or similar services. The Tribunal disagreed with the appellants' argument that repair is a one-time activity and found that the definition does not restrict repair to a single instance. The Tribunal also noted that the argument regarding works contract was not raised before the Commissioner and would need to be examined in detail at the final hearing. The Tribunal held that the appellants did not make a prima facie case for waiver on this issue and directed them to deposit 10% of the service tax demanded.

Issue No. 2: Fleet Management Service

The appellants were found to be providing Fleet Management Service under Business Support Services without paying service tax from 01.04.2007 to 30.06.2012. The appellants argued that their role was to provide value-added maintenance and repair services, and that these services were not covered under the definition of Business Support Service. They claimed that the services provided were not outsourced and referred to a circular clarifying that the purpose of BSS was to tax outsourced services. The appellants cited several judgments to support their claim.

The Tribunal found that the definition of "Support Service of business or commerce" did not categorize fleet management service under any of the activities itemized in the definition. The Tribunal held that providing fleet management, which includes value-added maintenance repair service, was not covered in the scope of Business Support Service. The Tribunal also referred to a Board's Circular clarifying that BSS should cover outsourced activities. The Tribunal held that the appellants made a prima facie case for waiver of the service tax demanded on this issue.

Separate Judgment by Member (Judicial):

The Member (Judicial) agreed with the observations regarding Issue No. 2 but had reservations regarding Issue No. 1. The Member (Judicial) noted that the appellants argued their service should be classified under "Works Contract" as they provided repair and maintenance services along with materials, and the cost of materials could not be separated. The Member (Judicial) found that the repair was done through replacement of parts and the cost of parts and labor could not be separated. Therefore, the service should be classified under "Works Contract service" as per the decision of the Hon'ble Apex Court in the case of Larsen & Toubro Limited. The Member (Judicial) held that the appellants made out a case for complete waiver of pre-deposit for the Optional Extended Warranty service.

Points of Difference:

(a) Whether the appellant is required to make the pre-deposit of 10% of service tax demand with respect to Optional Extended Warranty Service, as held by Member (Technical) that the appellant has not made out a prima-facie case for waiver of pre-deposit; or

(b) Whether the Member (Judicial) is correct in holding that in the light of the decision of Hon'ble Apex Court in the case of Larsen & Toubro Limited, the activity undertaken by the appellant of Optional Extended Warranty Service is classifiable under 'Works Contract service' and therefore, the appellant is not required to pay any amount as pre-deposit for the activity undertaken by the appellant.

The matter was placed before the Hon'ble President to refer the issue to a third member for resolution.

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