2018 (5) TMI 716 - AT - Service Tax

Tribunal rules no service tax on spares under warranty & extended warranty premiums

The Tribunal set aside the service tax demands on amounts received by authorized dealers from manufacturers for spares used during warranty and extended ... Warranty and extended warranty services - reimbursement of cost of spare parts - service tax liability on reimbursements - VAT on sale of spare parts - service tax on extended warranty premiumReimbursement of cost of spare parts - VAT on sale of spare parts - service tax liability on reimbursements - Cost of spare parts reimbursed to authorised dealers for replacements during warranty and extended warranty cannot be included in the value for levy of service tax where those spare parts were sold on payment of VAT. - HELD THAT: - The Tribunal examined sample invoices and found that the spare parts used in warranty and extended warranty replacements had in fact been sold on payment of VAT. Where spare parts are sold and VAT is paid, the amount representing the cost of those parts is not a component properly includible for levy of service tax as a reimbursement to the service provider. Applying that factual finding, the demand of service tax insofar as it sought to include the cost of spare parts reimbursed by the manufacturers to the dealers was held to be unjustified and was set aside. [Paras 5]Demand of service tax on the cost of spare parts reimbursed to dealers is set aside.Extended warranty premium - service tax on extended warranty premium - Amounts recovered by dealers as extended warranty premium are not to be treated as reimbursements of cost of spare parts; such premiums are liable to service tax but where the manufacturers (to whom the premiums were transferred) have discharged the liability, no demand can be sustained against the dealers. - HELD THAT: - The Tribunal held that extended warranty premiums cannot be characterised as mere reimbursements of spare-part costs. Such premiums fall within the category of services taxable under the appropriate head. However, on the facts the dealers had transferred the premiums to the manufacturers and it was submitted that the manufacturers had paid the service tax thereon. In view of the manufacturers having discharged the tax liability, the demand of service tax on those amounts as raised against the dealers was found to be without justification and was set aside. [Paras 6]Demand of service tax on extended warranty premiums recovered by dealers (and remitted to manufacturers who paid the tax) is set aside.Final Conclusion: The impugned orders confirming service tax demands were set aside; the appeals are allowed with consequential relief, if any. Issues:Service tax on amounts received by dealers from manufacturers for spares used during warranty and extended warranty service; Service tax on extended warranty premium collected by dealers from buyers.Analysis:The appeals dealt with the issue of service tax demands raised by the Revenue on amounts received by authorized dealers from manufacturers for spares used during warranty and extended warranty service. The dealers, authorized by manufacturers like Maruti Suzuki India Ltd. and Hyundai Motor India Pvt. Ltd., provided services during the warranty period, with costs and spares reimbursed by the manufacturers. The extended warranty premium collected from buyers was remitted to manufacturers. The department issued show cause notices, alleging service tax liability on these amounts. The authorized dealers contended that the spare parts were sold with VAT paid, hence excluding them from service tax. They argued that the extended warranty premium was already subject to service tax paid by the manufacturers.Upon hearing both sides and examining sample invoices, the Tribunal found that spare parts were indeed sold with VAT paid, leading to the exclusion of spare parts costs from service tax. The Tribunal determined that the service tax demand on spare parts was unjustified and set it aside. Regarding the extended warranty premium amounts, the Tribunal noted that these were not reimbursements for spare parts by the manufacturers, as the manufacturers had already paid service tax on the premium amounts. Consequently, the Tribunal found no basis for demanding service tax on the extended warranty premium and set aside this demand as well.In conclusion, the impugned orders were set aside, and the appeals were allowed with any consequential relief. The Tribunal's decision clarified that spare parts costs during warranty and extended warranty service were not subject to service tax, given the VAT payments made by the dealers. Additionally, the Tribunal found no grounds to impose service tax on extended warranty premium amounts, as the manufacturers had already paid the applicable service tax on these premiums.