Warranty servicing as input service credit when after-sales obligations are built into assessable value.

Service tax paid on free after-sales services during the warranty period qualifies as input service credit where the warranty and servicing cost is included in the assessable value of the goods. The text states that transaction value under Section 4(3)(d) of the Central Excise Act includes amounts charged for servicing and warranty, and that warranty-related expenditure incurred to discharge a sale obligation forms part of the business of manufacture and sale. On that basis, such services fall within the wide ambit of input service under Rule 2(1) of the Cenvat Credit Rules, 2004, and Cenvat credit is available.

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Issues: Whether service tax paid on free after-sales services provided during the warranty period is eligible as input service credit when the value of such warranty and servicing is included in the assessable value of the goods.

Analysis: The definition of transaction value under Section 4(3)(d) of the Central Excise Act, 1944 includes amounts charged towards servicing and warranty. Where after-sales and warranty obligations form part of the sale consideration and are embedded in the assessable value, the expenditure incurred to discharge that obligation is part of the business of manufacture and sale. Such warranty-related servicing is covered by the wide ambit of input service under Rule 2(1) of the Cenvat Credit Rules, 2004.

Conclusion: The service tax paid on free services rendered during the warranty period qualifies as input service credit, and the assessee is entitled to Cenvat credit.

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