Extended warranty commission and pre-sale coating work were held outside service tax net, with demands set aside.

Service tax was held not chargeable to a dealer on optional extended warranty amounts paid directly by customers to the manufacturer, because the dealer received only commission and had no direct collection or independent liability for the warranty service. Teflon coating and under body coating were also held outside business auxiliary service, as the work was done before sale at the customer's option, using the dealer's own labour, and the materials were treated as a sale of goods rather than agency activity. The tax demands, with consequential interest and penalties, did not survive and the appeals were allowed.

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Issues: (i) Whether service tax was payable on the value of extended warranty received in relation to vehicle sales; (ii) Whether service tax was payable on Teflon coating and under body coating activities as business auxiliary service.

Issue (i): Whether service tax was payable on the value of extended warranty received in relation to vehicle sales.

Analysis: The extended warranty was an optional facility offered by the manufacturer, the customer paid the amount directly to the manufacturer online, and the appellant received only commission on which tax had already been discharged. The appellant had no direct collection of the warranty consideration from customers and no independent liability to provide the warranty protection. The issue was also covered by prior Tribunal decisions.

Conclusion: Service tax was not payable on the extended warranty value in the hands of the appellant, and the demand on this count was unsustainable.

Issue (ii): Whether service tax was payable on Teflon coating and under body coating activities as business auxiliary service.

Analysis: The coating activity was undertaken before sale of the vehicle at the customer's option, using the appellant's own labour, and the material purchased from the third party was evidenced as a sale of goods rather than agency activity. On the facts, the appellant was not shown to be promoting or marketing the services of another entity so as to attract business auxiliary service. The issue was treated as covered by prior Tribunal authority.

Conclusion: Service tax was not payable on Teflon coating and under body coating, and the demand on this count was unsustainable.

Final Conclusion: The service tax demands, along with the consequential interest and penalties, did not survive and the appeals were allowed with consequential relief.

Ratio Decidendi: Consideration directly paid by the customer to the manufacturer for an optional warranty, with only commission received by the dealer, does not create taxable liability in the dealer's hands, and pre-sale coating activity undertaken on a customer's option does not constitute business auxiliary service absent promotion or marketing of another's service.

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