TaxTMI 
TaxTMI 
2019 (5) TMI 375
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....rts and accessories against requirement during the warranty period on the sale of HP products. 2.2.1 The Department took the view that sale of computers is inclusive of after-sales warranty also; that it is the bounden duty of HP to keep inventory of parts and accessories for free replacement on failure of their product during the warranty period; that this involves huge operation requiring space, manpower, finance, etc., and the same are outsourced to the appellants; that support service of appellant is warranted by HP to take care of the customer for their business; that part of the work relates to after-sales warranty service is entrusted to the appellant for maintaining inventory stocks and distributing them as and when required for replacement; that for this service provided by appellant to HP, they have been paid agreed amounts of USD 6.24 and USD 5.15 by HP for every sale of computer. It appeared to the Department that the aforesaid operations performed by appellants were liable to be classified under Sub-Clause (iv) of Section 65(19) of the Finance Act, 1994 under the sub-category of "procurement of goods or services" on behalf of the client under the service category of....
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.... being filed by them. 2.4.3 However, a Show Cause Notice dated 22.09.2008 was issued to the appellant proposing denial of the refund claim, inter alia on the grounds that appellants have provided Business Auxiliary Services with effect from August 2005 and that service tax and Education Cess paid by them in respect of services provided to HP is in order. The Original Authority vide order dated 30.12.2008 confirmed the proposals in the Show Cause Notice and rejected the refund claim In appeal, the Commissioner (Appeals) vide Order-in-Appeal No. 145/2010 (MST) dated 30.07.2010 held that the appellant had not furnished their contract or any evidence to prove that their activity is only sale, in the absence of which he concurred with the findings of the Original Authority that the activity carried out falls under "procurement of goods or service on behalf of the client" under Business Auxiliary Service. Hence, Appeal No. ST/612/2010. 3. Today when the matter came up for hearing, on behalf of the appellants, Ld. Senior Advocate Shri. N. Venkataraman assisted by Ld. Advocate Ms. Cynduja Crishnan, made oral and written submissions which can be broadly summarized as under : ....
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....at the appellant is a service provider to HP is therefore without any legal basis. (v) For the purpose of continuity of business, in normal commercial transactions, a contract for supply of materials regularly can be obligated and casting of such an obligation will not alter a transaction of sale into a transaction of service. The fact that the appellants are paid a fixed sum for the supply of materials in addition to the cost of the product would only indicate that the same is paid as an additional consideration to ensure uninterrupted supply. (vi) The impugned Orders have completely ignored the fact that the appellants had paid sales tax on the goods sold to HP and supply to Redington India. The same transaction which has suffered sales tax cannot now be treated as a transaction of service. The Hon'ble Apex Court in the case of M/s. Imagic Creative Pvt. Ltd. Vs. Commissioner of Commercial Taxes - 2008 (9) S.T.R. 337 (S.C.) has categorically held that sales tax and service tax are mutually exclusive. The Hon'ble Apex Court in the case of M/s. Bharat Sanchar Nigam Ltd. Vs. Union of India - 2006 (2) S.T.R. 161 (S.C.) reversed the decision of the Hon'ble High Court ....
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....hich it has to be supplied and the price to be charged of it supply. e. The entire description including model batch quantity and price relate only to goods sold and supplied. f. There is no reference to any service element for consideration being paid for any rendition of service. g. Since this happens to be a sale transaction, appellants have also paid appropriate VAT. The tax invoice referred to in the note is Invoice No. FSI10-008 dated 31.08.2010 which clearly indicates the TIN number 33550862992 and the VAT rate at 4% and the tax amount charged towards the sale. h. The copy of the sales tax return for the month of August 2010 is also appended. Annexure-II of the return refers to the details of sale/transfer during the month of August 2010. Sl. No. 3 refers to the tax invoice No. FSI10-008 dated 31.08.2010 wherein there is a clear indication of sale value as Rs. 26,80,862.17. Tax rate at 4% and the VAT amount paid is Rs. 1,07,234.49/- (totalling to Rs. 27,88,096.66/-) i. Sum indicated in the sales tax return is in rupees and the grand total in the tax invoices refer to Rs. 27,88,096.66/- and the annexure to the tax invoices show the....
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.... to enable HP to meet out its obligation of service/warranty. (iii) HP pays the appellant a fixed sum based on the sale of computers every month and not as per the spare parts supplied for the warranty/after-sales service, as per the conditions of the service agreement. It means that the appellant receives a particular amount for each computer sold by HP, irrespective of the cost of the spare parts supplied or not for the after-sales service. Further, this amount is paid by HP to the appellant in the month of the sale of computers itself. (iv) Condition (2) of the above said agreement explicitly states that "in consideration of these services, the HP will pay the fees", a fixed sum to the assessee towards each product sold to cover the service charges, whether the actual cost of spares is more or less. (v) Condition (4) of the agreement states that the assessee will raise invoices every month "for the services accepted by HP" and along with each invoice, the appellant shall submit documentary evidence so that HP can "identify the services rendered and the cost expenses incurred in the performance of the services". (vi) Further, the appellants are....
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....determined and only a fixed sum is charged as per the agreement entered with the client. (xii) Also in the instant case, service tax is demanded only on the value on the agreed amount received from HP for the services rendered to HP viz., maintaining inventory and stock and distributing them as and when required for replacement and hence, the decision of the Hon'ble Supreme Court in the case of M/s. BSNL (supra) with regard to inclusion of cost of SIM card in the activation charges will not apply in this case. (xiii) The invoice is raised as a fixed amount based on the model of the computers sold. The remuneration received by the appellant has no relationship with the actual quantity of parts supplied by the appellant to Redington during the warranty period. Therefore, the consideration received is not in relation to the goods, but is relatable only to the service of procuring material and maintenance of inventory of computer parts for replacement. The Bench may be pleased to uphold the demands of service tax and dismiss the appeals and thus, render justice. (xiv) Mere payment of VAT will not help to avoid service tax liability. Ld. AR relies upon the dec....
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....of the client or any services incidental or ancillary to such activities. The impugned orders have held that the appellants provide Business Auxiliary Service under the sub-category of 'procurement of goods or services'. A closer perusal of the said Section 65(19)(iv) indicates that the service that would fit into this category would be procurement of goods or services which are inputs for the client. Hence, it appears to reason that for such a service provider, any goods that may be procured for the client should be procured for the purposes of the latter using them as inputs, obviously, in the manufacture of intermediate or final products of such client. 7.3 The Explanation to the said sub-category has clarified, that for the purposes of the said sub-clause, "inputs" means all goods or services intended for the use by the client. This Explanation is in sync with the definition of "input" in Rule 2(k) of the CENVAT Credit Rules, 2004 whereby "input" means all goods, with certain exclusions and inclusions, "used in or in relation to the manufacture of final products or for any other purpose", within the factory of production. In a broader sense, the input for the purpose of Sect....
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....product defects outside the terms of the Master Purchase Agreement or India Business Agreement, as mutually agreed upon. 9.2.4 In another business model, the ODM concerned will provide warranty parts and service to HP or its service partner in India to provide warranty services to HP customers in India. It appears that out of this business model, only the appellant is supplying warranty parts to Redington India, who are providing services for HP products in India. 9.3.1 As per paragraph 11.3 (b), for Warranty Support Charges, the ODM will invoice HP by the first week of every month for the service performed during the previous month unless a different schedule is expressly stated along with supporting documentation to identify the service rendered and the expenses incurred to HP by the ODM. As per paragraph 11.4 (c), HP will pay to M/s. Foxteq India (appellant herein) for Warranty Support Adder in India Rupees. 9.3.2 At first blush, from the word 'service' used with respect to Foxteq in the agreement could very well give rise to a conclusion that the activities of the appellant are in the nature of a 'service' taxable under the Finance Act, 1994. However, we find that even....
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....een arrived at and is being charged accordingly by appellant to HP, as agreed upon between the two. As per the Attachment C - Payment Schedule, inter alia, the following has been indicated : Program US $ 1. Warranty Adder India 1 year Carlton $6.24/PC Warranty Adder India 1 year Ganesh $ 5.15/PC Warranty Adder India 1 year Catfish $ 4.45/PC Warranty Adder India 3 years Carlton $10.62/PC . . . . 12.1 From the sample trail of invoices produced by the Ld. Senior Advocate for appellants, it is clear that appellants are paying VAT at the rate of 4% on the entire value indicated, which has been worked out by taking the unit price and multiplying it by the quantity supplied. For ready reference, the scans of the trail of documents submitted by the Ld. Senior Advocate are reproduced hereunder : 12.2 In Tax Invoice No. FSI10-008 dated 31.08.2010, a number of Warranty Adders for different quantities have been indicated. In Serial Number 1, the Warranty Adder for Carlton 1 year is indicated at USD 6.24; 496 units have been billed at USD 2926.56. So als....
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....f warranty parts. This conclusion is further supported by Exhibit-A to the very same agreement where in the 'Statement of Work' the following is noted : "1. Statement of Work - Support (Mainstream and Legacy) 1.1 ODM to provide warranty parts support, RMA management, troubleshooting and hardware repair training before each NPI launch for HP Affiliates. These will include support for all the legacy units under warranty. 1.2 ODM to establish initial seed stock quantity for warranty parts, on a quarterly basis or when new products are launched. Foxteq India is responsible to keep initial stock (and maintain parts stock level) to ensure HP or its affiliates can meet the 3 business days Turn Around Time for repairs, 95% of time, nation wide in India for end customers. HP or its Affiliates will send a request for delivery of RMA warranty parts on a weekly basis or as advised by Foxteq India. 1.3 Request for emergency parts, ODM must acknowledge the request within one Working day. For the legacy units planned buy will be performed by Foxteq India for emergency parts. All these purchases would be reimbursed by HP on a monthly basis." 13. It is then ev....
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....8, which, in the instant case, has been belatedly sought to be covered by the Show Cause Notice No. 128/2008 dated 23.04.2008. For the reasons given by the Ld. Senior Advocate, much of the period covered by the Show Cause Notice dated 23.04.2008 is beyond the normal period of limitation from the date of issue of the Notice viz., 23.04.2008. So also, in Show Cause Notice No. 82/2010 dated 05.04.2010 seeking to cover the period from October 2008 to July 2009, part of the period is again outside the normal period of limitation for the same reasons. 17.1 Appeal No. ST/612/2010 relates to the rejection of refund claim of Rs. 12,01,946/-. As discussed hereinabove, the related Show Cause Notice dated 22.09.2008 was issued to the appellant proposing denial of the refund on the ground that the assessee had provided 'Business Auxiliary Service'; therefore, the amount paid by them is very much in order. The Commissioner (Appeals) vide impugned Order dated 30.07.2010 held that in the absence of any contract or evidence to prove that the activity is only sale, he concurs with the findings of the Original Authority that the activity carried out falls under "procurement of goods or service on ....
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....ug'10 4352.76 6 Warranty Adder for Whitney 3 Year - Aug'10 SBB179651-V3 59 USD 46.75 2758.25 Total 57652.95 VAT Tax Rate: 4% For FOXTEO SERVICES INDIA PY 17 Tax Amount: 2306.12 Authorlaod Sky Grand total: 59959.07 Exchange Rate: 46.5 Remark: Grand Total in INR: 2788096.66 DISCLAIMERS: Payment-Payment for total amount listed hereon should be made in accordance with the payment term and conditions shown hove Any amounts not so paid shall bear interest at the rate often percent (10% ) per annum or the maximum rate permitted by law.Legal fees-Provided that legal action is commenced to collect amount due to HonHai for the products listed hereon, the prevailing party in such action shall be entitled, in addition to any otherrelief, to be reimbursed by the other party for the prevailing. Limited to reasonable attorney's fee (including the allocated cost of such revailingparty's in-house counsel) and expert witness fees. Document 2 Description $5260IN AU797AA HP Pavilion Slimline $5260in PC P6511IN BW429AA HP Pavilion p6343in PC HP Pavilion p6511in PC INDIA HP Pavilion p6530in pc INDIA HP Pavi....