TaxTMI 
TaxTMI 
2019 (5) TMI 375
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....nt 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 "Business Auxiliary Service". 2.2.2....
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....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 : (i) The appellants had entered into a contract with HP, a renowned Multi-National Company for the ....
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....ity 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 of Kerala that a transaction of sale can also be a service. (vii) The agreement of the appellant with HP is to provider part ....
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....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 break up towards tax as Rs. 1,07,234.49/-. (xii) Ld. Senior Advocate has also argued that the proceedings are barred by limitation. He has submitted the following : a. In response to a spot memo dated 19.1....
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....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 required to test and report all defective parts, provide current product engineering support on request and furnish various reports at various intervals to HP. In ordinary sale-purchase transactions no such liabilities and conditions can be fastened on the seller. (vii) On b....
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....nce, 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 decision of the Tribunal in the case of M/s. Bata India Ltd. Vs. Commissioner of C.Ex. & S.T., Delhi - 2018 (15) G.S.T.L. 339 (Tri. - Del.). 5. Heard both sides and have gone through the facts of the case. 6. The issue that comes up for dispute resolution is whether the activity carried out by the appellants herein will be in the nature of a service tran....
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....pears 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 Section 65(19)(iv) ibid could also include goods intended for use even by a service provider, for example, by an Authorized Automobile Service Station, who requires approved parts and components providing their service. Thus, an entity which facilitates supply of such inputs to a client who is either a manufacturer or even a service provider, for use, either in manufacture or for provision of service, will only come un....
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....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 in the business model of sale of PC Sub-assembly parts (L5 and L6) to M/s. HP India factories for final assembly, the said activity has also been termed as "service rendered" in paragraph 11.3 (a) of the agreement. The agreement also stipulates that HP may lay down various changes or add reporting requirements to meet the needs of the business arrangement. 9.4 From the facts on record, it is definitely not the case tha....
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....ears 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 also, in Serial Number 2, the Warranty Adder for Carlton 3 Year has been indicated at USD 10.62; 164 units have been billed at USD 1741.68. The relevant portion is extracted hereunder : Item Cust PN/ Foxteq PN Description Cust PO. QTY Curr Unit Price Amount 1 Warranty Adder for Carlton 1 Year - Aug'10 SBB179651 - V3 469 USD 6.24 2926.56 2 Warranty Adder for Carlton 3 Year - Aug'10 SBB179651 - V3 164 USD 10.62 1....
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....ucts 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 evident that HP have entered into a contract with the appellants to supply warranty parts, apparently at 'equalized' per part rate termed as "Warranty Adder" cost. However, the appellants, instead of directly supplying the parts to HP, do so to Redington India who are the authorized service organization for the impugned HP products. No doubt, the said warranty parts may well be stocked by the appellant for supply to Redington as and when warranty requirements arise. However, there cannot be any allegation that the appellant 'procures' such warranty parts on b....