TaxTMI 
TaxTMI 
2024 (5) TMI 1339
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....ho in turn sell the cars to the ultimate buyers. During audit, it was noted by the officers of the Department that the appellant is providing Extended Warranty Scheme (EWS) to customers. The appellant solicits and effects contractual obligation of extended warranty scheme at their owner dealer-cum-service station as well as through other dealers. The appellant's depots and Authorised Service Stations were paying service tax on the upfront charges collected towards the extended warranty scheme till 30.06.2012. Whereas, for the upfront charges collected by the appellant through other dealers, no service tax was being discharged. In addition to manufacture of cars, the appellant has a 'certified used car program' under the brand name "Advantage", whereby used vehicles certified by Hyundai Engineers are sold with a Hyundai Warranty up to 1 year / 20,000 Kms along with two free services. The appellant had not discharged service tax on amount collected for used car program also. Show Cause Notices for the different periods were issued to the appellant proposing to classify the said services under 'Repairs of Vehicles' as under Section 65(105)(zo) for the period from 01.05.2011 to 30.06.2....
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....' under Section 65(105)(zo) which is erroneous. Though the appellant collected EWS upfront charges, there is an implied understanding that the dealer would attend and carry out the repair services. The appellant is therefore not the service provider for the EWS. 3.2 It is submitted that prior to 01.07.2012, the demand cannot be raised under the category of 'Repair of Vehicle Services' as the service is composite in nature involving use of materials (spares / parts) and rendition of service. The service of repairs to motor vehicles was introduced as a taxable service with effect from 16.07.2001. The service defined under Section 65(105)(zo) for the period prior to 01.05.2011 is as under:- "Section 65(105) "Taxable Service" means any service provided or to be provided- ....... (zo) to any person, by an authorised service station, in relation to any service repair, reconditioning or restoration of motor cars, light motor vehicles or two wheeled motor vehicles, in any manner;" The above definition was amended with effect from 01.05.2011 and the definition reads as under:- "Section 65(105) "Taxable Service" means any service provided or to be pr....
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....ation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;" 3.5.2 The Ld. Counsel submitted that the Tribunal in the case of M/s. Ford India Pvt. Ltd. (supra) observed that the nature of contracts under Extended Warranty Service being composite contract which involve use of materials as well as rendition of services, the demand of service tax for the period prior to 01.07.2012 cannot be made under Section 65(105)(zo) and can be only under Section 65(105)(zzzza) as Works Contract Service. It is prayed that the demand raised under Section 65(105)(zo) for the period prior to 01.07.2012 may be set aside. 3.6 The Ld. Counsel put forward arguments relying upon the very same decision to contend that the said decision would apply for the period post 01.07.2012 also. The Ld. Counsel adverted to the definition of Works Contract Services under Section 65B(54) reproduced above and submitted that with effect from 01.07.2012, the repair of motor vehicles would fall under Works Contract Services as it involves the use of materials and an elemen....
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....ove, it is very much clear that repair of vehicle is Works Contract Services. The Adjudicating Authority has failed to accept the contention of the appellant that the EWS is in the nature of Works Contract Services by erroneously observing that there is no transfer of property / sale of goods at the time of entering into the EWS contract. It is submitted by the Ld. Counsel that though at the time of collecting the upfront charges there is no transfer of property in the goods, the appellant undertakes to do repairs of the vehicle which involves transfer of property in goods and therefore the service is in the nature of Works Contract Services. It is argued that if the interpretation of the Department is accepted, it may lead to a situation where any advance collected in respect of any works contract will have to be treated as 'pure service' and then service tax would be payable on the entire value of the advance received in spite of the fact that the activity involves transfer of property in goods. In the case of providing WCS, invoices are raised and the assessee is liable to pay service tax after deducting the abatement, so that value of the goods used for providing WCS are not su....
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....n two persons. It is submitted that if the Department intends to collect service tax from the actual provider of service, then any tax levied on the appellant would amount to levy of double taxation which against law. It is submitted that the appellant having discharged the service tax under WCS, availing the abatement correctly, the present demand on the entire value of upfront charges may be set aside. 3.14 The Ld. Counsel argued on the ground of limitation also. The appellant was under bona fide belief that they are not liable to pay service tax for the sale of extended warranty services. However, only by abundant caution they have paid service tax under Works Contract Services defined under Section 65B(54) of the Finance Act, 1994. The issue is wholly interpretational in nature. The appellant having discharged service tax in accordance with Works Contract Service cannot be saddled with the guilt of suppression of facts with intent to evade payment of service tax. The Department has not established any positive act of suppression on the part of the appellant. It is submitted that for these reasons, the invocation of extended period and the penalties imposed may be set aside. ....
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....000 km What is covered? If any defect is detected which is identified as Mechanical and /or Electrical breakdown as defined in the warranty, within the stipulated terms and conditions, the HMIL dealer shall repair or if required replace such defective parts. The parts so replaced, become the property of HMIL. What is not Covered: This warranty does not apply to: • Normal maintenance services such as, cleaning and polishing, adjustments, lubrication, oil changes, anti-freeze coolant replenishment, engine turning, fluid changes, filters replenishment, fastener retightening, wheel balancing, wheel alignment and the rotation etc. • Normal deterioration or wear of any part. • Replacement of parts as a result of normal wear and tear such as spark plugs, belts, brake pads and linings, clutch, disc/facing, filters, wiper blades, bulbs, fuses etc. • Any vehicle where the odometer mileage has been altered • Paintwork, body work, water ingress and corrosion, glass lenses, trim bright work, door lock cylinders and air bags • Wheels, wheel balancing trees, exhaust system and catalyt....
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....3 For the period prior to 01.07.2012, the demand has been raised on the appellant under Section 65(105)(zo) after the amendment to the definition by which the words 'by an authorised service station' was substituted with the words 'by any other person'. Since the appellant is issuing the extended warranty scheme and receiving consideration, they are liable to pay service tax on the upfront charges collected. The demand for the period prior to 01.07.2012 would be covered under Section 65(105)(zo) and the demand raised is legal and proper. It is submitted that the definition of Works Contract Services under Section 65B(54) would not be applicable to the period prior to 01.07.2012 and that the activity is not WCS. 4.4 In regard to the demand for the period post 01.07.2012, the Ld. Counsel adverted to the definition of 'service' as under Section 65B(44) of the Finance Act, 1994. This definition expressly states that it 'includes a declared service'. Section 66E of the Finance Act, 1994, gives the list of declared services. In the said list, clause (e) states that services in the nature of 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to....
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....necessarily take place during the execution of the contract. To further illustrate the same, it is seen that the following contingencies are likely to arise during the life of the contract. i. No repairs / maintenance would have been needed for the cars and consequently, the Taxpayer may not have provided any services under the contract; or ii. The Taxpayer might have provided repair / maintenance service under the contract without involving supply of any spare parts; or iii. The Taxpayer might have provided repair / maintenance service under the contract which involves supply of spare parts." 4.7 Only in the case of Sl.No. (iii) as above, transfer of property in goods is involved in execution of the contract and in remaining cases, no goods are supplied by the appellant. Even, in case of Sl.No. (iii), the services are provided by the dealer for repair / maintenance of the vehicle and billed separately as a service. The service provided by the appellant in accordance with EWS is not actual repair of vehicles but only a promise to repair the vehicles in the event of happening of the contingency of the vehicles requiring repair / replacement of parts. ....
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....ppellants are liable to pay service tax on the entire amount received for EWS. They have discharged service tax only on 70% of the value after availing 30% abatement by classifying the service under Works Contract Service. For the period after 01.07.2012, the differential demand of service tax has been made under Section 65B(44) on the entire value and therefore the demand raised is legal and proper. 4.13 It is submitted that the spirit and language in Section 65B(44) and Section 65E are harmonious and do not let in any room for alternate interpretation. Neither is there, any casus omissus in the statute, in as much as there is no need for any words to be added or substituted to arrive at the conclusion that EWS falls within the ambit of Section 65B(44) of the Act. The appellant has charged consideration in the nature of EWS for agreeing to an obligation as per the contractual terms to do certain acts under certain conditions and same stands covered under the definition of declared service as per provision of Section 66E of the Act. 4.14 The appellant is a manufacturer whose existence is dependent on the sale of its motor cars. To retain the market and to widen it, a number o....
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....rvice with effect from 16.07.2001 was amended with effect from 01.05.2011 by substituting the words 'by an authorised service station' with the words 'by any person'. The definition has already been reproduced in Paragraph 3.2 (ii). Consequent to the amendment, the Department entertained the view that the appellant having collected charges for EWS they are liable to pay service tax under 'Repair of Vehicle Services' with effect from 01.05.2011 till 30.06.2012. 7.2 The Ld. Counsel for the appellant has countered the above allegation in Show Cause Notice by stating that the 'Repairs to Vehicle Services' involves transfer of property in goods and being a composite contract has to be classified under the Works Contract Services. The ingredients of the service of repair to vehicles does not include the element of transfer of property in goods as in the case of definition of WCS under Section 65(105)(zzzza) and therefore Section 65(105)(zo) is applicable only to service simplicitor. The definition of Works Contract Services introduced with effect from 01.07.2012 has also been taken assistance to support this argument. 7.3 The issue whether the activity of issuing EWS would fall und....
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....ure will be covered by repair or replacement free of cost, so long as the vehicle had been serviced by an authorised dealer of the Appellant. Normal wear & tear • Depreciation • Negligence b. Scheduled Service Plan (SSP) • Periodic maintenance services and replacement (if required) relating to engine oil, oil filter, air filter, etc., • Labour costs for the same. • Mechanical failure • Electrical failure • Normal wear and tear • Accident repairs • Tyres • Fuel c. Total Maintenance Plan (TMP) • Periodic maintenance services • Mechanical and electrical failures • Wear and tear parts • Labour costs • Accident repairs • Tyres • Fuel Whenever a customer invokes the extended warranty, the customer approaches the dealers, who provide the repairs and replace defective parts if necessitated. The dealers then raise claims upon the appellant for reimbursement of the value of the repairs and parts replaced. The ....
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.... "works contract" means a contract wherein,- (i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of carrying out,- (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air- conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or (c) construction of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and constr....
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....t. 12. Demand of Rs.3,03,65,844/- is time-barred. 13. There can be no interest liability and penalty fastened on the Appellant. 14. We find that the issues raised by the appellant and listed at paras 9 to 13 above relate to the pre 01/07/2012 period. The demand in the impugned order is for the period from 1.5.2011 to 30.6.2012. Since we have already concluded that the composite contracts for repair and maintenance of motor vehicles are leviable to service tax from 01.07.2012 onwards, none of these issues survive. 15. Having regard to the facts as discussed above we set aside the impugned order. The appeal succeeds and is disposed of accordingly. The appellant is eligible for consequential relief, if any, as per law." 7.4 Following the above decision, we are of the considered opinion that for the period prior to 01.07.2012, the demand raised under Section 65(105)(zo) cannot sustain and requires to be set aside. Ordered accordingly. Period after 01.07.2012:- 8.1 We, now proceed to examine the demand post 01.07.2012. The Ld. Counsel for the appellant has vehemently argued that post 01.07.2012 also, the service rendered by the appellant unde....
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....f non-requirement of such certificate from such authority, from any of the following, namely:-- (A) architect registered with the Council of Architecture constituted under the Architects Act, 1972; or (B) chartered engineer registered with the Institution of Engineers (India);or (C) licensed surveyor of the respective local body of the city or town or village or development or planning authority; (II) the expression "construction" includes additions, alterations, replacements or remodeling of any existing civil structure; (c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; (f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods; (g) activities in relation to delivery of goods on hire purchase or any system of payment by instalments; (h) ....
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....es the list of declared services. 8.6 The parties to EWS contract are the appellant and the customer. At the time of payment of consideration i.e., at the time of entering into the contract, the parties to the EWS are not aware as to what is the type of repair work that may occur in future. They do not know whether any repair work may be needed at all. Further, the repair work that arises in future may sometimes be lower than the consideration paid by customer for EWS and in some occasions, it may be higher. The customer as well the appellant are both taking risk. These situations are discussed by the Adjudicating Authority in Paragraph 5.2 of the order dated 15.03.2017 which has already been reproduced in Paragraph 4.6 above. 8.7 In the case of EWS, the appellant while receiving the consideration is for indemnifying risks for repair and replacement that may happen to the vehicle during the warranty period, subject to terms and conditions. The agreement is in the nature of a promise to do an act in the event of a contingency that may or may not happen in future and has to fall under Section 65E(e) as a declared service. The reimbursement of service charges to the dealer by ap....
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....ers thereof a declared service. On perusal of the facts, of the said case, we find that the writ petitioner therein (MTNL) had received lump sum amount as financial support in lieu of surrender of 800MHz CDMA carriers. The Department demanded service tax alleging that the amount is consideration for tolerating an act and therefore would fall under Section 66E(e). The Hon'ble High Court held that it would not fall under Section 66E(e), as the amount paid to writ petitioner is not a consideration agreeing to the obligation to tolerate an act. MTNL had agreed to surrender the allotment of spectrum only because, the Department of telecommunication was not able to further provide the allocation. There was no consensus to discontinue the license. The facts are entirely different and the decision is of no assistance to the appellant. At the cost of repetition, we say that Sub-clause (h) of Section 66E covers actual Works Contract Services executed and does not cover the assurance to provide repair services. In actual repair services, there is an element of sale which involve transfer of property in goods and therefore for post 01.07.2012 would be a Works Contract Services. In EWS it's an ....
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....Section 65B(44) of the Finance Act, 1994. 10. The Ld. Counsel has argued on the ground of limitation and also prayed to set aside the penalties. We find that the appellant has adopted the classification under WCS for the period post 01.07.2012 and have discharged service tax by availing the abatement which is permissible if the activity is to be classified as WCS. This shows that appellant was under bonafide belief that the EWS falls under WCS and had no intention to suppress facts to evade payment of tax. There is no positive act of suppression of facts established against the appellant. Further the issue being classification of service is purely interpretational in nature. For these reasons, we hold that the demand raised invoking the extended period requires to be set aside. For these same reasons, the penalties for the period post 01.07.2012 also requires to be set aside. Ordered accordingly. 11. In the result, the impugned order is modified to the extent of:- i. setting aside the entire demand, interest and penalties for the period prior to 01.07.2012. ii. for the period post 01.07.2012, the activity of issuing EWS falls under Section 65B(44) read with ....