The Customs, Excise & Service Tax Appellate Tribunal, Chennai rejected the Service Tax demand and granted deduction in extended warranty case for car manufacturers.
Facts
The appellant are manufacturers of cars and have obtained service tax registration for the services rendered by them. The cars manufactured by the appellants are sold to Authorized Dealers (dealers), who in turn sell the cars to the ultimate buyers.
During the audit, it came to light that the appellant extended factory warranty to the ultimate customers for a period of two years from the sale of cars and after the completion of two years, the appellant canvases for purchase of extended warranty, scheduled plan and total maintenance plan which are optional in nature.
As there have been continuous sale of these services to the customers through their dealers without indicating the same in their returns and without discharge service tax, it appears that the appellant have indulged in mis-statement of facts with an intent to evade payment of service tax, thereby attracting proviso to section 73(1) of the Finance Act, 1994. Consequently, Show Cause Notice was issued to the appellant proposing to demand service tax to the tune of Rs.3,89,87,290/- for the period from 1.5.2011 to 30.6.2012 under proviso to section 73(1) of Finance Act, 1994 along with appropriate interest under section 75 besides imposition of penalty under sec. 78 of the Finance Act, 1994.
Submissions
Raghavan Ramabhadran, counsel for the appellant, submitted that the extended warranty plans are composite contracts involving labour by way of repairs and material by way of parts being replaced. Under the service tax regime, taxability on service tax portion of a composite works contract was made taxable for the first time w.e.f. 01.06.2007 vide insertion of Section 65(105)(zzzza).
Decision
The two member bench of P. Dinesha, Member (Judicial) and M. Ajit Kumar, Member (Technical) observed that the extended warranty plans are composite contracts involving labour by way of repairs and material by way of parts being replaced. Service tax is not leviable on composite contract for maintenance and repair of vehicle which entails both supply of goods and services for the period upto 01.07.2012.
It was further observed that after the insertion of section 65B(54) in the Finance Act 1994, from 01.07.2012 onwards, the definition of ‘works contract’ was expanded to include repair and maintenance services of movable properties also. Hence, the composite contracts for repair and maintenance of motor vehicles are leviable to service tax from 01.07.2012 onwards.
The Tribunal said that VAT and Service tax are mutually exclusive levies. The present demand has sought to subject the entire value to service tax, despite the fact that the spare parts were subjected to VAT.
It was held by the Tribunal that the Appellant is entitled to claim deduction on the value of goods and materials in terms of Notification No. 12/2003.
The Tribunal held that there can be no interest liability and penalty fastened on the Appellant.
Case title: M/s. Ford India Pvt. Ltd. v/s Commissioner of Customs
Citation: Service Tax Appeal No.40501 of 2014
