2016 (1) TMI 1155 - AT - Service Tax

Denial of CENVAT credit - provider of output service - utilisation of services of other dealer for labour cost in servicing of vehicles sold by appellant - Rule 2(1) of CENVAT Credit Rules 2004 - Held that - there can be no doubt that appellant renders authorized service station service and business auxiliary service on behalf of M/s Maruti Udyog Ltd. It is therefore a provider of output service. In the course of discharge of this output service which includes free servicing it is quite probable that the servicing may be delegated to another dealer. That it was performed elsewhere does not alter the factum of usage of another service-provider for supplying a service contracted to be provided to a recipient in which the recipient of service is not obliged to meet the costs. Such costs met by appellant are expenditure towards service procured to provide an output service - the decision in the case of Coca Cola India Pvt Ltd v. Commissioner of Central Excise Pune-III 2009 (8) TMI 50 - BOMBAY HIGH COURT relied upon where it was held that the appellant is entitled to claim CENVAT credit of tax paid on invoices raised by co-dealers - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Challenge to order demanding tax under Finance Act, 1994 along with interest and penalties
- Denial of CENVAT credit for the period from October 2007 to June 2012 on discharge of tax on utilisation of services of other dealer for labour cost in servicing of vehicles sold by the appellant

Analysis:
1. The appellant, as an authorized dealer of a manufacturer, undertakes servicing of motor vehicles and is registered as a provider of authorized service station service and business auxiliary service. The impugned order upheld the demand for tax under the Finance Act, 1994, along with interest and penalties. The challenge pertains to the denial of CENVAT credit for the period from October 2007 to June 2012 related to the discharge of tax on the utilization of services of another dealer for labor costs in servicing vehicles sold by the appellant.

2. The industry practice involves the selling dealer providing a fixed number of free servicing along with the purchase of a car, allowing the customer to avail the service from any authorized dealer of the manufacturer. The selling dealer pays the servicing dealer for labor costs involved, on which tax liability is discharged. The customer does not pay for such servicing, only for material costs incurred during the service.

3. Both lower authorities held that the tax paid on invoices raised on the appellant by another dealer is not eligible for CENVAT credit as it is not considered an input service, and the activity being undertaken outside the appellant's premises creates a disconnect with an output service.

4. The appellant's consultant argued that the tax paid on input service eligible for CENVAT credit is defined in Rule 2(1) of the CENVAT Credit Rules, 2004. Reference was made to a decision of the Hon'ble High Court of Bombay, which outlined the categories of input services that can be considered for credit, emphasizing that if any limb of the definition is satisfied, credit of the input service would be available.

5. The authorized representative of the respondent reiterated the contents of the impugned order, supporting the denial of CENVAT credit for the tax paid on invoices raised by co-dealers.

6. The tribunal acknowledged that the appellant provides authorized service station service and business auxiliary service on behalf of the manufacturer, making it a provider of output service. Even if the servicing is delegated to another dealer, the fact that the appellant bears the costs for the service procured to provide an output service remains unchanged. The tribunal concluded that the appellant is entitled to claim CENVAT credit of tax paid on invoices raised by co-dealers based on the decision of the Hon'ble High Court of Bombay.

7. Consequently, the appeal was allowed based on the appellant's entitlement to claim CENVAT credit of tax paid on invoices raised by co-dealers, as per the decision of the Hon'ble High Court of Bombay.

End of Analysis