2012 (11) TMI 168 - AT - Service Tax

Demand under the head maintenance or repair service for the period up to 30.4.2006 - Extended period of limitation - appellant engaged in the business of reconditioning engines and parts thereof and repairs of other parts of vehicles of all brands - appellant contended that they were in bona fide believed that they had no tax liability in respect of the activities in question and hence did not include the relevant particulars in their returns Held that - Activity of rebuilding, reconditioning, restoration and servicing of IC engines and other parts (of motor vehicles), received from authorised service stations and workshops were not disclosed by the appellant in their ST-3 returns - there was suppression of relevant information by the appellant with intent to evade payment of service tax. Some of the relevant facts were first disclosed to the department only on 5.9.2007, the date on which the appellant submitted a letter to the Superintendent (Audit) - this disclosure of information was not voluntarily made as it was made in the face of audit objections. In the result, the invocation of extended period of limitation requires to be upheld Services provided by the appellant to authorised service stations and workshops during the period of dispute are classifiable as maintenance or repair service up to 30.4.2006 and management, maintenance or repair service from 1.5.2006 and, consequently, the appellant is liable to pay service tax on these services. But they are not liable to pay service tax on maintenance or repair of motor vehicles directly brought to them by the vehicle owners as this activity is covered by the exclusion clause incorporated in the definitions of maintenance or repair and management, maintenance or repair Demand of service tax on the services rendered by the appellant to authorised service stations and workshops in respect of IC engines and other parts of motor vehicles is upheld Demand of service tax on the services rendered by the appellant directly to the vehicle owners in respect of whole motor vehicles is set aside Appellant shall pay interest under Section 75 and under Section 78 of the Finance Act, 1994 on the amount of service tax and education cess to be requantified

Summary

Issues Involved:
1. Demand of Service Tax and Education Cess.
2. Classification of services under "maintenance or repair service" and "management, maintenance or repair service".
3. Applicability of the exclusion clause for motor vehicles.
4. Invocation of the extended period of limitation.
5. Imposition of penalties under Sections 76 to 78 of the Finance Act, 1994.

Detailed Analysis:

1. Demand of Service Tax and Education Cess:
The main challenge in this appeal is against the demand of Rs. 65,84,788 towards Service Tax and Rs. 1,31,696/- and Rs. 12,046/- towards Education Cess and SH Education Cess respectively, confirmed against the appellant by the Commissioner for the period from 16.6.2005 to 30.9.2007. The demand was made under the head "maintenance or repair service" for the period up to 30.4.2006 and thereafter under the head "management, maintenance or repair service", in terms of Section 65(105)(zzg) of the Finance Act, 1994 read with Section 65(64) of the Act.

2. Classification of Services:
The appellant is registered under Section 69 of the Finance Act, 1994 for "transport of goods by road service", "renting of immovable property service", and "management, maintenance or repair service". The impugned demand pertains to the "maintenance or repair service" for the period up to 30.4.2006 and "management, maintenance or repair service" thereafter. The appellant's division, Kuttukaran Engine Rebuilders (KER), engaged in reconditioning engines and parts thereof, did not include charges received for such works in their taxable value shown in ST-3 returns and did not pay service tax thereon. The department, through an audit, found these activities taxable under the respective heads.

3. Applicability of the Exclusion Clause for Motor Vehicles:
The appellant argued that maintenance or repair of any part of a motor vehicle should be understood as maintenance or repair of the motor vehicle itself, thus falling outside the levy of service tax. They contended that the term 'motor vehicle' logically includes the engine and components, and therefore, reconditioning/repairing of engine and engine parts should be excluded from the service tax levy. However, the department maintained that the activities involved repairs/reconditioning of vehicle engines and other parts, which are 'goods' and not 'motor vehicles'.

4. Invocation of the Extended Period of Limitation:
The show-cause notice was issued on 20.8.2008, invoking the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, on the ground of suppression of facts by the appellant. The appellant argued that they bona fide believed their activities were outside the tax ambit and thus did not include relevant particulars in their returns. However, the adjudicating authority found that the appellant had not disclosed material details in their ST-3 returns, which were revealed only through the department's audit.

5. Imposition of Penalties:
The adjudicating authority imposed penalties under Sections 76 to 78 of the Finance Act, 1994. The appellant contested these penalties, arguing that the dispute resulted from divergent interpretations of the exclusion clause. The tribunal upheld the penalty under Section 78 due to the appellant's conduct but set aside other penalties.

Conclusion:
(i) The services provided by the appellant to authorised service stations and workshops are classifiable as "maintenance or repair service" up to 30.4.2006 and "management, maintenance or repair service" from 1.5.2006. They are liable to pay service tax on these services but not on maintenance or repair of motor vehicles directly brought to them by vehicle owners.

(ii) The demand of service tax on services rendered to authorised service stations and workshops is upheld, while the demand for services rendered directly to vehicle owners is set aside. The demand needs to be re-quantified by the Commissioner.

(iii) The appellant shall pay interest under Section 75 of the Finance Act, 1994 on the re-quantified amount of service tax and education cess.

(iv) A penalty under Section 78 is to be imposed and quantified by the Commissioner after re-quantification of the demand; other penalties are set aside.

(v) The appeal is disposed of in these terms.