2013 (12) TMI 1330 - AT - Service Tax

Stay Application - Free service provided during the warranty period - Benefit of exemption notification No.12/03-ST - Held that - The entire dispute arises out of the fact that this service being provided is commonly referred to in this industry as free service. This is not free service at all. This is rendered at a cost both for the services and for the parts which are paid by the manufacturer to the appellant. However, the owner of vehicle is one of the beneficiaries of the activity. The vehicle manufacturer is also a beneficiary because such services enhances his brand value and the reputation of his goods and customer satisfaction which helps in further business. So the manufacturer pays for it and naturally it is a service provided to the manufacturer of vehicles. Similarly the person who pays for the parts is the person to whom goods are sold. Therefore, we are of the view that there is sale of goods in this case and the benefit of exemption notification No.12/03-ST dt. 20.6.2003 is prima facie available to the applicant - Prima facie case in favour of assessee - Stay granted.

Issues:
1. Whether the value of goods used in providing free services during the warranty period should be included in the taxable service for service tax purposes.
2. Whether the reimbursement received for parts used in providing services constitutes sale of goods and materials, thereby exempting it from the value of taxable service.
3. Whether the exemption under Notification No.12/03-ST applies in the case where no sale of goods is involved.

Analysis:

1. The dispute in this case revolves around the inclusion of the value of goods used in providing free services during the warranty period in the taxable service for service tax purposes. The applicant, an authorized agent of a vehicle manufacturer, was paying service tax on the services provided but not on the value of the goods used. The Revenue contended that the cost of parts should form part of the taxable service value, leading to the initiation of proceedings for recovery of the alleged tax shortfall.

2. The applicant argued that the Revenue's demand was based on considering the value of parts as reimbursable expenses under Rule 5 of the Service Tax Valuation Rules, which the applicant claimed had been struck down by the Delhi High Court in a previous case. Additionally, the applicant highlighted a Tribunal case granting waiver of pre-deposit on a similar issue. The applicant also pointed out that they had paid VAT on the parts used, suggesting that the reimbursement received from the manufacturer constituted a sale of goods and materials, exempting it from the taxable service value under Notification 12/03-ST.

3. The Revenue contended that there was no sale of goods involved in the case, thereby arguing against extending the exemption under Notification No.12/03-ST. They relied on a previous decision to support their stance. However, the Tribunal analyzed the situation and concluded that the service provided, although commonly referred to as free service, was not truly free as it incurred costs for both services and parts, paid by the manufacturer to the applicant. The Tribunal determined that there was indeed a sale of goods in this scenario, making the benefit of the exemption notification prima facie available to the applicant.

4. Considering the arguments presented by both sides, the Tribunal found that the service provided involved a sale of goods, making the exemption under Notification No.12/03-ST potentially applicable to the applicant. As a result, the Tribunal granted a waiver of pre-deposit of dues arising from the impugned order for admission of appeal and stayed the collection of the amount during the appeal process.

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