2014 (1) TMI 617 - AT - Service Tax

Demand of service tax - Free service provided during the warranty period - 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 - Stay granted.

Summary

Issues:
Interpretation of Service Tax Valuation Rules regarding reimbursement of expenses, applicability of exemption under Notification No.12/03-ST, determination of sale of goods in the context of free service provided during warranty period.

Analysis:
The judgment addresses a dispute involving the service tax liability of an authorized agent selling vehicles manufactured by a company and providing free service during the warranty period. The Revenue claimed that the agent should pay service tax on the value of goods used during the free service, in addition to the service value. The applicant argued that the reimbursement received for the parts used should not be considered part of the taxable service value as per Rule 5 of the Service Tax Valuation Rules. The counsel cited a case where a similar rule was struck down by the Delhi High Court and a precedent where waiver of pre-deposit was granted on the same issue.

Regarding the applicability of the exemption under Notification No.12/03-ST, the Revenue contended that no sale of goods was involved in the transaction. The Revenue relied on a previous decision to support their argument. However, the Tribunal analyzed the situation and concluded that the service provided, commonly known as free service, was not truly free as the manufacturer paid for both services and parts, benefiting both the vehicle owner and the manufacturer. The Tribunal determined that there was indeed a sale of goods in this case, making the applicant eligible for the exemption under the notification.

In light of the arguments presented and the precedents cited, the Tribunal granted a waiver of pre-deposit for the disputed tax amount and penalty. The Tribunal allowed the appeal and stayed the collection of dues during the pendency of the appeal. The judgment highlighted the commercial aspects of the transaction, emphasizing the mutual benefits derived by the manufacturer, the agent, and the vehicle owner, leading to the conclusion that the exemption under Notification No.12/03-ST was applicable in this case.