2008 (9) TMI 83 - AT - Service Tax

Appellant a dealer of motor vehicles - when the vehicles are sold to the customers through the dealers the price paid by the customer takes into account not only the cost of vehicle and profit margins but also likely cost towards free services during warranty period - value of such services are already included in the price of the vehicle paid by the customers - service provider has not received any service charge from the service recipient demand and penalty not sustainable

Summary

Issues:
Service tax on free services provided by the dealer to customers during warranty period; Imposition of penalty under Section 78 of the Finance Act.

Analysis:
The case involved appeals against orders imposing service tax on free services provided by a dealer to customers during the warranty period and the imposition of penalties under Section 78 of the Finance Act. The appellant, a dealer of motor vehicles, was alleged to have received warranty labor charges from the manufacturer at the time of vehicle purchase, leading to demands for service tax on the value of free services provided. The original authority confirmed the service tax and imposed penalties under Sections 75 and 76, which were upheld by the Commissioner (Appeals). Subsequently, in revision proceedings, the Commissioner imposed penalties under Section 78 as well.

The appellant contended that they provided free services without receiving any service charges from customers and that the cost of these services was included in the assessable value for excise duty and sales tax purposes. The appellant argued that they were not reimbursed by the manufacturer for the free services but rendered them out of margins provided. The appellant cited relevant judgments to support their position.

On the other hand, the Department referred to the agreement between the manufacturer and the dealer, highlighting that the manufacturer reimbursed the dealer for free services provided. The Department argued that the service tax was rightfully demanded and penalties were appropriately imposed.

After considering the submissions, the Tribunal found that the so-called "free services" provided by the dealer were not genuinely free, as the cost of these services was already included in the price paid by customers for the vehicles. There was no evidence presented to show specific reimbursement by the manufacturer for the free services. The Tribunal noted that the service provider did not receive any service charges from the customers, and there was no evidence of direct reimbursement from the manufacturer. Consequently, the Tribunal held that the payment of service tax and the imposition of penalties were not sustainable. Therefore, all the appeals were allowed with consequential relief, if any, as per law.