2016 (3) TMI 669 - AT - Service Tax

Liability of tax on extended warranty service between October 2005 and September 2010 - Business Auxiliary Services - Money received towards extended warranty - Held that - the context in which the service becomes taxable is that of an intermediary who arranges goods or services for further business activity; the use of the words inputs and client as well as the explanation appended would make it appear to be so. The procurement of service which is an input for the client alone will enable classification in the sub-category of section 65(19)(iv). Service of replacing defective parts will have to be rendered by a dealer of the respondent. That service will be provided only if and when such defect exists in a car. Should the need for such replacement arise, it would be only then that the service intended for use by the client comes into play. Mere coverage by the extended warranty scheme does not, of itself, create an intention to use the service of the dealer. Therefore, no liability of tax arises under Business Auxiliary Services on money received towards extended warranty. - Decided against the department

Issues:
1. Taxability of extended warranty scheme under 'business auxiliary service'

Analysis:

The case involved M/s Honda SIEL, an automobile manufacturer offering extended warranty options through their dealer network. The Revenue sought to tax the amount received for extended warranty services between October 2005 and September 2010 as 'business auxiliary service.' The contention was that the warranty scheme fell under taxable services, and M/s Honda SIEL facilitated customers in availing warranty benefits through dealers. However, the Commissioner dropped proceedings, leading to the Revenue's appeal.

The key argument revolved around whether the extended warranty constituted 'business auxiliary service.' The Revenue claimed that the warranty, being a three-way arrangement with consideration from customers, qualified as a taxable service. They argued that M/s Honda SIEL provided services to dealers by procuring warranty-related services for clients. The persistent effort to classify the warranty scheme as taxable was highlighted, citing section 65(19) specifications.

The Tribunal examined whether M/s Honda SIEL rendered 'business auxiliary service.' It emphasized that the manufacturer's primary business was selling cars, with post-sale services enhancing customer experience. The extended warranty primarily benefitted car purchasers, ensuring replacement of defective parts without increasing business. The credibility of a manufacturing enterprise was linked to minimizing defects, making warranty coverage a risk mitigant rather than a service for tax purposes.

Further, the Tribunal analyzed the taxability aspect concerning the extended warranty scheme. It noted that the warranty continuation was part of the standard warranty, and the consideration for extended warranty did not alter its tax treatment. The uncertainty in warranty performance excluded it from taxable events under section 65(105) of the Finance Act, 1994, as it did not fit the criteria of 'provided or to be provided' services.

The Tribunal also examined the definition of 'business auxiliary service' and 'client,' emphasizing the intermediary role in arranging goods or services for further business activity. It concluded that the extended warranty did not inherently create an intention to use dealer services, making it non-taxable under the 'business auxiliary service' category.

In the final judgment, the Tribunal found no merit in the Revenue's appeal and dismissed it, affirming that the extended warranty scheme did not constitute 'business auxiliary service.'

This detailed analysis elucidates the legal judgment's core issues, arguments presented, and the Tribunal's reasoning leading to the final decision on the taxability of the extended warranty scheme under 'business auxiliary service.'

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