2017 (12) TMI 605 - AT - Service Tax

Levy of service tax - labour charges collected for the services rendered in other three branches - case of appellant is that the manufacturer viz., MML has not given any permission for conduct of authorized service stations in the places Dindigul, Theni and Karaikudi and therefore the amounts collected toward labour charges in these branches cannot be subject to levy of service tax under the category of Authorized Service Station services - Held that - Clause 11 of the agreement stipulates that the dealer (appellant) shall provide and arrange with its branches, sub-dealers and service centres to provide adequate and satisfactory after sales service for the products used in the territory including those which have not been sold by them - When the agreement mentions the territory to include all these places, the appellant s contention that they were not authorized to conduct service stations in Theni, Dindigul and Karaikudi and therefore the demand of service tax not sustainable is untenable and unacceptable. Penalty u/s 76 not tenable - penalty u/s 78 and demand of tax with interest upheld - appeal allowed in part.

Issues:
1. Appellants not paying service tax on labour charges in branches.
2. Authorization for service stations in specific locations.
3. Discrepancy in agreement details between the appellant and the department.
4. Imposition of penalties under Section 76 and 78 of the Finance Act, 1994.

Analysis:

Issue 1: Appellants not paying service tax on labour charges in branches
The appellants were engaged in providing services as an Authorized Service Station for vehicles and parts manufactured by M/s. Mahindra & Mahindra Ltd. The Department alleged that the appellants did not pay service tax on labour charges collected for services rendered in branches at Dindigul, Theni, and Karaikudi. The original authority confirmed a demand for service tax along with interest and penalties under Sections 76 and 78 of the Finance Act, 1994. The Commissioner (Appeals) upheld the decision, leading to the current appeal.

Issue 2: Authorization for service stations in specific locations
The appellant argued that they were only authorized by MML for an authorized service station in Madurai, not in Dindigul, Theni, and Karaikudi during the disputed period. The appellant emphasized that authorization for service stations must be specific and mentioned in agreements with the manufacturer. However, the Department obtained an agreement showing that these locations were authorized for service stations. The Tribunal found that the agreement authorized service stations in the mentioned territories, rejecting the appellant's argument.

Issue 3: Discrepancy in agreement details
The appellant claimed discrepancies in the agreement details regarding authorized service station locations. The Commissioner (Appeals) noted a difference in district names between the appellant's copy and the copy obtained by the Department from the manufacturer. The Tribunal considered the scanned copy of the agreement and found that the territories mentioned included Dindigul, Theni, and Karaikudi, contrary to the appellant's assertion.

Issue 4: Imposition of penalties
While upholding the demand for service tax and interest, the Tribunal found the imposition of penalties under both Sections 76 and 78 of the Finance Act, 1994 unwarranted. The Tribunal set aside the penalty under Section 76 but maintained the penalty under Section 78, providing relief to the appellants on penalties.

In conclusion, the Tribunal upheld the demand for service tax and interest but modified the penalties imposed, setting aside the penalty under Section 76. The decision emphasized the importance of authorization for service stations and resolved discrepancies in agreement details to determine the tax liability on labour charges for services rendered in different branches.

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