2018 (6) TMI 135 - AT - Service Tax

Leviability of service tax on the free warranty service - amounts received from the manufacturer M/s. Hindustan Motors Limited under Serve to Win reward scheme for the free services provided by them - The department took a view that the appellant had received this amount in lieu of free services provided by them to the buyers of the vehicles - Extended period of limitation - Held that - The appellant are providing three free services during the warranty period. Admittedly, the entire cost of free service is borne by the appellant and no reimbursement is being received from the manufacturers or is being charged to the customers. The free services are being provided in pursuance to the obligation cast on the appellant by the manufacturer of the vehicles. It is not disputed by both the lower authorities that the scheme is discretionary in nature and is in the form of incentive to improve the quality of pre-delivery inspection, of three free services and for maintenance of complete control system. Hence, it is not correct to conclude that it is reimbursement for three free warranty services provided by the appellant to the buyers of the vehicles - demand set aside. Invocation of Extended period of limitation in case of second SCN - Held that - The judicial discipline mandated that Department should not have invoked extended period in second SCN dated 26.02.2007 when the same issue had come to its notice already while issuing first SCN dated 13.04.2006 - extended period of limitation. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the amount received under the 'Serve to Win' reward scheme by an Authorised Service Station is liable to service tax.
2. Whether the show cause notice issued by the department was barred by time.
3. Whether the order of the Commissioner (Appeals) is sustainable.

Analysis:
1. The case involved the appellant, an Authorised Service Station, receiving amounts from a manufacturer under the 'Serve to Win' reward scheme for free services provided. The department alleged that this amount was in lieu of free services and thus taxable under the service tax category. The appellant contended that the scheme was a reward for customer satisfaction and quality standards, with no reimbursement from manufacturers or customers. The Tribunal noted that the department failed to provide a basis for concluding the amount was for taxable services. Citing precedent, the Tribunal held that the free services provided were incidental to the sale of cars and not subject to service tax, setting aside the Commissioner (Appeals) order.

2. The appellant argued that the show cause notice was time-barred, as the facts were known to the department earlier. The Tribunal, while setting aside the order on merit, also noted that invoking the extended period for the second notice was improper when the issue was already known from the first notice, citing judicial discipline.

3. Relying on precedent and the judgment mentioned, the Tribunal found the order of the Commissioner (Appeals) unsustainable and allowed the appeals. The judgment emphasized the distinction between sales tax on goods and service tax, concluding that the amount received by the appellant was part of the sale value of cars and not subject to service tax. The Tribunal highlighted the importance of judicial discipline in invoking the extended period for show cause notices.