2018 (6) TMI 1198 - AT - Service Tax

Valuation - Authorised service station service - Free services during warranty period - reimbursement or not? - inclusion of the amount received as reimbursement in assessable value - Held that - The SCN as well as the orders of both the lower authorities are based on Clause 4.4 of the dealership agreement, which is not related to free warranty. Free warranty is provided in terms of clause 7.3 of the agreement. The said clause does not provide for any reimbursement. The issue of liability to service tax for free services provided to car purchasers by the authorised dealers is already settled in favour of the assessee by this Tribunal in the case of Jabalpur Motors Ltd. 2015 (1) TMI 1140 - CESTAT NEW DELHI , where it was held that the respondents have not provided the service of authorised service station to them (i.e. M/s. MUL). Accordingly this amount cannot be made liable to service tax under the category of authorised service station service. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Interpretation of dealership agreement clauses regarding free services and reimbursements
- Liability of service tax on free warranty services provided by authorized dealers
- Applicability of previous tribunal judgments on similar issues

Interpretation of dealership agreement clauses regarding free services and reimbursements:
The appeals were filed against an Order-in-Appeal regarding charges for free services provided during the warranty period by authorized service stations. The Revenue alleged that these charges were reimbursed by the manufacturer, leading to the inclusion of these amounts in the assessable value. The disagreement arose from the interpretation of clauses in the dealership agreement. The appellant argued that the clauses relied upon by the lower authorities were incorrect and pointed to clause 7.3(b) covering free warranty issues. The Tribunal observed that the show-cause notice and lower authorities' orders were based on a clause not related to free warranty, emphasizing that free warranty services were covered under a different clause, which did not provide for any reimbursement.

Liability of service tax on free warranty services provided by authorized dealers:
The issue of liability for service tax on free services provided to car purchasers by authorized dealers was a key contention. The Tribunal referred to previous judgments, including one where it was held that service tax liability arises from services provided to customers. It was noted that for free services, no amount was charged from customers, and the manufacturer explicitly stated that they did not reimburse dealers for such services. The Tribunal emphasized that free services were part of the dealers' duties and were rendered to car buyers, not the manufacturer, making the demand for service tax misconceived.

Applicability of previous tribunal judgments on similar issues:
The Tribunal cited various judgments where it was held that where service charges were reimbursed by manufacturers, they should be subjected to service tax. However, in cases where free servicing was provided by dealers without manufacturer reimbursements, the taxability was not addressed. The Tribunal highlighted the mutual exclusivity between sales tax on goods and service tax, emphasizing that the intent behind the dealers' margin was to sell goods, not provide free services. By following the ratio of these judgments, the Tribunal concluded that the order of the Commissioner was not sustainable and allowed the appeals filed by the appellants.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, emphasizing the correct interpretation of the dealership agreement clauses, the non-liability of service tax on free warranty services, and the precedence set by previous tribunal judgments on similar issues. The appeals filed by the appellants were allowed, setting aside the order of the Commissioner.