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2019 (6) TMI 856 - AT - Service TaxValuation - inclusion of warranty claims in assessable value - reverse charge mechanism - Section 66A of FA - Revenue neutrality - extended period of limitation - HELD THAT - We do not find that the appellants had paid any incentives to the Overseas Distributors for sales promotion and marketing. The entire demand is on the amount paid by the appellant to the Overseas Distributors for the warranty claims. The adjudicating authority is of the opinion that when the Overseas Distributors establish the network of Authorized Repairers for carrying out the warranty claims on behalf of the manufacturer (appellant herein), the said activity would be customer care service and also provision of service on behalf of the client. It needs to be said that though the Overseas Distributors may have carried out the repair and maintenance services and established the network of Authorized Repairers for the benefit of the manufacturer, the Overseas Distributors have not directly carried out any service to the customer. When the Overseas Distributor is establishing the network of Authorized Repairers for carrying out the warranty responsibility of the appellant, indeed, this will satisfy customer care services provided on behalf of the client contained in Sub-Clause (iii) of the definition of Business Auxiliary Service , and would be taxable. Extended period of limitation - HELD THAT - The period involved is from October 2008 to March 2015. The documents produced show that audits were conducted in 2008, 2009 and the subsequent years. The letter dated 15.09.2009 shows that Internal Audit was conducted from 17.08.2009 to 31.08.2009. The letter dated 06.06.2013 is an intimation of CERA Audit wherein the appellant is informed that Officers would be visiting their unit from 24.06.2013 to 28.06.2013. Even though such repeated audits had been conducted, the Show Cause Notice for the period from October 2008 to March 2013 was issued only on 28.03.2014 - In the present case, even if the Service Tax is paid as demanded by the Department, the appellant would be eligible to avail credit of the same. Thus, the situation is wholly a revenue neutral one. The extended period of limitation cannot be invoked alleging intention to evade payment of Service Tax when the entire transaction amounts to a revenue neutral situation - The demand raised invoking the extended period of limitation cannot sustain and requires to be set aside. Demand for the period post 01.07.2012 - HELD THAT - In the present case, the services of repair and maintenance are actually performed outside India. Section 66A applies only where the service is received in India. In this case, the Business Auxiliary Service, viz., providing customer care service on behalf of the appellant took place outside India. The same therefore cannot be taxable within India and hence, the demand post 01.07.2012 cannot sustain. Appeal allowed in part.
Issues Involved:
1. Taxability of services rendered by Overseas Distributors under Business Auxiliary Services. 2. Classification of warranty repair and maintenance services. 3. Invocation of extended period of limitation. 4. Taxability of services post 01.07.2012 under Place of Provision of Service Rules, 2012. Detailed Analysis: 1. Taxability of Services Rendered by Overseas Distributors under Business Auxiliary Services: The Department contended that the services rendered by Overseas Distributors, including handling warranty claims and monitoring repair and maintenance services, fall under Business Auxiliary Services as defined under Section 65 (19) of the Finance Act, 1994. The liability for Service Tax was shifted to the appellant under Section 66A of the Finance Act, 1994. The appellant argued that the demand is based solely on the amount paid to Overseas Distributors for warranty repairs and not for sales promotion or customer care services. The Tribunal found that the demand was raised only on the amount paid for warranty claims, and there was no evidence of payments for sales promotion or customer care services. 2. Classification of Warranty Repair and Maintenance Services: The appellant argued that warranty repair and maintenance services should be classified under Authorized Service Station services and not Business Auxiliary Services. The Tribunal observed that the warranty services rendered by the Overseas Distributors on behalf of the appellant do fall under 'customer care services' provided on behalf of the client, as per Sub-Clause (iii) of the definition of Business Auxiliary Services, and are taxable. 3. Invocation of Extended Period of Limitation: The appellant contended that the extended period of limitation should not be invoked as the situation is revenue neutral, and repeated audits by the Department did not raise this issue earlier. The Tribunal agreed, noting that the appellant would be eligible to avail credit of the Service Tax paid, making the situation revenue neutral. The Tribunal cited the jurisdictional High Court's decision in Commissioner of C.Ex., Chennai-IV Vs. M/s. Tenneco RC India Pvt. Ltd., which held that in a revenue-neutral situation, the allegation of willful suppression with the intent to evade duty cannot sustain. Therefore, the demand raised by invoking the extended period of limitation was set aside. 4. Taxability of Services Post 01.07.2012 under Place of Provision of Service Rules, 2012: The Tribunal examined the Place of Provision of Service Rules, 2012, particularly Rule 4, which deals with performance-based services. It was noted that the repair and maintenance services are performance-based and performed outside India. As per Rule 4, the location where the service is actually performed is considered the place of provision of service. Since the services were performed outside India, they are not taxable within India. Thus, the demand for the period post 01.07.2012 was set aside. Conclusion: 1. The demand beyond the normal period was set aside due to revenue neutrality. 2. The demand post 01.07.2012 was set aside as the services were performed outside India. 3. The appeals were allowed with the above directions. (Order pronounced in the open court on 14.06.2019)
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