2023 (5) TMI 1154 - AT - Service Tax

Levy of Service tax - selling passenger cars and also provide free services to their customers during warranty period - cost of materials/spares reimbursed by M/s. TATA Motors - cost of spares and accessories reimbursed for free services provided during the warranty period has to be included in the taxable value or not. HELD THAT - The department has relied upon Rule 5 (1) service tax (determination of value 2006) which reads wherein expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable services provided or to be provided and shall be included in the value for the purpose of charging service tax on the said notification . This Rule was under consideration before the Hon ble Supreme Court in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT and it was held that reimbursable expenses cannot be included in the taxable value. The period involved is prior to the amendment of Section 67 of the Finance Act, 1994. The very same issue as to whether the cost of spares and material used for free services during warranty period has to be included in the taxable value or not was considered by the Tribunal in the case of ABT LTD. VERSUS CCE, COIMBATORE, CHANDRA AUTOMOBILE INDIA PVT. LTD. AND SREE SARADHAMBAL AUTOMOBILES P. LTD. 2018 (5) TMI 716 - CESTAT CHENNAI and it was held that the cost of spare parts cannot be included for purposes of levy of service tax. Such demand of service tax is not justified and hence are set aside. The demand cannot sustain - Appeal allowed.

Summary

Issues involved:
The issue involved in this case is whether the cost of spares and accessories reimbursed for free services provided during the warranty period should be included in the taxable value for service tax assessment.

Comprehensive Details:

Issue 1: Taxable value determination
The appellants, authorized dealers of M/s. TATA Motors, provided free services during the warranty period, with expenses reimbursed by the manufacturer. The Department contended that the cost of spares/materials used for free services should be included in the taxable value. The appellant argued that as the spares were sold to customers and VAT was paid on them, they should not be subject to service tax. The Tribunal referred to previous decisions and held that reimbursable expenses cannot be included in the taxable value, as per Rule 5(1) of the service tax determination of value 2006. The demand for service tax was set aside based on this reasoning.

Issue 2: Limitation ground
The appellant raised the ground of limitation, arguing that the show cause notice was issued beyond the statutory time limit. They contended that there was no evidence of suppression of facts to warrant invoking the extended period for issuing the notice. The Tribunal found merit in this argument, noting that the demand was based on properly accounted transactions and there was no evidence of suppression. Consequently, the appeal was allowed on this ground as well.

Separate Judgement:
A separate judgment was delivered by the Tribunal, setting aside the impugned order and allowing the appeal with consequential reliefs. The decision was based on the interpretation of relevant rules and previous tribunal decisions, determining that the cost of spares and accessories reimbursed for free services during the warranty period should not be included in the taxable value for service tax assessment.

(Order pronounced in the open court on 26.05.2023)