2023 (6) TMI 698 - AT - Service Tax

Taxability - Business auxiliary service - extended warranty service - finance documentation charges - commission on insurance policies sold to customers - registration of cars during the period in dispute. Extended Warranty Service - HELD THAT - There is no dispute that though the scheme is marketed by the appellant, the entire proceeds are remitted to the principal, M/s Maruti Udyog Ltd, and no part of the payment was being retained by the appellant; neither was the appellant in receipt of any payment for performance of additional servicing on cars purchased by customers. Tax on consideration for business auxiliary service , as defined in section 65(19) of Finance Act, 1994, is predicated upon rendering of service on behalf of client who becomes obliged to recompense provider of the service and absence of even one element in the intermeshed transaction precludes coverage thereunder. That the appellant undertakes any warranty-related handling of vehicles at the instance of M/s Maruti Udyog Ltd will not, of itself, establish that taxable service under section 65(105)(zzb) of Finance Act, 1994 had been rendered. Hon ble Supreme Court in COMMISSIONER OF CGST AND CENTRAL EXCISE VERSUS M/S EDELWEISS FINANCIAL SERVICES LTD. 2023 (4) TMI 170 - SC ORDER approved that a transaction involving the purchaser of car, as recipient of extended warranty , making payment to the principal of the appellant without any part thereof flowing to the appellant, is not intended to be taxed. Consequently, pass through of charges extended warranty service is not consideration for taxable service. Car registration charges - HELD THAT - The decision of the Tribunal in TOYOTA LAKOZY AUTO PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX/CENTRAL EXCISE MUMBAI -II / MUMBAI - V 2016 (12) TMI 541 - CESTAT MUMBAI , on similar set of facts held that the Service Tax liability confirmed under Business Auxiliary Service for the amount of RTO registration fees is set aside. Furthermore, registration of vehicles is a sovereign responsibility devolving on state governments and the authority to tax such amount, either in full or part, under section 65(105)(zzb) is predicated upon such agency function being entrusted to them by the motor vehicles department. There is no evidence of either such contract or of authorization to undertake responsibility for registration; it is nothing more than a facilitation offered by the appellant to vehicle purchaser which does not suffice for resort to tax under section 65(105)(zzb) of Finance Act, 1994. Amount received as commission for securing insurance policies of vehicles sold by appellant - HELD THAT - The policies are issued by insurance companies to purchaser of cars and, from the records, it appears that it is neither M/s Maruti Udyog Limited, whose dealer the appellant is, nor the appellant who offers such service. There is also no evidence of ostensible arrangement of appellant with the insurance company or of any direct payment to the appellant for sale of such policies. That M/s Maruti Udyog Limited, who may have had an arrangement with the insurance company and chose to part with some of the commission received therefrom to dealers, did incentivize sale of policies by the appellant does not, in the absence of contractual agreement between insurer and dealer, justify the finding of taxable service , envisaged by section 65(105)(zzb) of Finance Act, 1994, having been rendered. All the three components of the demand, as upheld by first appellate authority, suffers from infirmity of not being consistent with definition of taxable service and, accordingly, set aside the impugned order to allow the appeal - Appeal allowed.

Summary

Issues involved: Taxability of 'business auxiliary service' activities under section 65(105)(zzb) of Finance Act, 1994.

The judgment in the appeal of M/s Shantesha Motors Pvt Ltd involved a dispute regarding the demand of Rs. 6,52,521 allegedly received for rendering 'business auxiliary service' between July 2003 and March 2006. The appellate proceedings concluded with the confirmation of Rs. 3,17,161 as taxable under section 65(105)(zzb) of Finance Act, 1994.

The appellant, an authorized dealer of M/s Maruti Udyog Ltd, faced the recovery demand arising from non-discharge of tax liability on various activities, including 'extended warranty service', finance documentation charges, commission on insurance policies, and charges for registration of cars. The demand for 'business auxiliary service' was confirmed, penalties were imposed, and the appellant challenged the demand before the Tribunal.

The first appellate authority set aside the penalty under section 76 of Finance Act, 1994 but upheld the demand on certain activities mentioned in the show cause notice. The appellant contended that the notice was not tenable as specific enumeration within section 65(19) of Finance Act, 1994 for each activity was lacking, and argued based on precedents and legal interpretations to challenge the taxability of the activities.

The Tribunal examined the charges for registration of new vehicles, commission on insurance policies, and 'extended warranty service'. The appellant's counsel argued against taxability under section 65(105)(zzb) for these activities, citing legal precedents and interpretations to support their contentions. The authorized representative defended the impugned order, justifying the tax demands on the activities in question.

Regarding 'extended warranty', the Tribunal emphasized the absence of consideration flowing to the appellant from the purchasers, leading to the conclusion that the pass-through charges did not constitute taxable service. Similarly, on 'car registration charges', the Tribunal referred to precedents to support the view that such facilitation services did not fall under 'business auxiliary service' for taxability.

The commission received for securing insurance policies was also contested, with the Tribunal finding no contractual arrangement or direct payment to the appellant, thereby negating the taxability under 'business auxiliary service'. Ultimately, the Tribunal set aside the impugned order, ruling that the demand did not align with the definition of 'taxable service'.

In conclusion, the Tribunal pronounced the judgment on 09/06/2023, setting aside the impugned order to allow the appeal.