2023 (7) TMI 50 - AT - Central Excise

Recovery of CENVAT credit - input services - after-sale services - repair and maintenance for the products covered under warranty on a free of cost basis - whether the consideration received for those warranty services was part of transaction value? - extended period of limitation - HELD THAT - This Tribunal in the case of M/S PIPAVAV SHIPYARD LTD. VERSUS COMMISSIONER, CENTRAL EXCISE SERVICE TAX, BHAAVNAGAR 2015 (8) TMI 58 - CESTAT AHMEDABAD has interpreted Rule 2(l)(i) of the Rules, observing that the expression any service read with for providing an output service would cover wide encompass of the definition of input service. All taxable services without which the providing of output service/manufacture of final products would be impossible or commercially inexpedient, would be covered herein - thus any service, which either has any nexus to the activity of manufacturing or if it is in relation to the business of manufacture of goods would get covered under the definition of input service - It is also observed that the value of such service is included in their assessable value, it follows that the credit thereon is admissible as per intent of Cenvat Credit Scheme. Thus service in question of providing warranty and after sales services is the input service eligible for Cenvat. Whether the warranty charges forms part of the assessable value of the final product on which Central Excise duty is paid by the Noticee? - HELD THAT - As already observed that the cost of the disputed services forms part of the assessable value of the final products and on same applicable service tax has already been discharged as and when due. The Hon'ble Supreme Court in UNION OF INDIA ORS. ETC., ETC. VERSUS BOMBAY TYRE INTERNATIONAL LTD. ETC., ETC. 1983 (10) TMI 51 - SUPREME COURT , has held that all the elements which enrich the value of the excisable goods and contribute to its marketability, must form part of the manufacturing cost of the goods. The intent of Cenvat Credit scheme is to reduce the cascading effect of taxes by preventing the build-up of taxes in the cost of products. Therefore, a manufacturer should be entitled to avail Cenvat credit of Service Tax paid on all those services, the cost of which is getting included in the assessable value of the final product. By not allowing the Cenvat Credit on such services would be against the intent of Cenvat Credit scheme - the Cenvat credit in relation to warranty services, value whereof is included in the assessable value of final product is available to the appellant as it contributes to the marketability of the product. Extended period of limitation - HELD THAT - All the facts in the present case were in the knowledge of the Department as the appellant had regularly filed the statutory returns and the Department had conducted audits of the appellant on a regular basis. The appellant always co-operated with the Department in their proceedings and had always provided the details asked for by the Department. It is settled law that extended period cannot be invoked when the department was aware of all the facts - thus, extended period has wrongly been invoked by the department while issuing the show cause notice. The issue/s as framed stand decided in favour of the appellant - Appeal allowed.

Summary

Issues Involved:
1. Whether the after-sale services provided by the Authorized Engineers on behalf of the appellant to their customers qualify as input services.
2. Whether the consideration received for those warranty services was part of the transaction value.
3. Whether the extended period of limitation under Section 11A is invocable.

Summary:

Issue 1: Input Services Qualification
The appellant argued that the repair and maintenance services provided under warranty by Authorized Engineers qualify as input services. They relied on the definition of "input service" under Rule 2(l) of the Credit Rules, which includes any service used directly or indirectly in the manufacture and clearance of final products up to the place of removal. They cited precedents like M/s. Samsung India Electronics Pvt. Ltd. and Carrier Air-conditioning & Refrigeration Ltd., where warranty services were considered part of the transaction value and thus eligible for Cenvat credit.

The Tribunal observed that the definition of "input service" includes services used directly or indirectly in the manufacture and clearance of final products. The Tribunal referred to the Supreme Court's judgment in Collector of Central Excise Vs. Rajasthan State Chemical Works, which broadened the scope of "in relation to manufacture." They concluded that services integral to the manufacture or marketability of goods qualify as input services. Thus, the warranty and after-sales services provided by the appellant are eligible for Cenvat credit.

Issue 2: Transaction Value Inclusion
The Tribunal examined whether the warranty charges form part of the assessable value of the final product. They referred to the Supreme Court's judgment in Union of India v. Bombay Tyres International, which held that all elements enriching the value and marketability of goods must be included in the manufacturing cost. They also cited Collector of Central Excise, Chandigarh v. Eicher Tractors Ltd., which included warranty charges in the assessable value. The Tribunal concluded that since the cost of warranty services is included in the assessable value, Cenvat credit on such services is admissible.

Issue 3: Extended Period of Limitation
The appellant contended that the extended period of limitation under Section 11A is not invocable, citing Pushpam Pharmaceuticals Company Vs. Collector of Central Excise, Bombay, where the Supreme Court held that suppression of facts must be deliberate to evade duty. The Tribunal noted that the appellant had regularly filed statutory returns and cooperated with departmental audits, indicating no deliberate suppression. They cited Anand Nishikawa Co. Ltd. v. CCE, which held that mere failure to declare does not amount to willful suppression. Thus, the Tribunal held that the extended period was wrongly invoked.

Conclusion:
The Tribunal decided in favor of the appellant, concluding that the after-sale services qualify as input services, the warranty charges form part of the transaction value, and the extended period of limitation was wrongly invoked. Consequently, the order under challenge was set aside, and the appeal was allowed.