2023 (8) TMI 408 - AT - Service Tax

Classification of services - service rendered during the warranty period will be liable to tax under Repairs to Vehicle service as per Section 106(65)(zo) which was introduced from 16/07/2001 or as a Works Contract - period from April 2011 to March 2012 - violation of provisions of section 67 and 68 of the Finance Act, 1994 r/w Rule 7 of Service Tax Rules, 1994 - HELD THAT - The demand of service tax is on the amount claimed by the appellant towards reimbursement of parts from the manufacturer which are replaced during repair and for servicing. A contract which has both the elements of goods and service is a works contract. Hon ble Apex Court in COMMISSIONER, CENTRAL EXCISE CUSTOMS VERSUS M/S LARSEN TOUBRO LTD. AND OTHERS 2015 (8) TMI 749 - SUPREME COURT , held that Works Contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such and has to be taxed separately as such. Hence the impugned service has to be examined as a works contract with respect to its taxability. After the insertion of section 65B(54) in the Finance Act 1994, from 01.07.2012 onwards, the definition of works contract was expanded to include repair and maintenance services of movable properties also. Hence, the composite contracts for repair and maintenance of motor vehicles are leviable to service tax from 01.07.2012 onwards. The demand in the impugned order pertains to the period from April 2011 to March 2012. Since it is held that the composite contracts for repair and maintenance of motor vehicles are leviable to service tax from 01.07.2012 onwards, the demand does not sustain. Appeal allowed.

Summary

Issues:
The issues involved in this case are the liability to pay service tax on reimbursement of spares replaced during the warranty period and the taxability of service rendered during the warranty period as a 'Repairs to Vehicle' service or a 'Works Contract'.

Reimbursement of Spares Replaced During Warranty Period:
The appellant, a service provider registered with the Service Tax Department, received reimbursement of the cost of spares replaced during the warranty period from the manufacturer. The department alleged that the reimbursement should be included in the taxable value for payment of service tax. The appellant contended that such reimbursements cannot be subjected to service tax based on legal precedents. The appellant argued that since the spare parts used during warranty were subject to VAT, they should not be included for the levy of service tax. The Tribunal, after considering the legal position and precedents, held that the composite contracts for repair and maintenance of motor vehicles are liable to service tax only from 01.07.2012 onwards. Therefore, the demand for service tax for the period from April 2011 to March 2012 was not sustainable.

Taxability of Service Rendered During Warranty Period:
The question arose whether the service rendered during the warranty period should be taxed as a 'Repairs to Vehicle' service or a 'Works Contract'. The appellant claimed that any reimbursement of expenses during the relevant period should not be subject to service tax based on legal judgments. The Tribunal examined the legal provisions under the Finance Act 1994 and noted that the definition of 'works contract' was expanded to include repair and maintenance services of movable properties from 01.07.2012 onwards. The Tribunal held that the demand for service tax for the period in question did not stand, as the composite contracts for repair and maintenance of motor vehicles became liable for service tax only from 01.07.2012 onwards.

Conclusion:
The Tribunal set aside the impugned order, ruling in favor of the appellant. The appeal was allowed, and the appellant was deemed eligible for consequential relief as per the law. The decision was pronounced in open court on 8.8.2023.