2023 (8) TMI 409 - AT - Service Tax

Classification of services - Repairs to Vehicle service or Works Contract - extended warranty plans - HELD THAT - 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. VAT and Service tax are mutually exclusive levies. The present demand has sought to subject the entire value to service tax, despite the fact that the spare parts were subjected to VAT - Without prejudice, the Appellant is entitled to claim deduction on the value of goods and materials in terms of Notification No. 12/2003 ST dated 20.06.2003 - Cum-tax benefit ought to be extended to the Appellant. - There can be no interest liability and penalty fastened on the Appellant. Appeal allowed.

Summary

Issues:
The issues involved in the judgment are the liability of the appellant to pay service tax on extended warranty plans provided to customers for cars manufactured by them, the applicability of service tax on composite contracts for maintenance and repair of vehicles, the exclusion of repairs and maintenance of vehicles under the works contract definition, the claim for deduction on the value of goods and materials, the time-barred nature of the demand, and the imposition of interest and penalty on the appellant.

Extended Warranty Plans Taxability:
The appellant extended factory warranty to customers for two years from the sale of cars and offered optional extended warranty plans. The department contended that the appellant was a service provider to the ultimate buyers of cars, attracting service tax liability. The appellant argued that service tax is not leviable on composite contracts for maintenance and repair of vehicles up to July 2012. The plans offered by the appellant involved both goods and services, constituting a works contract. The issue revolved around the taxability of such contracts for the specified period.

Works Contract Taxability:
The appellant contended that the extended warranty plans should not be taxed under the "Repairs to Vehicle" service but as a works contract. The definition of works contract under the Finance Act was crucial in determining the taxability of the services provided by the appellant. The appellant highlighted the changes in service tax provisions over time and the applicability of service tax to repair and maintenance services of movable properties post-July 2012.

VAT and Service Tax Exclusivity:
The appellant argued that VAT and service tax are mutually exclusive levies, and the demand sought to subject the entire value to service tax despite spare parts being subjected to VAT. This raised concerns regarding the proper taxation treatment of the goods and services involved in the extended warranty plans.

Deduction Claim and Cum-tax Benefit:
The appellant claimed entitlement to deduction on the value of goods and materials as per Notification No. 12/2003 - ST dated 20.06.2003. Additionally, the appellant sought the extension of cum-tax benefit, emphasizing the need for appropriate tax treatment in line with the relevant notifications and provisions.

Time-Barred Demand, Interest, and Penalty:
The appellant argued that the demand of Rs.3,03,65,844/- was time-barred, and there should be no liability for interest or penalty imposed on them. These aspects were crucial in determining the financial obligations of the appellant and the legality of imposing additional charges on the disputed amount.

Conclusion:
The Tribunal concluded that the issues raised by the appellant regarding the pre-July 2012 period were no longer relevant as the taxability of composite contracts for repair and maintenance of motor vehicles changed post-July 2012. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant. The appellant was deemed eligible for any consequential relief as per the law.