Service Tax payable under reverse charge when reimbursable expense incurred by distributor on providing service on behalf of taxable person

[CA Bimal Jain]

The CESTAT, Chandigarh in the case of M/S MARUTI SUZUKI INDIA LTD. VERSUS COMMISSIONER OF SERVICE TAX, DELHI - 2024 (4) TMI 724 - CESTAT CHANDIGARH partly allowed the appeal filed by setting aside the penalty and confirming the demand of tax, thereby holding that, Service Tax is payable under reverse charge when reimbursable expense incurred by distributor on providing service on behalf of the taxable person for business purpose under Business Auxiliary Services.

Facts:

M/s. Maruti Suzuki India Ltd. (“the Appellant”) is engaged in the manufacturing of motor vehicles and parts which are exported by the Appellant to the distributors/dealers in various countries with whom the Appellant has entered into several distributorship agreements (“Agreement”), wherein as per the agreement, the distributors are authorised to sell and distribute the vehicles manufactured by the Appellant.  Also, the distributors are providing after sales services to the customers relating to the products sold. As per the terms of the Agreement the distributor is required to fulfil the warranty claim during the warranty period to the overseas customers. The Appellant reimburses the various expense, including Export warranty, product recall charges and goodwill warranty incurred by the distributor.

The Revenue Department (“the Respondent”) initiated the proceedings against the Appellant claiming that the Service is payable under the Business Auxiliary Services (“BAS”) on account of the expense reimbursed to the foreign distributors under reverse charge mechanism. Further, the Show Cause Notice (“the SCN”) was issued and thereafter Order-in-Original dated January 11, 2011 (“the Impugned Order”), was passed by the Respondent against the Appellant, thereby confirming the demand of service tax along with the interest and penalty under Section 77 and Section 78 of the Finance Act, 1994, by invoking the extended period of limitation, thereby holding that, the services rendered by the foreign distributor qualify as BAS under sub-section (i), (ii), and (iii) of Section 65(19) of the Finance Act, 1994. However, the Appellant contended that the relation between the Appellant and the overseas distributors/dealers in on principal to principal basis and are authorised service stations, therefore, cannot be said to have rendered BAS Services.

Aggrieved by the Impugned Order passed, the Appellant filed an appeal before the Hon’ble CESTAT.

Issue:

Whether Service Tax is payable under reverse charge when reimbursable expense incurred by distributor on providing service on behalf of the taxable person?

Held:

The Hon’ble CESTAT, Chandigarh in M/S MARUTI SUZUKI INDIA LTD. VERSUS COMMISSIONER OF SERVICE TAX, DELHI - 2024 (4) TMI 724 - CESTAT CHANDIGARH held as under:

• Noted that, the free repairs provided to the customer during the warranty period undertaken by the dealer, is believed to be provided by the manufacturer of the car. The dealers/distributors are associated with the manufacturer. Also, it is presumed that the dealer/distributor is performing the work on the behalf of or as an agent of the manufacturer, which in the present case would be the Appellant.
• Further Noted that, as long as the overseas dealers/distributor are rendering some service on behalf of/on account of/ in connection with the business of the Appellant, they would take the role of the manufacturer/Appellant. Also, the overseas dealer/distributor is receiving the consideration for the same.
• Relying upon the judgement rendered by the CESTAT Chennai, in the case of M/S. HYUNDAI MOTOR INDIA PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX - 2019 (6) TMI 856 - CESTAT CHENNAI which was further affirmed by the Hon’ble Supreme Court in the case of COMMISSIONER VERSUS HYUNDAI MOTOR INDIA PVT. LTD. - 2020 (3) TMI 1101 - SC ORDER Opined that, overseas dealers/ distributors services would be categorized under BAS and thus, the appellants are required to pay service tax on Reverse Charge basis.
• Relying upon the judgement of CESTAT Delhi in the case of SUNSHINE STEEL INDUSTRIES VERSUS COMMISSIONER OF CGST, CUSTOMS & CENTRAL EXCISE JODHPUR (RAJ.) - 2023 (1) TMI 638 - CESTAT NEW DELHI, which has been further affirmed by the Hon’ble Supreme Court, the extended period cannot be invoked and therefore, the penalty should not be imposed in the present case.
• Held that, Impugned Order is modified to the extent that the demand of tax is confirmed. However, the penalty payable is set aside. Hence, the appeal is partly allowed.

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