SERVICE TAX ON AUTHORISED SERVICE STATION SERVICES - AN OVERVIEW

[Dr. Sanjiv Agarwal]

Service tax has been imposed on the services rendered by authorised service stations with effect from 16th July, 2001 vide Notification No. 4/2001-ST, dated 9th July, 2001. The gross amount charged by these service stations for services rendered to a customer in relation to motor car and two wheeled motor vehicles (including reimbursements received from manufacturer but excluding cost of parts/accessories sold) are chargeable to service tax. W.e.f. 1st July, 2003, light motor vehicle are also covered for service tax proposes. The service tax on authorised automobile service stations has been extended to service provided in relation to multi utility vehicles and light motor vehicles which was limited to authorised repair services in relation to motor car and two wheeled motor vehicle till 30th June, 2003. Further, definition of motor car has been incorporated in the Act to clarify any doubt about the scope of levy in the past.

Meaning of Authorised Service Station

Section 65(9) defines 'authorised service station' as under -

"authorised service station" means any service station, or centre, authorised by any motor vehicle manufacturer, to carry out any service, repair, reconditioning or restoration of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer.

As per Section 65(9), authorised service station has been defined to mean any service station or centre, authorised by any motor vehicle manufacturer to carry out any service or repair or restoration or reconditioning of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer.

Taxable Service

Section 65(105)(zo) of Finance Act, 1994 defines 'taxable service' as under —

"taxable service" means any service provided or to be provided to any person, by an authorised service station, in relation to any service or repairs, reconditioning or restoration of motor cars, light motor vehicles or two wheeled motor vehicles, in any manner.

As per Letter No. B.11/1/2001-TRU dated 9-7-2001 issued by CBEC, any service or repair provided by an authorised service station in relation to motor cars and two wheeled motor vehicles, will be covered in the ambit of service tax. Examples of taxable services include services provided during warranty period, subsequent services such as routine check of performance of engine and vehicle, engine tuning, engine oil check, gear oil check, wheel alignment, wheel balancing, clutch and brake adjustment, wheel rotation, cleaning/washing and any repairs undertaken. However, cost of parts and accessories supplied during course of repair and servicing of vehicle will not be includible in the taxable value. Such cost should be shown separately in the bill/invoice. In light of the amendments made by the Finance Act 2003, it also covers light motor vehicles w.e.f. 1st July 2003.

The basic tests for services provided by authorised service stations to be taxable are —

  (i)   it should be a service station/center.

(ii)   it must be authorised by motor vehicle manufacturer,

(iii)   the authorisation must be for carrying out any service, repairs, reconditioning or restoration of any motor car/two wheeled motor vehicle/light motor vehicle,

(iv)   the vehicle serviced or repaired or reconditioned or restored should be manufactured by such manufacturer,

(v)   the service must be provided or agreed to be provided to a customer (to any person w.e.f. 16-3-2008),

(vi)   service must be in relation to any service or repair or reconditioning or restoration of motor cars or two wheeled motor vehicles or light motor vehicle,

(vii)  car or two wheeled motor vehicle or light motor vehicle must be motor driven,

(viii) service may be provided in any manner.

The term 'any service' is very wide and would cover any type of service but only in relation to a motor car, a two wheeled motor vehicle or a light motor vehicle. The words 'in relation to' imply that the service should relate to specified vehicles and jobs of service or repairs. 'In any manner' would include all services rendered whether directly or indirectly or whose part of the services are rendered by some other agency.

Services of an authorised service station shall be taxable even if the vehicle serviced or repaired or restored or reconditioned is one which has not been manufactured by the manufacturer who has authorised the service station.

Taxable services rendered by authorized service stations in relation to motor cars or two-wheeled motor vehicles was covered under clause (zo) of section 65(105), while such taxable services performed in relation to light motor vehicles were covered under clause (zzj) of section 65(105). Amendments have been made by Finance Act, 2005 in clause (zo) so that taxable services rendered by authorized service stations in respect of motor cars, light motor vehicles or two-wheeled motor vehicles would now be taxable under this clause. Consequently, clause (zzj) has been omitted.

Scope of Taxable Services Extended by Finance Act, 2003

Extension of scope of taxable services of authorised service stations has been made by Finance Act, 2003. Accordingly, services provided by authorised service station shall also cover services rendered to multi utility vehicles. The extended scope shall be effective with effect from 1st July, 2003. As per Circular No. 59/8/2003 dated 20th June, 2003, the extended scope would include buses, trucks, maxi cabs etc.

Scope of Taxable Services extended by Finance Act, 2005

According to Finance Act, 2005 w.e.f. 16-6-2005, taxable services provided by authorised service stations will include reconditioning or restoration of motor cars, two wheeled vehicles and light motor vehicles. Thus, two new services have been added —

(i)   restoration of vehicles

(ii)  reconditioning of vehicles

Such services should be provided by authorised service station or centre only.

Prior to 16-6-2005, the definition of authorized service station covered only service or repair of motor cars, two-wheeled and light motor vehicles by service stations or centres authorized by the manufacturers. A number of motor vehicle manufacturers provide a scheme by which the old vehicles are sold to the customers after reconditioning or restoration. For this purpose, old vehicles are reconditioned or restored by such authorized service stations or centres. Such reconditioning or restoration of an old vehicle was not explicitly covered as a taxable service. Amendments were made to specifically include reconditioning or restoration of motor cars, two-wheeled and light motor vehicles carried out by the authorized service stations or centers under this service tax w.e.f. 16.6.2005. [CBEC Circular No. B1/6/2005-TRU dated 27.7.2005]

Replacement of 'customer' with any person' (w.e.f. 16.5.2008)

Finance Act 2008 has substituted the words 'any person' for the word 'customer' w.e.f. 16.5.2008 as the service tax is levied on service and status of recipient of taxable service should not determine the tax treatment of a given service.

Circular No. 96 dated 23.8.2007 clarifies that servicing of heavy vehicles like trucks, not being one of the specified categories of motor vehicles, is at present not covered within the scope of the said taxable service. Master Circular clarifies as follows —

036.01 / 23.08.07	Authorized dealers of motor vehicles provide to customers free servicing of motor vehicles without charging any amount as service charge from the customers. The vehicle manufacturer promises such a facility to attract customers and reimburses the service charges to the authorised dealers, who provide to customers free servicing of motor vehicles. However, as per agreement, consideration for the service provider is not directly paid by the customer but by the vehicle manufacturer. Whether such 'free services' given to the customer free of cost by the authorized dealers (for which they are reimbursed by the vehicle manufacturers) are liable to service tax under authorised service station service [section 65(105) (zo)]?	In this case, service is provided by an authorised service station to a customer and the service provider receives the consideration for the services provided from the manufacturer. Service tax is liable on the amount received from the vehicle manufacturer for the purpose of servicing of vehicles.
036.02 / 23.08.07	Whether servicing / repair of heavy vehicles like trucks by authorized service station is liable to service tax under section 65(105)(zo)?	Service tax is liable on services provided by an authorised service station to a customer in relation to service, repair, reconditioning or restoration of motorcars, light motor vehicles or two-wheeled motor vehicles [section 65(105)(zo)]. Thus, servicing of heavy vehicles like trucks, not being one of the specified categories of motor vehicles, is at present not covered within the scope of the said taxable service.
036.03 / 23.08.07	Whether spare parts sold by a service station during the servicing of vehicles is liable to payment of service tax? Whether exemption can be claimed on the cost of consumables that get consumed during the course of providing service?	Service tax is not leviable on a transaction treated as sale of goods and subjected to levy of sales tax / VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT / sales tax on a transaction indicates that the said transaction is treated as sale of goods. Any goods used in the course of providing service are to be treated as inputs used for providing the service and accordingly, cost of such inputs form integral part of the value of the taxable service. Where spare parts are used by a service station for servicing of vehicles, service tax should be levied on the entire bill, including the value of the spare parts, raised by the service provider, namely, service stations. However, the service provider is entitled to take input credit of excise duty paid on such parts or any goods used in providing the service wherein value of such goods has been included in the bill. The service provider is also entitled to take input credit of service tax paid on any taxable services used as input services for servicing of vehicles.

In Indus Motor Co. v. CCE, Bangalore (2008) 12 STT 112; (2008) 9 STR 18; (2007) 11 STJ 235 (Cestat, Bangalore) where authorized service station provided free services for vehicles sold by manufacturer and service tax was demanded for such free services, it was held that when a service was free, unless the revenue showed some evidence that assessee got reimbursement in some other guise, it would not be possible to confirm the demand which was based on assumptions and presumptions. Service tax can not be collected on the ground that such services are included in dealers margin by the manufacture. [Also see Kamal & Co. v. CCE, Jaipur (2007) 10 STJ 263; (2007) 10 STT 481 (CESTAT, New Delhi); Kiran Motors Ltd. v. CCE, Vadodara-II (2009) 15 STR 180 (Cestat, Ahmedabad)].

2008 -TMI - 3567 - CESTAT BANGALORE

In AVG Motors Ltd. v. CCE,, Kottayam (2008) 10 STR 20,(2008) 16 STT 170 (Cestat, Bangalore), where service tax was demanded on free service on the ground that reimbursement was obtained, it was held that service tax was not leviable for free services rendered by authorized agency for cars sold. The statements that 'cost of service rendered is actually hidden in the cost of vehicles itself' is based on assumptions and presumptions. When a service is free, it will not be possible to confirm the demand unless revenue shows some evidence that reimbursements were made in some other guise.

Person Liable

Every authorised service station or centre providing service to a customer in respect of motor car or two wheeled motor vehicle or light Motor vehicle shall be liable to pay service tax and be treated as an assessee for service tax purposes.

Discussions to this article

[M PraDHAN]

The spirit in Para 036.03 of circular 96 dt 23.8.07 is totally against the general exemption provided in notfn no 12/03. In my view a notification should prevail over a circular.

[Ramachandran and Ramachandran Associates Subramanian]

Whether Service Tax is payable on Free Service of Three-Wheelers ?