2013 (12) TMI 911 - AT - Service Tax

Demand of service tax - Free Warranty Service - Held that - There are different provisions and various decisions which confirm the position that the value of spare parts used while providing Free Warranty Service to motor vehicles cannot form part of value of service on which service tax has been paid. One such case is already cited by the applicant - Free Warranty Service the service is free to the customer but is billed to the manufacturer of the motor vehicle. So also the spare parts replaced is free to the customer but billed to the manufacturer. The applicant s submission that this fact is proved from debit notes is not considered by the adjudicating authority. Therefore, we grant waiver of pre-deposit of dues arising from the impugned order and there shall be stay of collection of such dues during the pendency of the appeal - Stay granted.

Summary

Issues:
1. Whether service tax should be paid on the cost of spare parts used during "Free Warranty Service" provided by an authorized dealer of two wheelers.

Analysis:
1. The case involved an authorized dealer of a two-wheeler manufacturer providing "Free Warranty Service" to buyers, where the dealer received reimbursement for the cost of spare parts replaced during the service. The dealer paid service tax only on the labor portion and not on the cost of spare parts. The Revenue contended that service tax should be paid on the value inclusive of spare parts used. A show-cause notice was issued for non-payment of service tax during 2005-06 to 2009-10. The Tribunal considered the argument that service tax cannot be demanded on goods used during free warranty service, citing a previous decision in a similar case.

2. The authorized representative for the Revenue argued that since there was no proper invoice showing the sale of spare parts to the manufacturer, the exemption under Notification No.12/2003-ST for sale of goods in the course of providing service could not be claimed. The representative claimed that without evidence of sale, the value of spare parts cannot be separated from the value of service provided.

3. After considering both sides, the Tribunal noted that various provisions and decisions supported the position that the value of spare parts used during "Free Warranty Service" should not be included in the value of service for service tax purposes. The Tribunal acknowledged the case cited by the applicant and concluded that the spare parts replaced during the service were billed to the manufacturer, not the customer, indicating that the service and spare parts were provided free to the customer but billed to the manufacturer.

4. The Tribunal found that the dealer's submission regarding the billing process was not considered by the adjudicating authority. Therefore, the Tribunal granted a waiver of pre-deposit of dues from the impugned order and ordered a stay on the collection of such dues during the appeal process. The judgment was dictated and pronounced in open court by the Tribunal.