2014 (5) TMI 641 - AT - Central Excise

CENVAT Credit - Warranty charges - Denial of CENVAT Credit of Service Tax paid on bills/ invoices issued by M/s Jayshree Enterprise, Rajkot who were providing Maintenance and Repairing Services of Diesel Engines cleared by the Appellant within one year warranty period - Revenue contends that such repair & maintenance of engines during warranty period would not fall under the category of input service as the scope of the credit is restricted to the services used at factory premises and not beyond that point. - Penalty u/s 11AC. Held that - Appellants were engaged in the manufacture of electrical transformers and those were cleared on payment of duty. As per the terms of contract, the assessee was under obligation to repair and maintain the transformers during the warranty period free of charge. Those jobs of repair and maintenance were entrusted to third person who raised bills for repair and maintenance on assessee in turn the assessee took credit of Service Tax so paid. The issue was dealt with by the Tribunal which stands decided in favour of the assessee. In the present case before me the Appellant as per the terms of the warranty were under obligation to provide repair and maintenance service to their customer. Moreover it is an undisputed fact as apparent from the cost accountant s certificate for the respective years annexed with the appeal memo that the value of such services already stands included in the assessable value of the Diesel Engines. Transaction value means the price actually paid or which are payable for the goods when sold and those includes servicing and warranty also. Admittedly the service and warranty is post manufacturing expenses which are to be provided to the customer after sale. I therefore hold that the Appellant is entitled for credit of the Service Tax paid on expenses on such repair and maintenance during the warranty period, which is basically after sales charges and hold that the impugned orders disallowing credit are not sustainable. Issue of availment of credit was apparent from the records and the audits were conducted in the previous periods and no objections were raised. Secondly the issue involved is related to interpretation of term Input Services . In such view of the facts of this case, the demands raised against the Appellant by invoking extended period of limitation are not sustainable and apart from merits the same are set aside on the ground of limitation also. - Decided in favour of assessee.

Summary

Issues:
1. Eligibility of availing credit of Service Tax on warranty charges.
2. Scope of input service under Cenvat Credit Rules.
3. Allegations beyond the show cause notice.
4. Time-bar for raising objections and imposing penalties.

Issue 1: Eligibility of availing credit of Service Tax on warranty charges:
The case involved a dispute regarding the eligibility of availing credit of Service Tax on warranty charges paid for maintenance and repair services during the warranty period of diesel engines. The lower authorities denied the credit, stating that the warranty charges were not proven to be part of the value of goods cleared by the Appellant. However, the Appellant argued that since they bore the incidence of warranty charges, they were entitled to credit. The Tribunal found in favor of the Appellant, emphasizing that the warranty charges were related to goods within the warranty period and included in the value of goods. The Tribunal referred to relevant judgments and held that the Appellant was eligible for the credit based on the post-manufacturing nature of warranty charges.

Issue 2: Scope of input service under Cenvat Credit Rules:
The Appellant contended that the findings of the lower authorities exceeded the scope of the show cause notice, which alleged that the service tax credit on warranty charges was not an input service. The Tribunal agreed with the Appellant, noting that the lower authorities confirmed the demand based on lack of evidence regarding the inclusion of warranty charges in the value of goods. The Tribunal emphasized that the audit did not dispute the warranty period or the inclusion of charges in the goods' value, supporting the Appellant's claim for credit. The Tribunal held that the orders passed by the lower authorities were beyond the show cause notice's scope and set them aside.

Issue 3: Allegations beyond the show cause notice:
The Tribunal highlighted that the lower authorities failed to produce evidence that the warranty charges were not part of the goods' value and pertained to goods under the one-year warranty period. The Appellant demonstrated through contracts and records that the services provided by the service provider were indeed for goods within the warranty period, contrary to the lower authorities' findings. The Tribunal concluded that the lower authority's findings lacked a factual basis and supported the Appellant's claim for credit on warranty charges.

Issue 4: Time-bar for raising objections and imposing penalties:
The Appellant challenged the demand and penalties imposed on the grounds of time-bar, arguing that the issue was known to the department since 2004 without objections being raised during audits. The Tribunal agreed with the Appellant, stating that the demands raised beyond the limitation period were not sustainable. Additionally, the Tribunal set aside the penalties imposed under Section 11AC of the Central Excise Act, 1944, and Rule 15(1) of the Cenvat Credit Rules, 2004, considering the issue's interpretation related to input services.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential relief to the Appellant. The judgment emphasized the eligibility of availing credit on warranty charges, the scope of input service under Cenvat Credit Rules, objections beyond the show cause notice, and the time-bar for imposing penalties, providing a comprehensive analysis and legal interpretation of the issues involved in the case.