2018 (5) TMI 716 - AT - Service Tax

Levy of service tax - cost of spare parts used while rendering the warranty as well as extended warranty service - Held that - the spare parts have in fact been sold on payment of VAT. Consequently, the cost of spare parts cannot be included for purposes of levy of service tax. Such demand of service tax is not justified and hence are set aside. Amounts recovered by way of extended warranty premium - Held that - The extended warranty premium amounts are liable to payment of service tax under the appropriate category of service - it stands submitted that the service tax demand thereon has been paid by the manufacturers of motor vehicles to whom such premium has been transferred - demand do not sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Service tax on amounts received by dealers from manufacturers for spares used during warranty and extended warranty service; Service tax on extended warranty premium collected by dealers from buyers.

Analysis:
The appeals dealt with the issue of service tax demands raised by the Revenue on amounts received by authorized dealers from manufacturers for spares used during warranty and extended warranty service. The dealers, authorized by manufacturers like Maruti Suzuki India Ltd. and Hyundai Motor India Pvt. Ltd., provided services during the warranty period, with costs and spares reimbursed by the manufacturers. The extended warranty premium collected from buyers was remitted to manufacturers. The department issued show cause notices, alleging service tax liability on these amounts. The authorized dealers contended that the spare parts were sold with VAT paid, hence excluding them from service tax. They argued that the extended warranty premium was already subject to service tax paid by the manufacturers.

Upon hearing both sides and examining sample invoices, the Tribunal found that spare parts were indeed sold with VAT paid, leading to the exclusion of spare parts costs from service tax. The Tribunal determined that the service tax demand on spare parts was unjustified and set it aside. Regarding the extended warranty premium amounts, the Tribunal noted that these were not reimbursements for spare parts by the manufacturers, as the manufacturers had already paid service tax on the premium amounts. Consequently, the Tribunal found no basis for demanding service tax on the extended warranty premium and set aside this demand as well.

In conclusion, the impugned orders were set aside, and the appeals were allowed with any consequential relief. The Tribunal's decision clarified that spare parts costs during warranty and extended warranty service were not subject to service tax, given the VAT payments made by the dealers. Additionally, the Tribunal found no grounds to impose service tax on extended warranty premium amounts, as the manufacturers had already paid the applicable service tax on these premiums.