2021 (4) TMI 1004 - AT - Service Tax

CENVAT Credit - rendering free service and warranty labour charges - appellant has not paid any service tax on the said taxable service and the appellant has also not maintained separate accounts of input services utilized for providing exempted services - HELD THAT - The cost of these services are included in the cost of the product accounted at sales showroom and VAT has been paid at the time of sale of the vehicle which is cleared from the cenvat reversal at sales showroom under Rule 6(3A) - learned Commissioner neglected the facts that the income accounted in the Books of Account are through notional entries and these costs are included in the cost of product as confirmed in the refund order. The confirmation of demand of ₹ 23,725/- under Rule 6(3)(i) of Cenvat Credit Rules, 2004 is not sustainable in law - appeal allowed - decided in favor of appellant.

Summary

Issues: Liability to pay service tax on free service and warranty labor charges, compliance with Cenvat Credit Rules, 2004, applicability of penalties.

The judgment pertains to an appeal against an order confirming a demand of ?23,725 under Rule 6(3)(i) of Cenvat Credit Rules, 2004 with interest. The appellant, an Authorized Service Station, was alleged to be providing taxable services without paying service tax and not maintaining separate accounts for input services used for exempted services. Four show-cause notices were issued, and the demand was upheld by the original authority with a penalty of ?2,000. The appellant's appeal to the Commissioner was rejected, leading to the present appeal before the Tribunal.

The main issue in question was whether the appellant was obligated to pay service tax on free services and warranty labor provided without any consideration. The Department contended that the appellant should reverse a percentage of the value of exempted services, which the appellant had allegedly failed to do.

The appellant argued that they did not receive any income for the free services and warranty labor, as these were provided without charges and without reimbursement to the dealers. They highlighted that the costs of these services were included in the product's cost at the sales showroom, where VAT had been paid. The appellant also pointed out that the income accounted for in the Books of Account was through notional entries and that the Department had previously confirmed that the net income was zero in a similar case. Additionally, previous orders from the Department and the Commissioner (Appeals) had ruled in favor of the appellant, stating that no service tax was due on free services and warranty labor. The Tribunal, considering these factors and the lack of appeal by the Department against the finalized order, found the demand unsustainable in law and allowed the appeal, setting aside the demand of ?23,725.

In conclusion, the Tribunal found in favor of the appellant, ruling that the demand under Rule 6(3)(i) of Cenvat Credit Rules, 2004 was not justified, given the circumstances and precedents cited by the appellant. The appeal was allowed, and the demand was set aside.