2024 (1) TMI 679 - AT - Service Tax

Levy of service tax - Management, Maintenance or Repair Service - providing services to the customers during warranty period through third party arrangement - compensation received from OEMs on replacement of defective parts - invocation of Extended period of limitation - penalty. Service provided by the appellant during the warranty period - HELD THAT - There are no merit inasmuch as in the absence of consideration for providing any service, the determination of value in terms of Rule 3 holding such value being not ascertainable be determined in the manner provided under clause (a) or clause (b) of the said sub-rule is fallacious and misunderstanding of the very concept of levy of service tax. It is an incorrect approach of the adjudicating authority that the consideration be determined by resorting to valuation when no such consideration is received from the customers for providing services during warranty period. It is not the case of the department that the Appellant though received value of the services but the same could not be quantified or ascertained, hence resort to the method of valuation becomes necessary. It is a case of non-receipt of any consideration for the service rendered - Since no consideration has been received the service provided by the appellant during the warranty period, hence confirmation of service tax under the taxable service of Management, Maintenance or Repair cannot be sustained. Compensation received by the appellant from the OEMs during the relevant period on the defective parts replaced by them from their stock warehouse on the advice of the service engineers during the course of repair of equipment during the warranty period - HELD THAT - The issue is no more res integra and covered by the judgement of this Tribunal in the case of M/S. T.A.F.E ACCESS LTD. VERSUS COMMISSIONER OF GST CENTRAL EXCISE, COIMBATORE 2023 (5) TMI 1154 - CESTAT CHENNAI . In the said case, the Tribunal, following the principle laid by the Hon ble Supreme Court in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT , held that reimbursable expenses cannot be included in the taxable value. Following the said judgment and the principles laid down by the Supreme Court, the confirmation of demand of service tax Rs.5,78,742/- on reimbursement of cost of defective parts replaced during the warranty period cannot be sustained. The impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Service tax liability for services provided during the warranty period.
2. Applicability of service tax on compensation received from OEMs for defective parts replacement.
3. Sustainability of demands raised for the extended period and imposition of penalties.

Summary:

Issue 1: Service tax liability for services provided during the warranty period

The appellant, engaged in manufacturing, trading, and servicing computer systems, provided free services during the warranty period and paid service tax for AMC services. The Department issued show-cause notices for recovery of service tax for services rendered during the warranty period, arguing that the cost of replaced defective components should be considered under Rule 3 of the Service Tax (Determination of Value) Rules, 2006. The appellant contended that no service tax is applicable as no consideration was received during the warranty period. The Tribunal agreed with the appellant, citing that in the absence of any consideration, service tax cannot be levied. The Tribunal referenced the Supreme Court's judgment in CGST&CE Vs. Edelweiss Financial Services, emphasizing that service tax requires consideration, which was absent in this case.

Issue 2: Applicability of service tax on compensation received from OEMs for defective parts replacement

The Commissioner confirmed a demand of Rs.5,78,742/- on the compensation received from OEMs for defective parts replaced during the warranty period. The Tribunal, referencing the case of TAFE Access Limited Vs. CGST&CE and the Supreme Court's ruling in UOI Vs. Intercontinental Consultants and Technocrats Pvt. Ltd., held that reimbursable expenses cannot be included in the taxable value. Therefore, the demand for service tax on the compensation received from OEMs was set aside.

Issue 3: Sustainability of demands raised for the extended period and imposition of penalties

The appellant argued that the extended period of limitation cannot be invoked as there was no suppression of material facts with intent to evade tax. The Tribunal did not find merit in the Department's approach to include the cost of defective parts in the taxable value in the absence of consideration. Consequently, the demands raised for the extended period and the penalties imposed were not sustainable.

Conclusion:

The impugned orders were set aside, and the appeals were allowed with consequential reliefs as per law. The Tribunal emphasized the necessity of consideration for levying service tax and rejected the Department's valuation approach in the absence of consideration.