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TMI Blog2019 (5) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... d that if VAT is payable by HP, then such amount payable shall clearly be indicated in Foxteq s invoice to HP and further, that the appellant must not invoice HP for any other taxes. The payment by HP to appellant is also made on receipt of the invoices. The decision of the adjudicating authorities holding that the impugned activities of the appellant would fall within the mischief of Section 65(19)(iv) of the Finance Act, 1994 and that they would be required to discharge service tax liability under that category on the value of the amounts received thereon, cannot be sustained. Appeal disposed off. - Service Tax Misc. Application No. 41380 of 2017, 41379/2017, 41096/2017, 41356 to 41358/2017 In Service Tax Appeal No. 84 of 2010, 381/2010, 612/2010, 648 to 650/2011 - FINAL ORDER NOS. 40694-40699/2019 - Dated:- 29-4-2019 - MS. SULEKHA BEEVI C.S., MEMBER (JUDICIAL) And MR. MADHU MOHAN DAMODHAR, MEMBER(TECHNICAL) Shri. N. Venkataraman, Senior Advocate, Ms. Cynduja Crishnan, Advocate for the Appellant Shri. S. Govindarajan, Authorized Representative for the Respondent ORDER PER BENCH : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl. No Appeal No. SCN No. Dt. Order-in-Original No. Dt. Period of dispute Amount involved (in Rs.) Penalty 1. ST/84/2010 128/2008 dt. 23.04.2008 59/2009 dt. 22.10.2009 March 2006 to January 2008 2,03,97,252/- Under Section 76 78 2. ST/381/2010 68/2009 dt. 20.03.2009 04/2010 dt. 25.03.2010 February 2008 to September 2008 50,47,451/- Under Section 76 3. ST/648/2011 82/2010 dt. 05.04.2010 47-49/2011 dt. 29.09.2011 October 2008 to July 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity carried out falls under procurement of goods or service on behalf of the client under Business Auxiliary Service. Hence, Appeal No. ST/612/2010. 3. Today when the matter came up for hearing, on behalf of the appellants, Ld. Senior Advocate Shri. N. Venkataraman assisted by Ld. Advocate Ms. Cynduja Crishnan, made oral and written submissions which can be broadly summarized as under : (i) The appellants had entered into a contract with HP, a renowned Multi-National Company for the sale of spares and accessories in course of rendition of warranty/after-sales service by Redington India. In other words, the commercial obligation which is two-fold is being contracted by HP with two different entities, i.e., the appellants and Redington India. HP had entered into a contract with Redington for warranty/after-sales service which involves two components viz., rendition of service and usage of parts in the course of rendition of service. The obligation on the part of the appellant is to sell the spares, components and accessories to HP and to hand over the same to Redington on the instructions of HP as per the terms of the contract. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction which has suffered sales tax cannot now be treated as a transaction of service. The Hon ble Apex Court in the case of M/s. Imagic Creative Pvt. Ltd. Vs. Commissioner of Commercial Taxes 2008 (9) S.T.R. 337 (S.C.) has categorically held that sales tax and service tax are mutually exclusive. The Hon ble Apex Court in the case of M/s. Bharat Sanchar Nigam Ltd. Vs. Union of India 2006 (2) S.T.R. 161 (S.C.) reversed the decision of the Hon ble High Court of Kerala that a transaction of sale can also be a service. (vii) The agreement of the appellant with HP is to provider part support service only i.e., supply of parts and accessories on sale of HP products. Referring to the agreement, Ld. Counsel submitted that the authorities below have been carried away by the words used in the agreement without going into the substance of the agreement itself and have thus erroneously held that the appellants have provided services to HP. The relationship between the appellants and HP is one of a seller and a buyer and not that of a service provider and a service recipient. Even though the word service is used in the agreement, in effect, it was mere supply of par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax return for the month of August 2010 is also appended. Annexure-II of the return refers to the details of sale/transfer during the month of August 2010. Sl. No. 3 refers to the tax invoice No. FSI10-008 dated 31.08.2010 wherein there is a clear indication of sale value as ₹ 26,80,862.17. Tax rate at 4% and the VAT amount paid is ₹ 1,07,234.49/- (totalling to ₹ 27,88,096.66/-) i. Sum indicated in the sales tax return is in rupees and the grand total in the tax invoices refer to ₹ 27,88,096.66/- and the annexure to the tax invoices show the break up towards tax as ₹ 1,07,234.49/-. (xii) Ld. Senior Advocate has also argued that the proceedings are barred by limitation. He has submitted the following : a. In response to a spot memo dated 19.10.2006, the noticees replied by submitting that the obligation is only to sell parts which activity is not a service. Reliance was also placed on the decision rendered by the Hon ble Supreme Court in the Case of M/s. Bharat Sanchar Nigam Ltd. (supra). b. Vide communication dated 20.07.2007 addressed to the Assistant Commissioner of Service Tax, the not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputers itself. (iv) Condition (2) of the above said agreement explicitly states that in consideration of these services, the HP will pay the fees , a fixed sum to the assessee towards each product sold to cover the service charges, whether the actual cost of spares is more or less. (v) Condition (4) of the agreement states that the assessee will raise invoices every month for the services accepted by HP and along with each invoice, the appellant shall submit documentary evidence so that HP can identify the services rendered and the cost expenses incurred in the performance of the services . (vi) Further, the appellants are required to test and report all defective parts, provide current product engineering support on request and furnish various reports at various intervals to HP. In ordinary sale-purchase transactions no such liabilities and conditions can be fastened on the seller. (vii) On behalf of HP, the appellant is maintaining enough inventories and on request, supply the parts to Redington India for replacement. The obligation of HP does not end with the sale of the products, but it is their bounden duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) with regard to inclusion of cost of SIM card in the activation charges will not apply in this case. (xiii) The invoice is raised as a fixed amount based on the model of the computers sold. The remuneration received by the appellant has no relationship with the actual quantity of parts supplied by the appellant to Redington during the warranty period. Therefore, the consideration received is not in relation to the goods, but is relatable only to the service of procuring material and maintenance of inventory of computer parts for replacement. The Bench may be pleased to uphold the demands of service tax and dismiss the appeals and thus, render justice. (xiv) Mere payment of VAT will not help to avoid service tax liability. Ld. AR relies upon the decision of the Tribunal in the case of M/s. Bata India Ltd. Vs. Commissioner of C.Ex. S.T., Delhi 2018 (15) G.S.T.L. 339 (Tri. Del.). 5. Heard both sides and have gone through the facts of the case. 6. The issue that comes up for dispute resolution is whether the activity carried out by the appellants herein will be in the nature of a service transaction which wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 65(19)(iv) indicates that the service that would fit into this category would be procurement of goods or services which are inputs for the client. Hence, it appears to reason that for such a service provider, any goods that may be procured for the client should be procured for the purposes of the latter using them as inputs, obviously, in the manufacture of intermediate or final products of such client. 7.3 The Explanation to the said sub-category has clarified, that for the purposes of the said sub-clause, inputs means all goods or services intended for the use by the client. This Explanation is in sync with the definition of input in Rule 2(k) of the CENVAT Credit Rules, 2004 whereby input means all goods, with certain exclusions and inclusions, used in or in relation to the manufacture of final products or for any other purpose , within the factory of production. In a broader sense, the input for the purpose of Section 65(19)(iv) ibid could also include goods intended for use even by a service provider, for example, by an Authorized Automobile Service Station, who requires approved parts and components providing their service. Thus, an entity whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned will provide warranty parts and service to HP or its service partner in India to provide warranty services to HP customers in India. It appears that out of this business model, only the appellant is supplying warranty parts to Redington India, who are providing services for HP products in India. 9.3.1 As per paragraph 11.3 (b), for Warranty Support Charges, the ODM will invoice HP by the first week of every month for the service performed during the previous month unless a different schedule is expressly stated along with supporting documentation to identify the service rendered and the expenses incurred to HP by the ODM. As per paragraph 11.4 (c), HP will pay to M/s. Foxteq India (appellant herein) for Warranty Support Adder in India Rupees. 9.3.2 At first blush, from the word service used with respect to Foxteq in the agreement could very well give rise to a conclusion that the activities of the appellant are in the nature of a service taxable under the Finance Act, 1994. However, we find that even in the business model of sale of PC Sub-assembly parts (L5 and L6) to M/s. HP India factories for final assembly, the said activity has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the Attachment C Payment Schedule, inter alia, the following has been indicated : Program US $ 1. Warranty Adder India 1 year Carlton $6.24/PC Warranty Adder India 1 year Ganesh $ 5.15/PC Warranty Adder India 1 year Catfish $ 4.45/PC Warranty Adder India 3 years Carlton $10.62/PC . . . . 12.1 From the sample trail of invoices produced by the Ld. Senior Advocate for appellants, it is clear that appellants are paying VAT at the rate of 4% on the entire value indicated, which has been worked out by taking the unit p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USD 9.63 4352.76 6 Warranty Adder for Whitney 3 Year Aug 10 SBB179651 V3 59 USD 46.75 2758.25 Total 57652.95 12.2 For the total of the unit prices shown as USD 57652.95, the VAT tax rate at 4% has been indicated and the VAT has been calculated at USD 2306.12; total billing with the VAT comes to USD 59959.07, which when converted to INR comes to ₹ 27,88,096.66 The related purchase order given by Foxteq (appellants herein) is seen as PO No. SBB179651-V3 issued on 24.03.2010. As per the copy of the related VAT returns also submitted along with these invoices (page 52), for Invoice No. FSI10-008 dated 31.08.2010 for sales value of ₹ 2680862.18, VAT at 4% amounting to ₹ 107234.49 has been shown to be paid. 12.3 From the above example, we are sufficiently satisfied that units an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Redington as and when warranty requirements arise. However, there cannot be any allegation that the appellant procures such warranty parts on behalf of HP or, for that matter, Redington. On the other hand, the said warranty parts are imported by the appellants themselves in their own name and the title to those goods will therefore remain with them till the goods are sold to HP under invoices and supplied to Redington. It is also not in dispute that the appellants are discharging VAT liability on the entire Warranty Adder Value for each unit invoiced by them to HP. We find that the Ld. Senior Advocate has correctly placed reliance on the ratio laid down by the Hon ble Apex Court in the case of M/s. Imagic Creative Pvt. Ltd. Vs. Commissioner of Commercial Taxes 2008 (9) S.T.R. 337 (S.C.). The Hon ble Apex Court in the case of M/s. Bharat Sanchar Nigam Ltd. Vs. Union of India 2006 (2) S.T.R. 161 (S.C.) relied upon by the Ld. Advocate in paragraph 85 has inter alia held that the aspect theory would not apply to enable the value of the services to be included in the sale of goods or the price of goods in the value of the service . 14. In the circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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