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TMI Blog2024 (5) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... son . Consequent to the amendment, the Department entertained the view that the appellant having collected charges for EWS they are liable to pay service tax under Repair of Vehicle Services with effect from 01.05.2011 till 30.06.2012. Tribunal in the case of M/s. Ford India Pvt. Ltd. Vs. Commissioner of Customs, [ 2023 (8) TMI 409 - CESTAT CHENNAI] wherein it has been held by the Tribunal that prior to 01.07.2012, the demand cannot sustain u/s 65(105)(zo) for the reason that repair to vehicle services involve both use of materials and rendition of service. Following the same, we are of the considered opinion that for the period prior to 01.07.2012, the demand raised u/s 65(105)(zo) cannot sustain and requires to be set aside. Ordered accordingly. Period after 01.07.2012:- From the definition of service u/s 65B(44) of the Finance Act, 1994, it can be seen that post 01.07.2012, service includes declared services. Section 66E gives the list of declared services and clause (e) of Section 66E speaks about agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act . The main argument advanced by the appellant is that repair of vehicle involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the service to be provided. In Extended Warranty Scheme, as already stated, the parties do not know whether the vehicle will require any repair or whether it will require only replacement of spares or whether it will require only services without replacement of spares or whether it will require both replacement and repair. We say that Sub-clause (h) of Section 66E covers actual Works Contract Services executed and does not cover the assurance to provide repair services. In actual repair services, there is an element of sale which involve transfer of property in goods and therefore for post 01.07.2012 would be a Works Contract Services. In EWS it s an assurance to provide repair service whereas, u/s 66E(h) it s the agreement to provide or to be provided which becomes taxable. In fact post 01.07.2012 any activity carried out by a person for another for consideration is a service. Thus, we hold that the issuing Extended Warranty Scheme is a service falling u/s 65B(44) read with Section 66E(e). The demand is therefore sustainable. We find that the appellant has adopted the classification under WCS for the period post 01.07.2012 and have discharged service tax by availing the abatemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount collected for used car program also. Show Cause Notices for the different periods were issued to the appellant proposing to classify the said services under 'Repairs of Vehicles' as under Section 65(105)(zo) for the period from 01.05.2011 to 30.06.2012 and demanding the service tax along with interest and also for imposing penalties. 2.3 So also, Show Cause Notices were issued for the period from 01.07.2012 to March 2014 demanding service tax on the upfront charges collected as the activity of EWS is 'service' as defined under Section 65B(44) of Finance Act, 1994. In reply to the Show Cause Notice for the period with effect from 01.07.2012, the appellant stated that they are paying service tax on these upfront charges under the category of Works Contract Services (WCS). Being WCS, after 01.07.2012, the appellant paid service tax on 70% of the gross value of the amount so collected by availing abatement of 30% in terms of Rule 2(A)(ii)(B) of the Service Tax (Determination of Value) Rules, 2006 applicable to Works Contract Services (WCS). The Department was of the view that for the period after 01.07.2012, the services do not fall under Works Contract Service as under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehicles or two wheeled motor vehicles, in any manner;" The above definition was amended with effect from 01.05.2011 and the definition reads as under:- "Section 65(105) "Taxable Service" means any service provided or to be provided- ……….. (zo) to any person, by any other person, in relation to any service for repair, reconditioning, restoration or decoration or any other similar services, of any motor vehicle other than three wheeler scooter auto-rickshaw and other motor vehicle meant for goods carriage" 3.3 Consequent to the amendment, the Department has presently raised the demand on the appellant alleging that the appellant being a manufacturer is liable to pay service tax on the upfront charges collected by the appellant as the definition of repair of vehicle services after 01.05.2011 is not confined to authorised service station only. 3.4 The Ld. Counsel argued that repair of vehicle services involve use of materials like replacement of parts / spares and therefore is in the nature of works contract services. The replacement of parts and spares involve sale of goods to the customer and as there is transfer of property in goods the demand of servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services under Section 65B(54) reproduced above and submitted that with effect from 01.07.2012, the repair of motor vehicles would fall under Works Contract Services as it involves the use of materials and an element of sale of goods. 3.7 It is submitted that accordingly for the period post 01.07.2012, the appellant has discharged service tax under Works Contract Services after availing 30% abatement in terms of Rule 2(A)(ii)(B) of the Service Tax (Determination of Value) Rules, 2006 applicable to WCS. The appellant having correctly discharged the service tax, the Show Cause Notice issued and demand confirmed is without any basis. 3.8 The Ld. Counsel submitted that the appellant started paying service tax on the upfront charges collected from the customers on Extended Warranty Scheme through their dealers from 01.07.2012 onwards under the category of Works Contract Services and also the warranty charges collected on used cars. The undertaking provided by the appellant to the customer through this extended warranty service is in the nature of Works Contract Service as the appellant undertakes to replace the defective parts covered under the extended warranty scheme and also to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods. In the case of providing WCS, invoices are raised and the assessee is liable to pay service tax after deducting the abatement, so that value of the goods used for providing WCS are not subject to levy of service tax. The Original Authority has not considered these aspects and erroneously held that the activity does not fall under Works Contract Services. 3.11 It is argued that the appellant has collected upfront charges towards the sale of right to the service relating to extended warranty. The appellant thus undertakes to give the right to service relating to the extended warranty to the ultimate customers who may exercise their right of availing such service after expiry of normal warranty period, upon payment of certain fee depending upon the model of the car purchased. The appellant only gives the right of service to the customer. The customer is at liberty to get the service from the dealers. The customer is the service recipient and the appellant is only paying the charges for the repair service on behalf of the receiver of service during the period of Extended Warranty Scheme. The dealers who are under an agreement with the appellant undertake to provide the warranty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e act of suppression on the part of the appellant. It is submitted that for these reasons, the invocation of extended period and the penalties imposed may be set aside. 4.1 The Ld. Authorised Representative Shri Anoop Singh appeared and argued for the Department. It is submitted that the main issue to be decided is whether the Extended Warranty Scheme (EWS) rendered by the appellant is covered under the definition of Repair of Vehicle Services under Section 65(105)(zo) of the Finance Act, 1994, for the period from 01.05.2011 to 30.06.2012 and whether it would fall under the definition of 'Service' under Section 65B(44) for the period with effect from 01.07.2012 onwards. The Ld. Authorised Representative adverted to the Extended Warranty Scheme captured and summarized by the Adjudicating Authority in the impugned order as under:- "The Extended Warranty Scheme is an extension of the existing warranty period on chargeable basis and is an optional scheme which could be opted either at the time of sale of car or before expiry of the existing warranty period. The interested customer has to fill up a contract form (EW registration form) for on Extended Warranty Scheme to provide a requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onverter. * Engine tuning, cleaning of fuel lines, filters, nozzles, carburetors and pumps, drive belts that are not encased, impact or external damage, de-carbonization and failures caused by the build up of carbon deposits (including burnt valves). * All wiper blades and rubbers, hoses, pipes and unions. * Mountings (including engine mountings), tapings, supports, fixings and fastening devices those have been incorrectly required or replaced or are subject to routine servicing adjustments * Batteries, wires, terminals, reconnecting of disturbed electrical connections, lamps, bulbs, fuses, audio and in car entertainment equipment and aerials and car telephones. * Failure of clutch and brake materials due to wear, adjustments, alignments and any item associated with manufacturers recommended routine servicing or failures due to the lack of oils or coolant through neglect. * Seals and gaskets that are subject to replacement or refitment as part of the normal service schedule. * Fule, chemical, materials, additives, hydraulic fluids, oils or grease except where required in direct connection with a repair to a covered part. * The cost of normal servicing, service items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared service. Show Cause Notice has been issued demanding the service tax under Section 66B(44) for the period post 01.07.2012 and therefore is legal and proper. 4.5 The appellant has discharged service tax for the period post 01.07.2012 only on 70% of the gross value by classifying the service under Works Contract Services. It is submitted by the Ld. Authorised Representative that the service provided by appellant under EWS is not a Works Contract. Though post 01.07.2012, Section 65(54) defines Works Contract Services to include repairs of movable property (vehicles), the service rendered by the appellant is assuring the repair of movable property and is not in the nature of Works Contract Service falling under Section 65B(54). 4.6 In the case of Works Contract, it has to necessarily involve transfer of property in goods. However, under the Extended Warranty Scheme there is only assurance to repair and replace parts and thus, there is no element of transfer of property in goods. It is explained by the Ld. Authorised Representative that the appellant only enters into an obligation to do the service of repairing the motor vehicles in future during the extended warranty period. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided. Thus there may be situations or contingencies in which vehicle is never brought to the service stations, situation were billing of repair is much more than the upfront charges paid, situation where billing of repair is much less than the upfront charges paid, etc. Thus, the service provided of issuing EWS is not actual repair service but only a promise to do repair in future and there is no element of sale / transfer of property in goods at the time when the Extended Warranty Service is issued by the appellant and therefore EWS is not a Works Contract Service. 4.9 The reliance placed by the appellant on the CBEC Education Guide was countered by the Ld. AR by submitting that as per the clarification, repair or maintenance of the vehicle is to be treated as Works Contract Service only if property in goods is transferred in course of execution of contract. In the present case, there is no transfer of property in goods as the service is in the nature of an assurance. 4.10 The Ld. Authorised Representative stressed that EWS is just an agreement obliging to carry out repair services by the appellant in a situation that may or may not happen in future. The customer is thus pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A situation of replacement of defective vehicle or parts are not happy anticipations. These are in the nature of low probability risks which are attempted to be mitigated through the Extended Warranty Scheme. 4.15 The repair service / replacement of parts are rendered by the dealer of appellant. Only when need for replacement arises, an element of sale will happen. Mere assurance by EWS does not of itself create a transfer of property in goods. What has been agreed or agreed to be provided is the warranty and not actual repairs of part or normal maintenance of vehicle during the warranty period. 4.16 The Ld. Authorised Representative relied upon the decision in the case of M/s. Hyundai Motor India Pvt. Ltd. Vs. Commissioner of Central Excise and Service Tax, LTU Chennai [2019 (29) GSTL 452 (Tri.-Chennai)]. The consideration received by appellant towards EWS has nothing to do with the actual cost of service or repair or whether the same is being reimbursed or not. The appellant is liable to pay service tax on the entire upfront charges collected by them. There is no situation of double taxation. 4.17 The Ld. AR submitted that non-payment of service tax would not have come to li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 01.07.2012, the demand cannot sustain under Section 65(105)(zo) for the reason that repair to vehicle services involve both use of materials and rendition of service. The relevant paragraphs of the Tribunal decision read as under:- "8. The extended warranty plans are composite contracts involving labour by way of repairs and material by way of parts being replaced. Service tax is not leviable on composite contract for maintenance and repair of vehicle which entails both supply of goods and services for the period upto 01.07.2012. 8.1 A contract which has both the elements of goods and service is a works contract. Much water has flown under the bridge since service tax was levied on composite works contracts. The Hon'ble Supreme Court in the case of Commissioner of Central Excise and Customs, Kerala and Others Vs. Larsen and Toubro Ltd. and Others [2015- TIOL-187-SC-ST] after elaborate discussion of the various provisions and judicial pronouncements in no ambiguous terms ruled that works contract cannot be subject to Service Tax before 01/06/2007. The question which remains is whether Service Tax is leviable on composite contract for maintenance and repair of vehicle which ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich has both the elements of goods and service is a works contract. We find that the Hon'ble Apex Court in Commissioner Central Excise & Customs, Kerala vs. Larsen & Toubro Ltd. [Civil Appeal No. 6770 OF 2004/ 2015 (39) S.T.R. 913 (S.C.)] held that 'Works Contract' is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law as such and has to be taxed separately as such. Hence the impugned service has to be examined as a 'works contract' with respect to its taxability. 8.3 It is the appellants contention that under the service tax regime, taxability on service tax portion of a composite works contract was made taxable for the first time w.e.f. 01.06.2007 vide insertion of Section 65(105)(zzzza). That for the period from 01.06.2007 to 30.06.2012, service portion of composite works contract was levied to service tax only in respect of the following five categories of contracts as mentioned under definition of 'works contract' under Explanation to clause (zzzza) of Section 65(105) of the Finance Act, 1994: i. contracts relating to erection and commissioning of plant and equipment, ii. construction of immovable pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section" from the Finance Act, 1994, one new Section 65B (Interpretations) has been inserted by the Finance Act, 2012. In the new system all services, except those specified in the negative list, were subject to Service Tax. Subsequently Notification No. 19/2012 ST dated 05.06.2012 was issued specifying that the new Section 65B (Interpretations), among others, would be effective from 01/07/2012. Section 65B(54) defines 'works contract' as under; "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property; (emphasis added) It is seen from the above that after the insertion of section 65B(54) in the Finance Act 1994, from 01.07.2012 onwards, the definition of 'works contract' was expanded to include repair and maintenance services of movable properties also. Hence, the composite co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,-- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force." 8.2.2 From the above definition, it can be seen that post 01.07.2012, 'service' includes declared services. Section 66E gives the list of declared services and clause (e) of Section 66E speaks about 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act'. "Section 66E. Declared services. The following shall constitute declared services, namely:-- (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;" 8.4 The nature of EWS and its salient features are explained in paragraph 4.1 above. It is to be seen that while offering extended warranty services, the appellant does not render any actual repair work of the vehicle. The consideration (upfront charges) is received for offering to repair the vehicle in the event of happening of a requirement to repair the vehicle in future. It is more like assurance given to a customer. The appellant undertakes to do repair service without collecting any further amount during the warranty period. For better appreciation, a sample of the extended warranty certificate and its conditions are as under:- 8.5 As per the EWS certificate, the appellant undertakes to carry out the necessary remedial work (including replacement of parts / spares) necessitated by any mechanical / or electrical break down under normal use and maintenance, subject to terms and conditions. In essence, EWS is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be at consensus as to the nature of the work that has to be done as well as the consideration that has to be paid for the work. There is no element of risk involved to either parties. In other words, when there is a payment made agreeing to provide a service, both parties are well aware as to what is the service to be provided. In Extended Warranty Scheme, as already stated, the parties do not know whether the vehicle will require any repair or whether it will require only replacement of spares or whether it will require only services without replacement of spares or whether it will require both replacement and repair. 8.9 Another argument advanced by the Ld. Counsel is that sub-clause (h) of Section 66E covers Works Contract Services, and that when a specific provision is provided for Works Contract Services in the list of declared services, the Extended Warranty Scheme cannot be brought under sub-clause (e) of Section 66E which is only general in nature. The decision in the case of M/s. Mahanagar Telephone Nigam Ltd. Vs. Union of India & Ors. [2023 (2) TMI 216-DELHI HIGH COURT] was relied by the appellant to support this argument. It is argued that in the said case, the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... composite supply, the principal supply being the supply of goods, and GST would be payable accordingly. (b) However, in case where a consumer enters into an agreement of extended warranty at any time after the original supply, then the same is a separate contract and GST would be payable by the service provider, whether manufacturer or the distributor or any third party, depending on the nature of the contract (i.e. whether the extended warranty is only for goods or for services or for composite supply involving goods and services) This Circular is of non-assistance to the appellant for the reason that GST considers payment of tax on supply and not in respect of service, alone. Further, the above only clarifies the levy of GST on warranty given by manufacturer at the time of sale of car and the warranty given later. 9.1 From the above discussions, we hold that the issuing Extended Warranty Scheme is a service falling under Section 65B(44) read with Section 66E(e). The demand is therefore sustainable. 9.2 Before we part, it requires to be stated that in the impugned order, the discussions are mainly countering the contention of the appellant that the activity falls under WCS. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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