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TMI Blog2024 (8) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... nty income has been construed by the department as a consideration received by them for providing repair and maintenance during the warranty services. Even after remand, the department has not been able to establish that any separate consideration is received by appellant over and above the commission income - From the SCN, it can be seen that the demand has been raised on the basis of entries made in the books of account of the appellant - AS 29 provides for making Provisions, Contingent Liabilities, Contingent Assets. As per 10.1 of this Accounting Standards, a provision is a liability which can be measured only by using a substantial degree of estimation. On the provision made in the balance sheet as per Accounting Standards to meet future expenses that may be incurred for carrying out the obligation of warranty services the demand of service tax has been raised. The appellant has made such provision from the commission received from the parent company. They have already discharged service tax on the commission. Demand of service tax cannot be raised on mere book entries assuming such figures as consideration - the appellant has not received any separate consideration for provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long with interest and imposed penalties. 4. Against such order, the appellant preferred an appeal before the Commissioner (Appeals) who vide Order--in--Appeal No.160/2009 dt. 15.12.2009 remanded the matter to the adjudicating authority with a direction to verify whether the appellant has received consideration apart from the commission income. 5. In de novo adjudication, the original authority as per OIO dt. 29.6.2011 held that the appellant has paid service tax on the commission income received and that the commission is received for providing maintenance of machinery during the warranty period also. The demand, interest and penalties were confirmed. 6. Against such order, the appellant preferred appeal before the Commissioner (Appeals) who vide impugned order upheld the same. Hence this appeal. 7. The Ld. Counsel Ms. Shrayashree appeared and argued for the appellant. It is submitted that the parent company viz. M/s.Heidelberg Germany is in the business of manufacturing printing machinery. During the relevant period, the appellant was the exclusive distributor of the said machinery in India. The distribution was done in two manners. Firstly, the appellant purchased the machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over and above the commission income. The adjudicating authority in de novo proceedings has not made any finding that the appellant has received income over and above the commission income. It is merely noted by the adjudicating authority that the appellant is providing warranty services from the provision made in the commission income. Merely because the appellant is obliged to provide warranty services, it has been assumed by the department that the provision made in their books of accounts for incurring the expenses for such warranty service is a consideration received from foreign company for providing maintenance and repair services. 7.4 Ld. Counsel referred to the Interim order No.9/2012 dt. 24.1.2012 passed by the Commissioner (Appeals) in the application for stay filed by the appellant. It was noted in their interim order, that the warranty charges are already included in the commission amount received from the parent company and the entire amount of commission has suffered service tax also. It was noted that there is prima facie case made out by the appellant and stay was granted without predeposit. 7.5 However, in the impugned order the commissioner (Appeals) has upheld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. The appellant has not shown the income received by them for maintenance and repair services in the returns filed before the Department. They are liable to pay service tax on the income received for maintenance and repair services. It is admitted by the appellant that they have to provide repair and maintenance service during the warranty period. For providing such services, the appellant has made a provision in their accounts to incur the expenses. This indicates that the consideration for providing warranty services. The appellant is therefore liable to pay service tax as demanded. It is prayed that the appeal may be dismissed. 9. Heard both sides. 10. From the facts narrated above, it is brought out that the appellant is providing warranty services to the customers who have purchased the machines directly from HIl Germany. The appellant receives commission for such sale. The appellant has discharged service tax on the commission received and there is no dispute. From the amount received as commission they have made provision in their books of account to incur expenses that is required to provide warranty services. It is very much clear from the SCN itself that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets. As per 10.1 of this Accounting Standards, a provision is a liability which can be measured only by using a substantial degree of estimation. Para 14 deals with a Provision . It states as under : A provision should be recognized when : (a) An enterprise has a present obligation as a result of a past event; (b) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) A reliable estimate can be made of the amount of the obligation. 13. Para 24 of the AS speaks about Reliable Estimate of the Obligation which is as under : The use of estimates is an essential part of the preparation of financial statements and does not undermine their reliability. This is especially true in the case of provisions, which by their nature involve a greater degree of estimation than most other items. Except in extremely rare cases, an enterprise will be able to determine a range of possible outcomes and can therefore make an estimate of the obligation that is reliable to use in recognizing a provision. 14. On the provision made in the balance sheet as per Accounting Standards to meet future expenses that may be incurred for carrying out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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