The Present Appeal Has Been Filed by M/S Nanda Automobiles Pvt. Ltd., Plot No.1003, G.I.D.C
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The present appeal has been filed by M/s Nanda Automobiles Pvt. Ltd., Plot No.1003, G.I.D.C., Sector-28, Gandhinagar-382 028 (hereinafter referred to as ‘the appellant’ for the sake of brevity) being aggrieved by Order-in-original No.9/ST/AC/AS/2011 dated 19.9.2011 (hereinafter referred to as ‘the impugned order’ for the sake of brevity) passed by the Assistant Commissioner, Central Excise, Customs and Service Tax, Division-Gandhinagar (hereinafter referred to as ‘the adjudicating authority’ for the sake of brevity).
2. Briefly stated, the facts of the case are that it was noticed on verification of the invoices issued by the appellant that no service tax was being paid on free services given to the customers which appeared to be taxable under the service category ‘authorized service station service under Section 65(105)(zo) of the Finance Act, 1994. The appellant was receiving payments from the authorized dealers for providing the free servicing on behalf of the dealers and it appeared that the value for the purpose of service tax was the value for services received from the other dealers and not the discount or other consideration received from the vehicle manufacturer i.e. Maruti on the basis of which the appellant had paid service tax. Accordingly, it appeared that the appellant had not paid the correct amount of service tax amounting and had contravened various provisions with intention to evade tax. Therefore, a show cause notice was issued demanding service tax amounting to `2,10,273/- under first proviso to Section 73(1) of the Finance Act, 1994; interest under Section 75 of the Finance Act, 1994; proposing penalty under Section 76 of the Finance Act, 1994; proposing penalty under Section 77 of the Finance Act, 1994 and penalty under Section 78 of the Finance Act, 1994.
3. The adjudicating decided the Show Cause Notice and issued the impugned order where the service tax demand for `2,10,273/- has been confirmed under first proviso to Section 73(1) of the Finance Act, 1994 along with interest under Section 75 of the Act ibid. A penalty of `100/-
per day or @1% service tax per month, whichever is higher has been imposed on the appellant under Section 76 of the Finance Act, 1994. The adjudicating authority has imposed a penalty of `10,000/- on the appellant under Section 77 of the Finance Act, 1994. Further, penalty amounting to `2,10,273/- under Section 78 of the Act ibid has been imposed on the appellant with the option to pay 25% of this penalty amount on the condition that confirmed service tax, interest and reduced penalty under Section 78 of the Act ibid are paid up within one month of the communication of the order.
4. The appellant has filed the present appeal against the impugned order contesting confirmation of service tax on the argument that service tax is not liable to be paid by them as cost of free after sales services provided to customers was not reimbursed to them by the vehicle manufacturer and the appellant had to meet these expenses out of the dealer’s margin. In support of this argument, the appellant has cited the case law as per ASL Motors (P) Ltd. Vs CCE & ST – [2008] 17 STT 83 (Kol.-CESTAT) where it has been held that cost of free after sales services provided to customers was not reimbursed by vehicle manufacturer and those expenses were met out of the dealer’s margin and since dealer’s margin was part of cost of vehicle already subjected to sales tax, same element of cost could not be brought under service tax net. The appellant has also cited CESTAT order in the case of Kiran Motors Ltd Vs CCE – [2009] 16 STR 74 (Ahd.-CESTAT) where it has been held that the contract between the purchaser of the vehicle and the dealer is indivisible contract. It has already been held as regards reimbursement of the cost of free services rendered by another dealer that in such cases the service provided would have been to the dealer who sold the vehicle by the dealer who has actually provided the services and therefore the service tax is leviable in which case the receiver of services would not be the purchaser but the dealer who has originally sold the vehicle. The appellant has argued that the fact that the dealer gets reimbursement when he provides services in respect of
the vehicles sold by other would not help revenue. It has also been contended by the appellant that the Tribunal decision in Kiran Motors clearly states that quantification for free services provided to purchasers of vehicle cannot be made on the basis of amount received from other dealers. The appellant has also submitted that their case is supported b the judgement in the case of K.P. Automobiles Pvt. Ltd. – 2009 (13) STR 389 (Tri.Delhi). The demand confirmed on the basis of amount charged by the appellant to other dealers for doing free servicing of the vehicles is based on assumptions and presumptions and was not supported by evidence. The appellant has cited the decision in Indus Motor Co. Vs CCE – [2008] 12 STT 112 (Bang.- CESTAT) where the Tribunal struck down the demand raised by department towards free services on the ground that when a service was provided free of charge, it would not be possible to confirm the demand unless revenue showed some evidence that the appellant got reimbursement in some other guise.
4.1 The appellant has argued that the adjudicating authority had relied on CBEC Circular No.87/05/2006-ST dated 06.11.2006 which has been withdrawn vide Circular No.96/7/2007 dated 23.8.2007 wherein it has been clarified that service tax is liable only if ‘free services’ are given to customer free of cost by authorized dealers for which they are reimbursed by the vehicle manufacturer. Since no such reimbursement is received by appellant, liability to pay service tax merely on the basis of presumption does not arise.
4.2 The appellant has contended that the adjudicating authority had erroneously levied penalty under Section 78 of the Finance Act, 1994 which applies only in case of fraud, collusion, wilful mis-statement, suppression of facts or contravention of the Act with intention to evade payment of service tax. However, the appellant had not suppressed any fact and the demand is only on presumptive basis. Moreover, it is clearly
stated in the proviso to Section 78 that simultaneous penalty under Section 78 and Section 76 cannot be imposed.
5. Personal hearing in the appeal was held on 15.12.2011 when Shri Darshan Shah appeared for personal hearing and reiterated the grounds of appeal. He also filed written submissions. He stated that the appellant has not received any service charges for the free services rendered. These chares are inbuilt into the dealer’s margin. Hence they are not liable to pay service tax on the services for which no charges are received. He relied upon a few case laws in support of his case. He sated that the free services rendered to the vehicles sold by another dealer is different because in that case the dealer is the services receiver and pays for it. Hence they are paying service tax on it. In view of the above, he requested to set aside the impugned order.
5.1 In the written submissions filed during personal hearing it has been submitted by the appellant that they are dealer of Maruti Udyog Limited and the impugned order has been passed holding that they are liable to pay service tax on the amount attributable to free services provided by the dealer during warranty period. The basis of the impugned order is only assumptions and presumptions and has been passed against the facts on record, legal provisions and decided case laws. Service tax is an indirect tax and as per the system of taxation, tax is to be collected on amounts received against service provided and the tax collected has to be remitted to the government. In case of free services (where there is no re-imbursement) value of the service provided is treated as zero and hence no tax liability arises and no demand of service tax can be raised towards free services on the ground that when a service was provided free of charge, it would not be possible to confirm the demand only on the presumption that the assessee got re-imbursement from the vehicle manufacturer. The adjudicating authority had wrongly held that the amount charged by the appellant from other dealers for doing free servicing of the vehicles is
the deciding value for the payment of service tax on the free services given to customers by them.
5.2 The appellant has submitted that the issue was no longer res integra and there were several decisions of Tribunal holding that since the transactions are of sales and sales tax is paid including dealers margin which includes cost of free services, service tax is not leviable on dealer’s margin already subjected to sales tax. The appellant has emphasized reliance on the Tribunal decisions in Kiran Motors Ltd. Vs. CCE, Vadodara - [2009] 16 STR 74 (Ahd.-CESTAT); K.P. Automobiles Pvt. Ltd. – [2009] IST 39 CESTAT – Delhi; Kamal & Company Vs CCE, Jaipur – [2009] IST 129 CESTAT-Delhi; ASL Motors (P) Ltd. Vs CCE & ST – [2008] 17 STT 83 (Kol.- CESTAT) and Indus Motor Co. Vs CCE – [2008] 12 SIT 112 ( Bang. – CESTAT).
5.3 The appellant has disputed the reliance on Circular No. 87/05/2006 –ST dated 06.11.2006 in the impugned order holding that this circular has been withdrawn vide Circular No, 96/7/2007 dated 23.8.2007. The appellant has also objected to penalty levied under Section 76 and Section 78 ibid on the ground that the demand itself is not sustainable. It has been pointed out that as there was no suppression of facts etc with intention to evade service tax on part of the appellant, penalty under Section 78 was not at all warranted. In support of this argument, the appellant has relied on the decisions in the cases of CCE Vs Ajanta Color Labs - [2009] 20 STT 395; ABC Engineering Works Vs CCE - [2010] 28 STT 389 and CCE Vs. World Space India Pvt. Ltd. – [2009] 18 STT 275.
Discussion and Findings:
6. On going through the impugned order and the appeal memorandum filed by the appellant, I find that the short point for decision is whether the appellant who is a dealer of Maruti Udyog Ltd. is liable to pay service tax on the amount attributable to the free services
provided by them on sale of vehicles, during the warranty period and if yes then whether the method of quantification of service tax done by Revenue is correct or not. Revenue has quantified service tax taking into account the charges received by the appellant from other dealers for services which form part of the free services provided by other dealers to their customers during the warranty period. In such cases where the appellant has provided services to other dealers, service tax has been paid on the charges received from the other dealers and this point is not disputed by Revenue. However, it is the standpoint of Revenue that even for free services provided directly to their own customers, the appellant is required to pay service tax as per the charges received from other dealers for such services.
7. I find that the very same issue had come up for consideration before Hon’ble Tribunal, Ahmedabad in the case of Kiran Motors Ltd. Vs Commissioner of Central Excise, Vadodara – 2009 (16) STR.74 (Tri.-Ahmd.), as evident from the opening paragraph of the order.
“The appellant is a dealer of Maruti Udyog Ltd. and the Department has contended that the appellant is liable to pay service tax on the amount attributable to the free services provided by the dealer during the warranty period. The amount has been quantified on the basis of the amount received by the dealer when such free service during warranty period is rendered in respect of vehicles sold by other dealers……”
Further, I find that the standpoint of Revenue in the present appeal is exactly reflected in the arguments of the departmental representative recorded in the Order of the Tribunal in Kiran Motors Ltd. Vs Commissioner of Central Excise, Vadodara – 2009 (16) STR.74 (Tri.-Ahmd.). The same is reproduced below for the purpose of clarity.
“…..Therefore she submits that the component of free services, the cost of which is already included in the dealer’s margin is liable to service tax. She drew my attention to the letter from Maruti Udyog Ltd., wherein MUL had clarified that the dealer’s margin is not included by them nor is fixed by them and they sold the vehicle at a particular price to the dealer and the dealer is free to fix his margin and sell the vehicles. Therefore she submits that the component of service and its cost is not taken into account by MUL. She also refers two other decisions in support of her contention that just because there are many decisions in favour of the party, the Department is not precluded from filing an appeal or contesting the issue. The decisions cited are 1. B.J.Akkara, Co. (Retd.) v. GOI - 2008 (11) S.T.R. 305 (S.C.) = 2007 (207) E.L.T. 3 (S.C.), 2. Sh. C.K. Gangadharan v. Comm. of Income Tax [2008 (228) E.L.T. 497 (S.C.)]. She submits that in this case the very fact that when vehicle is sold by a dealer and service is provided by another dealer, the dealer who had sold the goods is required to pay for the free service provided to the buyer of the vehicle & service provider pay service tax shows that the cost of free services is known to the appellant and the MUL. In reality this is no free service at all. Since the service has been provided, taxable event has taken place and the customers have been charged for which appellants are liable to service tax…..”
In view of the fact that the demand against the appellant has been confirmed in the impugned order on the same grounds as espoused by the Jt. CDR in the above extracts, I find that the ratio of the decision given by Hon’ble Tribunal is squarely applicable to the facts of the present appeal and has to be treated as settled law. Hon’ble Tribunal has held that: