By TIOL News Service

MUMBAI, SEPT 03, 2013: THE appellant is engaged in the manufacture of motor vehicles which are sold to various dealers. The dealers are undertaking the service of vehicles during the warranty period and are liable to pay service tax in respect of taxable service provided by them.

The appellant availed credit of the service tax paid by the dealers on the ground that the same is input service for the manufacture of motor vehicles.

Revenue has denied the CENVAT credit so availed of nearly Rs.25 lakhs and also imposed penalty and interest and the lower appellate authority also upheld the demand.

Before the CESTAT with a Stay application/appeal, the applicant submitted that the authorized dealers are undertaking the repair and service of vehicles during the warranty period as per the undertaking given by the applicants to the ultimate buyer and hence the same is an Input service. They also rely on the decision of the Tribunal in their own case (2012-TIOL-836-CESTAT-MUM) wherein the appeal by the CCE, Nasik dropping the demand was dismissed and the appeal of the manufacturer against the order of CCE, Mumbai V disallowing the credit was remanded to the adjudicating authority for verification as to whether the sale/services expenses are included in the Assessable Value, and if yes, the assesse is to be held entitled to credit.

The Revenue representative referred to the definition of Input service contained in rule 2(l) of the CCR, 2004 and the terms and conditions of the agreement entered between the applicants and the dealers. It is submitted that as per Annexure II of the agreement the dealer has to maintain facility in respect of servicing and repair of motor vehicles at its own cost. It is further submitted that in absence of evidence that dealers margin were included in the assessable value of the vehicles the contention of the applicant has no merits; that the applicants are selling vehicles to the dealer and the activity undertaken by the dealer is after clearance of the vehicle from factory of production and, therefore, it cannot be said that the taxable service rendered by the dealer to their customers during warranty period is input service for the manufacture of the vehicle.

The Bench observed -

"9. We have gone through the decision of the Tribunal cited supra whereby the Tribunal specifically held that in case that after sale expenses are included in the assessable value in such case the assesse is entitled for credit of service tax. In the present case we have gone through the dealer's agreement. As per Annexure II Schedule I of the agreement the obligation on the dealer is to establish and maintain at its cost the adequate and satisfactory sales and service facilities as recommended by the company from time to time, with proper personnel and equipment for sales and servicing, at its cost. The terms and conditions of the dealer agreement entered into between the applicant and the dealer shows that the sale and service is at the cost of the dealer. In these circumstances, the taxable service provided by the dealer after the sale of the motor vehicles manufactured by the applicant prima facie the same cannot be considered as input service for the manufacture of motor vehicles. In these circumstances, the applicants failed to make out a case for total waiver of pre-deposit…."

In fine, the applicant was directed to make a pre-deposit of 50% of the duty confirmed and report compliance.

In passing: Board Circular no. 936/26/2010-CX dated 27.10.2010 -

"3. The Larger Bench of CESTAT vide its order dated 13-8-2010 in appeal No. 1958 of 2008 [2010 (257) ELT226 (Tri.-LB)] in the aforesaid case [Maruti Udyog Ltd.] - (2010-TIOL-1127-CESTAT-DEL-LB), has now held that Pre-delivery Inspection charges and After- sale Service charges collected by the dealers are to be included in the assessable value under Section 4 of the Central Excise Act, 1944."

(See 2013-TIOL-1304-CESTAT-MUM)