By TIOL News Service

MUMBAI, AUG 04, 2016: APPELLANT as authorized dealer of M/s MUL, undertakes servicing of motor vehicles. They are registered as provider of 'authorized service station service' and 'business auxiliary service'.

It is an industry practice to extend fixed number of 'free servicing' along with purchase of car and to permit the customer to avail the same from any of the authorized dealers of the manufacturer. As it is incumbent on the 'selling dealer' to provide the free service, the practice involves payment being effected by 'selling dealer' to the 'servicing dealer' for labour costs involved and on which tax liability is discharged. The customer does not make payment for such servicing to either dealer and is liable only for material costs incurred during such servicing.

The lower authorities have held that the tax paid on invoices raised on appellant by other dealer is not eligible for availment of CENVAT credit as it is not an input service, and that the activity not being undertaken in appellant's premises implies a disconnect with the output service.

The CENVAT credit involved is Rs.2,55,274/- along with interest and penalties.

Before the CESTAT, the appellant submits that the credit is available in view of the definition contained in rule 2(l) of CCR, 2004 read with the Bombay High Court decision in Coca Cola India Pvt. Ltd - 2009-TIOL-449-HC-MUM-ST [paragraph 39 in particular].

The AR reiterated the stand taken by the lower authorities.

The Bench observed -

"6. There can be no doubt that appellant renders 'authorized service station service' and 'business auxiliary service' on behalf of M/s MarutiUdyog Ltd. It is therefore, a provider of output service. In the course of discharge of this output service which includes 'free servicing', it is quite probable that the servicing may be delegated to another dealer. That it was performed elsewhere does not alter the factum of usage of another service-provider for supplying a service contracted to be provided to a recipient in which the recipient of service is not obliged to meet the costs. Such costs met by appellant are expenditure towards service procured to provide an output service."

Holding that the appellant is entitled to claim CENVAT credit of tax paid on invoices raised by co-dealers, the appeal was allowed.

(See 2016-TIOL-1962-CESTAT-MUM)