By TIOL News Service

CHANDIGARH, MAY 08, 2018: DURING audit, it was found that the appellants were allegedly not paying service tax on Optional Extended Warranty Service under Motor Repair Related Service from 01.05.2011 to 30.06.2012, namely, clause 65(105)(zo) of the FA, 1994 which reads - (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 motor vehicle meant for goods carriage ;.

Further, the appellants were providing Fleet Management Service which the Revenue opined is taxable under Business Support Services from 01.04.2007 to 30.06.2012.

Service Tax demand was issued on the above counts and adjudication (order dated 28.01.2014 ) by CCE, Panchkula resulted in confirmation of a total demand of Rs. 25,52,00,435/- along with interest and imposition of equivalent penalty (with option to pay reduced penalty of 25%) in terms of provisions of Section 78 of FA, 1994.

The appellant's stay application was heard by the Division Bench on 12.10.2017 .

Upon hearing the submissions made by the appellant and attempted to be rebutted by the AR, the Member (T) viewed that in the matter of demand raised on the Optional Extended Warranty Service, the issue is debatable involving question of law and facts and which can be examined at the stage of final regular hearing. Inasmuch as after noting that major part of the demand is within the normal period of limitation, the Member (T) directed the appellant to deposit 10% of the service tax demand (in respect of the first issue) and report compliance.

As regards the demand under the head BSS (second issue), the Member (T) opined that providing of fleet management service is not categorized in any of the activities itemized in the definition. Citing the Board Circular  334/4/2006-TRU dt. 28.02.2006, wherein it is clarified that BSS should be an activity which is outsourced and the Tribunal decision in  Air Liquid North India (P) Ltd -   2011-TIOL-1795-CESTAT-DEL , the Member (T) held that the appellant had made a prima facie case of waiver of the tax demand (under BSS).

However, the Member (Judicial) had a difference of opinion as regards the demand made on Optional Extended Warranty Service. Noting that it is not disputed that the Repair has been done through replacement of parts and the cost of parts and content of labour cannot be vivisected and in terms of decision of the Apex Court in the case of Larsen & Toubro Limited - 2015-TIOL-187-SC-ST, the services rendered by the appellant merits classification under 'Works Contract service', the Member(J) viewed that prima facie , the appellant was not liable to pay service tax under the category of 'Repair and Maintenance Services'.

Therefore, the Member (J) waived the requirement of pre-deposit of entire amount of service tax along with interest and penalty.

The matter, therefore, came to be referred ( on 12.01.2018 ) to the third Member to resolve the following issue -

Whether the appellant is required to make the pre-deposit of 10% of service tax demand with respect to Optional Extended Warranty Service, as held by Member (Technical) that the appellant has not made out a prima-facie case for waiver of pre-deposit;

or

Whether the Member (Judicial) is correct in holding that in the light of decision of Hon'ble Apex Court in the case of Larsen & Toubro Limited (supra), the activity undertaken by the appellant of Optional Extended Warranty Service is classifiable under 'Works Contract service' and therefore, the appellant is not required to pay any amount as pre-deposit for the activity undertaken by the appellant.

The matter was heard recently by the third Member (T) on reference.

After considering the submissions, the Member observed -

"17. …I find that the transaction entered into between the purchaser of motor vehicle and the manufacturing appellant in case of extended warranty is that the money is collected irrespective of whether the vehicle is attended or not and this is how it is different than the service for repair, reconditioning, restoration or decoration of the motor vehicle because in the case of repair, reconditioning etc. the monetary consideration is received by the service provider only after attending on the job of repair, reconditioning etc. Therefore, in my opinion the matter is debatable. I, therefore, do not agree with Brother Member (Technical) that a pre-deposit of 10 per cent of service tax demanded needs to be paid by the appellant under section 35F of Central excise Act, 1944. In result, I agree with Brother Member (Judicial) in so far as dispensing with any Pre-deposit."

In view of the Majority decision, without ordering for any pre-deposit u/s 35F (unamended), the stay petition is allowed.

(See 2018-TIOL-1451-CESTAT-CHD )