2025 (4) TMI 821 - AT - Service Tax

Levy of service tax - Authorized Service Station Services - reimbursement of warranty charges received by the appellant from vehicle manufacturers - amounts received for accident repair services - incentives and commissions received from vehicle manufacturers insurance companies and banks/financial institutions - rental income from immovable property - eligibility of cenvat credit utilized by the appellant for payment of service tax on Authorized Service Station Services. Service tax on Authorized Service Station Services - HELD THAT - As rightly claimed by the appellant free services are provided to their customers who are owners of the vehicles and the reimbursements by the vehicle manufactures cannot be considered as service rendered to their customers in view of the definition prior to 16.05.2008. Moreover reimbursements cannot form part of the value in view of the Supreme Court decision in the case of Union of India v. Intercontinental Consultants Technocrats Pvt. Ltd. 2015 (2) TMI 593 - SC ORDER followed by this Tribunal in the case of Hewlett Packard India Sales Pvt. Ltd. vs. Commissioner of C. Ex. S.T. (LTU) Bangalore 2024 (1) TMI 679 - CESTAT BANGALORE where the Tribunal has held that reimbursable expenses cannot be included in the taxable value. Service tax on Accident Repair Services - HELD THAT - The Commissioner in the impugned order has clearly held that during the years 2004-05 and 2005-06 the appellant had declared a taxable service value has Rs.88, 02, 510/- and Rs.96, 31, 149/- respectively as against the amounts declared in their annual reports under vehicle service receipts as Rs.1, 05, 80, 536/- and Rs.1, 41, 22, 127/- respectively and since the appellant had not furnished any supporting documents as to why these differences in value the same was confirmed. Since the demands are only on the differential value based on the annual reports placed before the audit authorities in 2005 the notice issued in 2009 cannot allege suppression of facts. Therefor the demand is confirmed only for the normal period. Service tax on incentives and commissions received from the vehicle manufacturers and commissions received from various insurance companies and banks and financial institutions - HELD THAT - The appellant received incentives from the vehicle manufacturers for causing promotion and sale of their vehicles commissions received from various insurance companies for causing promotion and marketing of services rendered by the insurance companies and the commission received from banks and financial institutions for promoting their business were said to be liable to service tax under Business Auxiliary Services. The appellant has contested this liability on the ground that these incentives and commissions are in the form of discounts and hence not liable to service tax as held by various decisions of the Tribunal. The appellant has opposed the element of suppression on the ground that these records were placed before the audit in the year 2005 and 2007 and no such allegations were raised therefore they cannot be saddled with the allegation of suppression of facts. It is agreed with the appellant that since the relevant details of the earlier audit dated 13.07.2005 were placed before the audit officers the show-cause notice issued on 20.04.2009 alleging suppression of facts mis-statement cannot be sustained in view of the principles laid down by the Hon ble Supreme Court in number of decisions. Therefore the demands are confirmed only for the normal period. Ineligible cenvat utilized for payment of service tax on the Authorized Service Station Services - HELD THAT - The appellant had availed cenvat credit on invoices raised by their sister concerns M/S. Marikkar Engineers and Marikkar Industries in respect of services rendered for certain cars and motorcycles which had been sub-contracted to their sister concerns. Since we have held that on the warranty services the appellant is not liable to pay service tax based on the claims reimbursed by the vehicle manufacturers the cenvat credit cannot be allowed. Hence the same is being denied. Renting of immovable property - HELD THAT - The Commissioner in the impugned order except mentioning to the affect that the issue is no more res-integra in view of the retrospective amendment effect carried out to this service vide Finance Act 2010 there is no mention as to why and how the rental amount received by the appellant could be considered as renting of immovable property. The appellant has submitted that the renting of immovable property was for commercial purpose and the same is not liable to service tax in view of the decision in the case of Home Solution Retail India Ltd. Versus Union of India 2009 (4) TMI 14 - DELHI HIGH COURT wherein the Hon ble High Court observed that Section 65(105)(zzzz) does not in terms entail that the renting out of immovable property for use in the course or furtherance of business of commerce would by itself constitute a taxable service and be exigible to service tax under the said Act. The obvious consequence of this finding is that the interpretation placed by the impugned notification and circular on the said provision is not correct. Consequently the same are ultra vires the said Act and to the extent that they authorize the levy of service tax on renting of immovable property per se they are set aside. - the demand is justified. Since the demand is for the normal period the same is confirmed. Conclusion - i) Reimbursements cannot form part of the value in view of the Supreme Court decision in the case of Union of India v. Intercontinental Consultants Technocrats Pvt. Ltd. ii) Demands against Accident Repair Services under Annexure XIII XIV confirmed for normal period. iii) The commission received by the appellant from the insurance companies and from the bank/financial institutions are liable to service tax under category of Business Auxiliary Service. iv) CENVAT credit denied due to non-liability of warranty services. v) Renting of immovable property is confirmed. All penalties were set aside as the demands were confirmed only for the normal period with interest applicable - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered several core legal questions in this appeal:

• Whether the reimbursement of warranty charges received by the appellant from vehicle manufacturers is liable to service tax under the category of Authorized Service Station Services.
• Whether the amounts received for accident repair services are liable to service tax, particularly given the timing of the service tax net's expansion to include maintenance and repair services.
• Whether the incentives and commissions received from vehicle manufacturers, insurance companies, and banks/financial institutions are subject to service tax under Business Auxiliary Services.
• Whether the cenvat credit utilized by the appellant for payment of service tax on Authorized Service Station Services was ineligible.
• Whether the rental income from immovable property is subject to service tax, considering the retrospective amendment to the relevant legislation.

2. ISSUE-WISE DETAILED ANALYSIS

First Issue: Warranty Charges

• Legal Framework and Precedents: The definition of taxable service for authorized service stations initially referred to services provided to a "customer," which was later amended to "any person." The Supreme Court in Intercontinental Consultants & Technocrats Pvt. Ltd. ruled that reimbursable expenses cannot be included in the taxable value.
• Court's Interpretation and Reasoning: The Tribunal found that the warranty reimbursements from manufacturers did not constitute a service to the vehicle owners and thus were not taxable prior to the definition change in 2008.
• Key Evidence and Findings: The Tribunal relied on the definition change and Supreme Court precedents to conclude that reimbursements were not taxable.
• Conclusion: The demand for service tax on warranty reimbursements was dropped.

Second Issue: Accident Repair Services

• Legal Framework: Maintenance and repair services were included in the service tax net from 2005.
• Court's Interpretation and Reasoning: The Tribunal noted discrepancies between declared values in annual reports and ST3 returns, confirming the demand for the normal period.
• Conclusion: The demand was confirmed for the normal period due to the lack of supporting documents for value differences.

Third Issue: Incentives and Commissions

• Legal Framework: Business Auxiliary Services include promotion and marketing activities.
• Court's Interpretation and Reasoning: The Tribunal held that commissions received for promoting services of financial institutions and insurance companies were taxable under Business Auxiliary Services.
• Competing Arguments: The appellant argued these were discounts, not commissions, but the Tribunal found the nature of the transactions fit the definition of Business Auxiliary Services.
• Conclusion: The demand was confirmed for the normal period, rejecting the suppression allegation due to prior audits.

Fourth Issue: Cenvat Credit

• Court's Interpretation and Reasoning: Since warranty services were not liable to service tax, the cenvat credit claimed was denied.
• Conclusion: The credit was denied.

Fifth Issue: Renting of Immovable Property

• Legal Framework: Retrospective amendments to the Finance Act clarified the taxability of renting for commercial purposes.
• Court's Interpretation and Reasoning: The Tribunal found the demand justified based on the retrospective amendment and relevant case law.
• Conclusion: The demand was confirmed for the normal period.

3. SIGNIFICANT HOLDINGS

• Warranty Services: "Reimbursements cannot form part of the value in view of the Supreme Court decision in the case of Union of India v. Intercontinental Consultants & Technocrats Pvt. Ltd."
• Accident Repair Services: Confirmed for the normal period due to discrepancies in declared values.
• Incentives and Commissions: "The commission received by the appellant from the insurance companies and from the bank/financial institutions are liable to service tax under category of Business Auxiliary Service."
• Cenvat Credit: Denied due to non-liability of warranty services.
• Renting of Immovable Property: "The demand is justified. Since the demand is for the normal period, the same is confirmed."

All penalties were set aside as the demands were confirmed only for the normal period, with interest applicable. The Tribunal's decision reflects a careful application of legal principles to the facts, particularly in light of statutory amendments and judicial precedents.