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TMI Blog2024 (5) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... yers. During audit, it was noted by the officers of the Department that the appellant is providing Extended Warranty Scheme (EWS) to customers. The appellant solicits and effects contractual obligation of extended warranty scheme at their owner dealer-cum-service station as well as through other dealers. The appellant's depots and Authorised Service Stations were paying service tax on the upfront charges collected towards the extended warranty scheme till 30.06.2012. Whereas, for the upfront charges collected by the appellant through other dealers, no service tax was being discharged. In addition to manufacture of cars, the appellant has a 'certified used car program' under the brand name "Advantage", whereby used vehicles certified by Hyundai Engineers are sold with a Hyundai Warranty up to 1 year / 20,000 Kms along with two free services. The appellant had not discharged service tax on amount collected for used car program also. Show Cause Notices for the different periods were issued to the appellant proposing to classify the said services under 'Repairs of Vehicles' as under Section 65(105)(zo) for the period from 01.05.2011 to 30.06.2012 and demanding the service tax along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the appellant collected EWS upfront charges, there is an implied understanding that the dealer would attend and carry out the repair services. The appellant is therefore not the service provider for the EWS. 3.2 It is submitted that prior to 01.07.2012, the demand cannot be raised under the category of 'Repair of Vehicle Services' as the service is composite in nature involving use of materials (spares / parts) and rendition of service. The service of repairs to motor vehicles was introduced as a taxable service with effect from 16.07.2001. The service defined under Section 65(105)(zo) for the period prior to 01.05.2011 is as under:- "Section 65(105) "Taxable Service" means any service provided or to be provided- ....... (zo) to any person, by an authorised service station, in relation to any service repair, reconditioning or restoration of motor cars, light motor vehicles or two wheeled motor vehicles, in any manner;" The above definition was amended with effect from 01.05.2011 and the definition reads as under:- "Section 65(105) "Taxable Service" means any service provided or to be provided- ........... (zo) to any person, by any other person, in relation to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for carrying out any other similar activity or a part thereof in relation to such property;" 3.5.2 The Ld. Counsel submitted that the Tribunal in the case of M/s. Ford India Pvt. Ltd. (supra) observed that the nature of contracts under Extended Warranty Service being composite contract which involve use of materials as well as rendition of services, the demand of service tax for the period prior to 01.07.2012 cannot be made under Section 65(105)(zo) and can be only under Section 65(105)(zzzza) as Works Contract Service. It is prayed that the demand raised under Section 65(105)(zo) for the period prior to 01.07.2012 may be set aside. 3.6 The Ld. Counsel put forward arguments relying upon the very same decision to contend that the said decision would apply for the period post 01.07.2012 also. The Ld. Counsel adverted to the definition of Works Contract Services under Section 65B(54) reproduced above and submitted that with effect from 01.07.2012, the repair of motor vehicles would fall under Works Contract Services as it involves the use of materials and an element of sale of goods. 3.7 It is submitted that accordingly for the period post 01.07.2012, the appellant has discharged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant that the EWS is in the nature of Works Contract Services by erroneously observing that there is no transfer of property / sale of goods at the time of entering into the EWS contract. It is submitted by the Ld. Counsel that though at the time of collecting the upfront charges there is no transfer of property in the goods, the appellant undertakes to do repairs of the vehicle which involves transfer of property in goods and therefore the service is in the nature of Works Contract Services. It is argued that if the interpretation of the Department is accepted, it may lead to a situation where any advance collected in respect of any works contract will have to be treated as 'pure service' and then service tax would be payable on the entire value of the advance received in spite of the fact that the activity involves transfer of property in goods. In the case of providing WCS, invoices are raised and the assessee is liable to pay service tax after deducting the abatement, so that value of the goods used for providing WCS are not subject to levy of service tax. The Original Authority has not considered these aspects and erroneously held that the activity does not fall un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount to levy of double taxation which against law. It is submitted that the appellant having discharged the service tax under WCS, availing the abatement correctly, the present demand on the entire value of upfront charges may be set aside. 3.14 The Ld. Counsel argued on the ground of limitation also. The appellant was under bona fide belief that they are not liable to pay service tax for the sale of extended warranty services. However, only by abundant caution they have paid service tax under Works Contract Services defined under Section 65B(54) of the Finance Act, 1994. The issue is wholly interpretational in nature. The appellant having discharged service tax in accordance with Works Contract Service cannot be saddled with the guilt of suppression of facts with intent to evade payment of service tax. The Department has not established any positive act of suppression on the part of the appellant. It is submitted that for these reasons, the invocation of extended period and the penalties imposed may be set aside. 4.1 The Ld. Authorised Representative Shri Anoop Singh appeared and argued for the Department. It is submitted that the main issue to be decided is whether the Exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h defective parts. The parts so replaced, become the property of HMIL. What is not Covered: This warranty does not apply to: * Normal maintenance services such as, cleaning and polishing, adjustments, lubrication, oil changes, anti-freeze coolant replenishment, engine turning, fluid changes, filters replenishment, fastener retightening, wheel balancing, wheel alignment and the rotation etc. * Normal deterioration or wear of any part. * Replacement of parts as a result of normal wear and tear such as spark plugs, belts, brake pads and linings, clutch, disc/facing, filters, wiper blades, bulbs, fuses etc. * Any vehicle where the odometer mileage has been altered * Paintwork, body work, water ingress and corrosion, glass lenses, trim bright work, door lock cylinders and air bags * Wheels, wheel balancing trees, exhaust system and catalytic converter. * Engine tuning, cleaning of fuel lines, filters, nozzles, carburetors and pumps, drive belts that are not encased, impact or external damage, de-carbonization and failures caused by the build up of carbon deposits (including burnt valves). * All wiper blades and rubbers, hoses, pipes and unions. * Mountings (includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the demand raised is legal and proper. It is submitted that the definition of Works Contract Services under Section 65B(54) would not be applicable to the period prior to 01.07.2012 and that the activity is not WCS. 4.4 In regard to the demand for the period post 01.07.2012, the Ld. Counsel adverted to the definition of 'service' as under Section 65B(44) of the Finance Act, 1994. This definition expressly states that it 'includes a declared service'. Section 66E of the Finance Act, 1994, gives the list of declared services. In the said list, clause (e) states that services in the nature of 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act' is a declared service. As per the EWS, the appellant renders a service in the nature of agreeing to the obligation to do an act. Therefore, providing EWS is a declared service. Show Cause Notice has been issued demanding the service tax under Section 66B(44) for the period post 01.07.2012 and therefore is legal and proper. 4.5 The appellant has discharged service tax for the period post 01.07.2012 only on 70% of the gross value by classifying the service under Works Contract Services. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded repair / maintenance service under the contract which involves supply of spare parts." 4.7 Only in the case of Sl.No. (iii) as above, transfer of property in goods is involved in execution of the contract and in remaining cases, no goods are supplied by the appellant. Even, in case of Sl.No. (iii), the services are provided by the dealer for repair / maintenance of the vehicle and billed separately as a service. The service provided by the appellant in accordance with EWS is not actual repair of vehicles but only a promise to repair the vehicles in the event of happening of the contingency of the vehicles requiring repair / replacement of parts. 4.8 It is stressed by the Ld. Authorised Representative that situations also may occur when no repair / maintenance is needed at all during the EWS period and no such repair / maintenance / replacement are provided. Thus there may be situations or contingencies in which vehicle is never brought to the service stations, situation were billing of repair is much more than the upfront charges paid, situation where billing of repair is much less than the upfront charges paid, etc. Thus, the service provided of issuing EWS is not actual rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpretation. Neither is there, any casus omissus in the statute, in as much as there is no need for any words to be added or substituted to arrive at the conclusion that EWS falls within the ambit of Section 65B(44) of the Act. The appellant has charged consideration in the nature of EWS for agreeing to an obligation as per the contractual terms to do certain acts under certain conditions and same stands covered under the definition of declared service as per provision of Section 66E of the Act. 4.14 The appellant is a manufacturer whose existence is dependent on the sale of its motor cars. To retain the market and to widen it, a number of services are rendered in relation to sale of cars. The sale is packaged attractively through post-sale services rendered through its dealer network. The beneficiary or service recipient of EWS is the purchaser of cars. A situation of replacement of defective vehicle or parts are not happy anticipations. These are in the nature of low probability risks which are attempted to be mitigated through the Extended Warranty Scheme. 4.15 The repair service / replacement of parts are rendered by the dealer of appellant. Only when need for replacement ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Repairs to Vehicle Services' involves transfer of property in goods and being a composite contract has to be classified under the Works Contract Services. The ingredients of the service of repair to vehicles does not include the element of transfer of property in goods as in the case of definition of WCS under Section 65(105)(zzzza) and therefore Section 65(105)(zo) is applicable only to service simplicitor. The definition of Works Contract Services introduced with effect from 01.07.2012 has also been taken assistance to support this argument. 7.3 The issue whether the activity of issuing EWS would fall under 'Repair to Vehicle Services' prior to 01.07.2012 has been decided by the Tribunal in the case of M/s. Ford India Pvt. Ltd. Vs. Commissioner of Customs, Chennai [2023 (8) TMI 409-CESTAT CHENNAI], wherein it has been held by the Tribunal that prior to 01.07.2012, the demand cannot sustain under Section 65(105)(zo) for the reason that repair to vehicle services involve both use of materials and rendition of service. The relevant paragraphs of the Tribunal decision read as under:- "8. The extended warranty plans are composite contracts involving labour by way of repairs and mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al failures * Wear and tear parts * Labour costs * Accident repairs * Tyres * Fuel Whenever a customer invokes the extended warranty, the customer approaches the dealers, who provide the repairs and replace defective parts if necessitated. The dealers then raise claims upon the appellant for reimbursement of the value of the repairs and parts replaced. The appellant then reimburse the dealers for the claims so raised, inclusive of applicable Value Added Tax ('VAT') component on the parts replaced. The impugned order has demanded service tax on this transaction which is now under dispute before us. 8.2 Before we go forward a question arises as to whether the service of 'extended warranty' will be liable to tax under 'Repairs to Vehicle' service as per Section 106(65)(zo) which was introduced from 16/07/2001 or as a 'Works Contract'. As stated earlier, a contract which has both the elements of goods and service is a works contract. We find that the Hon'ble Apex Court in Commissioner Central Excise & Customs, Kerala vs. Larsen & Toubro Ltd. [Civil Appeal No. 6770 OF 2004/ 2015 (39) S.T.R. 913 (S.C.)] held that 'Works Contract' is a separate species of contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) turnkey projects including engineering, procurement and construction or commissioning (EPC) projects" Explanation (ii)(d) to the above section makes it clear that works contract for carrying out repair is in relation to construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry or construction of a new residential complex or a part thereof alone are covered. Repair and maintenance of vehicles, was not covered under Explanation (ii)(d). A major shift in the service tax provisions was made by the introduction of the 'negative list' of services in the Finance Act 1994. After deleting the "definition section" from the Finance Act, 1994, one new Section 65B (Interpretations) has been inserted by the Finance Act, 2012. In the new system all services, except those specified in the negative list, were subject to Service Tax. Subsequently Notification No. 19/2012 ST dated 05.06.2012 was issued s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We, now proceed to examine the demand post 01.07.2012. The Ld. Counsel for the appellant has vehemently argued that post 01.07.2012 also, the service rendered by the appellant under EWS would be WCS and that the appellant having discharged the service tax under WCS by availing 30% abatement, the present demand raised on the entire amount denying the abatement cannot be sustained. The Ld. AR has countered the above submissions by stating that post 01.07.2012, the definition of service provided under Section 65B(44) would cover the activity of issuing EWS and therefore, the activity will not fall under WCS. 8.2.1 The Show Cause Notice has been issued demanding the service tax post 01.07.2012 under Section 65B(44). The definition of 'service' under Section 65B(44) of the Finance Act, 1994, is reproduced as under:- "Service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,-- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talments; (h) service portion in the execution of a works contract; (i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity." 8.3 The main argument advanced by the appellant is that repair of vehicle involve replacement of spares / parts and as there is transfer of property in goods, such services are to be classified under Works Contract Services only. This argument is based on the definition of Works Contract Services under Section 65(105)(zzzza) and under Section 65B(54) introduced post 01.07.2012. Section 65B(44) is reproduced below:- "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;" 8.4 The nature of EWS and its salient features ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arises out of the separate dealership agreement. The EWS agreement is independent and entered by appellant with customer. There is no cause for double taxation. 8.8 The Ld. Counsel for the appellant has been at pains to argue that since the repair of a motor vehicle involves supply of parts / spares and is composite in nature, the same has to be classified only under WCS. We have no quarrel that when actual repair work is done, the activity would fall under WCS as defined under Section 65B(54). However, in the present case, it is only a promise to do the repair and the consideration is not for the actual repair. It has to be stated that in case there is an agreement to provide Works Contract Services (repair services), there is a specification as to what is the works that has to be executed and as well as the amount required for execution of such work. Both parties would be at consensus as to the nature of the work that has to be done as well as the consideration that has to be paid for the work. There is no element of risk involved to either parties. In other words, when there is a payment made agreeing to provide a service, both parties are well aware as to what is the service t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide repair service whereas, under Section 66E(h) it's the agreement to provide or to be provided which becomes taxable. In fact post 01.07.2012 any activity carried out by a person for another for consideration is a service. 8.10 The Ld. Counsel has adverted to the clarification issued by Board in GST regime vide Circular No. 195/07/2023-GST dated 17.07.2023. The said Circular is reproduced as under:- Sl. No. Issue Clarifications 6. Sometimes companies provide offers of Extended warranty to the customers which can be availed at the time of original supply or just before the expiry of the standard warranty period. Whether GST would be payable in both the cases? (a) If a customer enters in to an agreement of extended warranty with the manufacturer at the time of original supply, then the consideration for such extended warranty becomes part of the value of the composite supply, the principal supply being the supply of goods, and GST would be payable accordingly. (b) However, in case where a consumer enters into an agreement of extended warranty at any time after the original supply, then the same is a separate contract and GST would be payable by the service provider, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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