Free services offered during warranty periods not liable to service tax

Reliable Automotive Private Limited Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)

The appellant is a dealer. It purchases heavy vehicles from Tata Motors and cars from Hyundai Motors. The said vehicles are sold to customers. A demand of service tax of over Rs.33 crores was raised on the appellant on the ground: (i) the discount/incentive offered by the manufacturer by way of various schemes is consideration for providing business promotion/business auxiliary services; (ii) the free services provided during warranty period are liable to service tax; (iii) sharing of business promotion expenses is providing of business auxiliary service to the manufacturer; (iv) incorrect reversal of cenvat credit in terms of Rule 6(3A) of the Cenvat Credit Rules, 2004. Hence, appeal against order passed by the Commissioner.

The Hon’ble CESTAT, Mumbai allows the appeal and set aside the demands and penalties. It held: (i) the demands were for period prior to and post negative list regime (i.e. 01.07.2012). Analyzing the statutory provisions along with the dealership agreement, the incentives were in nature of discount offered by the manufacturer which were ultimately passed on the customer. Hence, it cannot be considered as business auxiliary service; (ii) follows decision in the case of My Car Pune and  Sai service station; (iii) distinguishes judgment, on fact, in the case of Tata Motors and HDFC Bank relied upon by the Commissioner; (iv) that free service provided during the warranty period is not liable to service tax; (v) that cost sharing of expenses incurred is not subject to service tax; follows decision in the case of Reliance ADA; (vi) the appellant is not liable to reverse cenvat credit in terms of Rule 6(3A) as the audit had accepted the explanation and commissioner has not given any finding on the same.

The matter was argued by Ld. Counsel Bharat Raichandani

FULL TEXT OF THE CESTAT MUMBAI ORDER

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