Case Law Details
Johnson Controls Hitachi Air Conditioning India Limited Vs C.C.E. & S.T. (CESTAT Ahmedabad)
CENVAT credit is available on the amount of service tax paid for the services provided by the dealers to the customers on behalf of the appellant for fulfilling the warranty obligations of the appellant.
Facts- The issue involved in the present case is that whether the appellant is entitled for cenvat credit of services provided by them to the third party on free of cost basis.
Conclusion-
Held that the issue is no longer res-integra as in the appellants’ own case, Tribunal has held that the after sales services is the central pillar of the appellant’s promotional strategy towards sale of its final products, since these services augment the value of final products and thus, become important considerations for the customers while purchasing such products.
In this view of the matter, appellant correctly availed CENVAT credit on the amount of service tax paid for the services provided by the dealers to the customers on behalf of the appellant for fulfilling the warranty obligations of the appellant.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The issue involved in the present case is that whether the appellant is entitle for Cenvat credit of services provided by them to the third party on free of cost basis.
02. Shri S.J.Vyas, learned counsel appearing on behalf of the appellant at the outset submits that the same issue in the appellant’s own case has been decided by this Tribunal in their favour vide order no. A/10299-10300/2022 dated 31.3.2022 which is for the earlier period and this case is for the subsequent period, except the period there is no change in the facts and circumstances of the case.
03. Shri Dinesh Prithiani, learned Assistant Commissioner (AR) appearing on behalf of the revenue reiterates the finding of the impugned order.
04. We have carefully considered the submissions made by both the sides and perused the records. We find that this issue is no longer res-integra as in the appellant’s own case this tribunal vide order dated 31.03.2022 passed the following order:-
4. We have considered the rival submissions. We find that the issue regarding admissibility of cenvat credit on warranty service has been examined in detail by the Tribunal in the order in the case of M/s Case New Holland Construction Equipment (I) Pvt Ltd- 2021 (8) TMI 963-CESTAT New Delhi. It is seen that the said order examines the admissibility of credit for periods both pre and post 01.04.2011. The said decisions also examines the decision of Tribunal in the case of Mahindra and Mahindra Ltd cited by the Learned AR. In the said decision following has been observed:-
17. The submissions advanced by the learned Counsel for the appellant and the learned Authorized Representative of the Department have been considered.
18. The appellant claims that it is eligible for CENVAT credit on the in-warranty repair and maintenance services under the „means‘ clause of the definition of „input service‘ in rule 2(l) of the Credit Rules which requires the service to be “used, directly or indirectly, in or in relation to the manufacture of final products”. The contention is that „means‘ clause of the definition is very widely worded and words such as „directly or indirectly‘ and „in or in relation to‘, further expand the scope of the definition to include even those services which are indirectly used in relation to the manufacture of the final products.
19. The appellant further claims that the final products manufactured and cleared by the appellant are expensive and their maintenance is also cost-intensive for which specific training is required. The after sales services is the central pillar of the appellant‘s promotional strategy towards sale of its final products, since these services augment the value of final products and thus, become important considerations for the customers while purchasing such products. Accordingly, the final products carry contractual obligations of the appellant as the manufacturer of such goods, which are enumerated under the warranty policy of the final products. The dealers provide the services in accordance with the checklist provided by the appellant. The appellant also contends that it manufactured the final products with the sole intention to sell them and thus, sale of goods is integrally connected in relation to the manufacture of goods. The contention, therefore, is that since the repair and maintenance services are fundamentally linked to sale and sale directly affects the manufacturing activities, the services were used indirectly in relation to the manufacture of final products and would fall under the „means‟ part of the definition of „input service‟. Thus, it has been contended that the appellant was justified in availing 11 E/52867/2018 CENVAT credit of the service tax paid by the appellant on „maintenance and repair services‟.
20. The issue, therefore, that arises for consideration in the present appeal is whether CENVAT credit of service tax paid by the appellant on „repair and maintenance services‟ provided by the dealers for fulfilling the warranty obligations of the appellant has been denied for good and valid reasons.
21. To examine this issue, it would be necessary to reproduce the relevant portion of the definition of „input service‟, as defined in rule 2(l) of the Credit Rules. Rule 2(l) was substituted by Notification dated 01.03.2011 w.e.f 01.04.2011 and it is reproduced below :
w.e.f 01.04.2011
“2(l) “input service” means any service,-
(i) used by a provider of output service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,
and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
but exclude,
Xxxxxxxxxxx xxxxxxxxxxx xxxxxxxx xxx”
(emphasis supplied)
22. Rule 2(l), as it stood prior to 01.04.2011, is also reproduced below :
prior to 01.04.2011
“2(l) “input service” means any service,-
(i) used by a provider of taxable service for providing an output service; or
(ii)used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,
and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;”
(emphasis supplied)
23. „Input service‟ either prior to 01.04.2011 or w.e.f. 01.04.2011 means any service used by the manufacturer, whether directly or indirectly, or in relation to the manufacture of final products. The appellant is under an obligation to provide after sale service on the final products manufactured by it. The dealers provide the services and the appellant pays service tax on the amount paid by it to the dealers. The service is provided free of cost by the dealers during the warranty period but the appellant makes payment to the dealers for the services they provide to the customers. The repair and maintenance services are, therefore, linked to the sale. The services are, therefore, used indirectly in relation to the manufacture of final products.
24. This precise issue was examined by the Tribunal in Carrier Airconditioning & Refrigeration and reliance was placed by the appellant on this decision when the matter was heard by the Tribunal for the earlier period from April 2011 to June 2015. It would, therefore, be appropriate to examine this decision of the Division Bench of the Tribunal.
25. The appellant therein was a manufacturer of air conditioners and was also providing service of „repairing and maintenance‟ of the air conditioners sold to the customers either directly or through the dealers. The period of dispute in the appeal was from July, 2005 to May, 2012. In respect of the air conditioners sold by the appellant either directly or through the dealers to the customers, the appellant was under an obligation to provide free „repair and maintenance service‟ during the warranty period of twelve months. This service, at the behest of the appellant, was being provided by the dealers and for the payments received by them from the appellant, service tax was paid by the dealers.
The dispute that had arisen in the Appeal was whether the appellant could avail credit of the service tax paid by the dealers on the „repair and maintenance service‟ provided by them to the consumers on behalf of the appellant. The Department took a view that the appellant would not be eligible for such CENVAT credit and a demand of Rs. 9,82,03,090/- was made on this basis. The Tribunal observed that the services received by the appellant from the dealers has to be treated as „input service‟ used in or in relation to the manufacture of the final products by the appellant and, therefore, the demand that was confirmed was not sustainable. The relevant portion of the decision of the Tribunal is reproduced below :
“10. The Cenvat credit demand of Rs. 9,82,03,090/- is in respect of the service received from the dealers who had provided repair and maintenance service during warranty period on behalf of the appellant to the customers. The sale price of the air conditioners sold by the appellant to their consumers during the period of dispute included the warranty charges. There is no dispute that Central Excise duty had been paid on the value which included the warranty charges. During the warranty period, the 14 E/52867/2018 appellant were under obligation to provide free repair and maintenance services to the consumers, who had purchased the air conditioners from them. However, instead of providing the free repair and maintenance service directly in discharge of their obligation, the appellant roped in the dealers who provided free repair and maintenance to the consumers on their behalf and the dealers for providing this service on behalf of the appellant, received the payment from the appellant and on that amount, they paid the service tax. The point of dispute is as to whether the service provided by the dealers to the appellant is an input service and whether the appellant would be eligible for Cenvat credit in respect of the same. The service received by the appellants from their dealers is Business Auxiliary Service which has to be treated as an input service for the appellant used in or in relation to manufacture of their final products, as free warranty repair and maintenance during warranty period, has enriched the value of the goods. This issue stands decided in favour of the appellant by the Tribunal’s judgment in the case of Danke Products (supra) and Gujarat Forgings (supra) and also in the case of Zinser Textile Systems Pvt. Ltd. (supra). In view of this, this Cenvat credit demand is also not sustainable and has to be set aside.”
[emphasis supplied]
26. In Honda Motorcycle & Scooter India, the same issue was considered by a Division Bench of the Tribunal. The appellant was engaged in the manufacture of motorcycles & scooters and had availed CENVAT Credit on inputs, capital goods and input services under the Credit Rules. The dispute was for the period June 2011 to March 2016. The Tribunal examined whether the appellant was justified in availing CENVAT credit on services received by the appellant from their authorized service stations with regard to repairs during the warranty period. The Tribunal held that the appellant was justified in availing the CENVAT credit on the service of repairs received from their authorized service stations during the period of warranty in view of the decision of 15 E/52867/2018 the Tribunal in Carrier Air conditioning & Regrigeration. The relevant portion of the decision is reproduced below :
“8. We have heard both the sides and perused the record of the appeal. We feel that so far as the credit on services received by appellant from their authorized service stations with regard to free after sale services and repairs etc. of warranty period, the matter is no longer res-integra as this Tribunal in the case of Carrier Air conditioning & Refrigeration Ltd. vs. CCE, Gurgaon – 2016 (41) S.T.R. 1004 (Tri. – Del.) has already held that services provided by the authorized representative/ service stations are on behalf of the manufacturer and the service tax paid on availment of such services by the manufacturer, they are entitled for Cenvat credit of such input services………….
9. Accordingly, we hold that since the value of free after sale services and the warranty period repairs and maintenance are already included in the assessable value of the two wheelers, the service tax paid on availment of such input services by the manufacturer from their authorized representatives the appellant/assessee is entitled for credit of such input services.”
[emphasis supplied]
27. In Mahindra & Mahindra Ltd., a Division Bench of the Tribunal also observed as below :
“6. In view of these observations, we hold that if after sales service expenses are included in the assessable value, the assessee is entitled for input service credit on the expenses incurred on after sales charges……………… ”
28. In Samsung India Electronics, the appellant provided after sale service to the customers in respect of the products sold through authorized service centres and bore expenses incurred for providing such service during the warranty period. The authorized service centres paid service tax and the appellant took CENVAT credit. The Department, however formed an opinion that the services provided by the authorized service centres were not 16 E/52867/2018 „input services‟ for the goods manufactured and cleared by the appellant. The Tribunal, in view of the earlier decision of the Tribunal in Mahindra & Mahindra Ltd., held that the CENVAT credit can be taken on service tax paid on expenses incurred for providing warranty service.
29. The Division Bench of the Tribunal, in the own case of the appellant, for the earlier period from April 2011 to June 2015, however, took a contrary view holding that the earlier decisions of the Tribunal in Carrier Airconditioning & Refrigeration and Samsung India Electronics were distinguishable since they were rendered for the period prior to 01.04.2011, when the definition of „input service‟ was different. The finding recorded by the Tribunal in this decision dated 24.11.2017, is again reproduced below:
“We have also perused the case laws citied by the appellant but find that the case laws have been rendered for the period prior to the 01.04.2011 when the definition of „input service‟ was different. We find that these case laws are not applicable for the period under consideration.”
30. A perusal of the decision of the Tribunal in Carrier Air conditioning & Refrigeration would indicate that it concerns the period from July 2005 to May 2012. The decision of the Tribunal in Honda Motorcycle concerns the period from June 2011 to March 2016. These decisions, therefore, cover the period prior to 01.04.2011 and post 01.04.2011 and are based on the „means‟ part of the definition of „input service‟ and have not considered the „includes‟ part of the definition of „input service. The decisions clearly hold that the services received from the dealers would be „input service‟ used in or in relation to the manufacture of the final products.
31. The factual position in the Division Bench decisions of the Tribunal and the decision dated 24.11.2017 rendered by the Tribunal in the case of the appellant for earlier period is almost identical. It also needs to be noted that the decisions of the Tribunal in Carrier Air conditioning & Refrigeration, Honda Motorcycle and Samsung India Electronics are based on the „means‟ part of the definition of „input service‟, which part of the definition had not undergone any change on 01.04.2011. However, the Tribunal in the decision dated 24.11.2017 distinguished the aforesaid decisions of the Tribunal solely for the reason that an amendment had been made in the definition of „input service‟ on 01.04.2011. It is no doubt true that an amendment was made on 01.04.2011, but that amendment was made in the „inclusive‟ part of the definition of input service.
32. The issue, therefore, that would arise for consideration is whether the earlier Division Bench decisions of the Tribunal in Carrier Air conditioning & Refrigeration, Honda Motorcycle and Samsung India Electronics should be relied upon as precedents and the decision of the Tribunal rendered on 24.11.2017, in the own case of the appellant, should be taken to have been rendered per incuriam.
33. The learned counsel appearing for the appellant submitted that the principle of per incuriam should be applied and the Tribunal should follow the law laid down in the aforesaid three decisions of the Tribunal rendered in Carrier Air conditioning & Refrigeration, Honda Motorcycle and Samsung India Electronics.
34. The principle of per incuriam has been developed in relaxation to the rule of stare decisis. While referring to exception to the rule of stare decisis, it has been observed in „Precedent in England Law‟ by Rupert Cross, 1961 Edition:
“No doubt any court would decline to follow a case decided by itself or any other court (even one of superior jurisdiction), if the judgment erroneously assumed the existence or non-existence of a statute, and that assumption formed the basis of the decision. This exception to the rule of stare decisis is probably best regarded as an aspect of a broader qualification of the rule, namely, the courts are not bound to follow decisions reached per incuriam.”
35. In State of U.P. Synthetics and Chemicals Ltd, the Supreme Court observed:
“40. „Incuria‟ literally means „carelessness‟. In practice per incuriam appears to mean per ignoratium. English courts have developed this principle in relaxation of the rule of stare decisis. The „quotable in law‟ is avoided and ignored if it is rendered, „in ignoratium of a statute or other binding authority‟. (Young vs. Bristol Aeroplane Co. Ltd12) Same has been accepted, approved and adopted by this Court while interpreting Article 141 of the Constitution which embodies the doctrine of precedents as a matter of law.”
36. The maxim „per incuriam‘ is derived from the latin expression that means „through inadvertence‘. The literal meaning of the expression „per incuriam‘ is „through want of care‘. In Black‘s Law Dictionary, 5th Edition, it has been defined as “through inadvertence”. In Halsbury‘s Law of England Fourth Edition, Volume 26, it has been stated:
“A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of coordinate jurisdiction which covered the case before it, in which case it must decide which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statue or rule having statutory force. A decision should not be treated as given per incuriam, however, simply because of a deficiency of parties, or because the court had not the benefit of the best argument, and as a general rule, the only cases in which decisions should be held to be given per incuriam are those given in ignorance of some consistent statue or binding authority. Even if a decision of the Court Appeal must follow its previous decision and leave the House of Lords of rectify the mistake.”
37. In Babu Parasu Kaikadi (Dead) by Lrs. vs. Babu (Dead) Through Lrs.13 , the Supreme Court observed:
“14. Having given our anxious thought, we are of the opinion that for the reasons stated hereinbefore, the decision of this Court in Dhondiram Tatoba Kadam having not noticed the earlier binding precedent of a coordinate Bench and having not considered the mandatory provisions as contained in Section 15 and 29 of the Act had been rendered per incuriam. It, therefore, does not constitute a binding precedent.”
38. In Yeshbai vs. Ganpat Irappa Jangam14, a Division Bench of the Bombay High Court observed:
“27. Now, a precedent is not binding if it was rendered in ignorance of a statute or a rule having the force of statute. The rule apparently applies even though the earlier court knew of the statute in question. If it did not refer to and had not present to its mind, the precise terms of the statute. Similarly, a court may know of the existence of a statute and yet not appreciate its relevance to the matter in hand; such a mistake is again such incuriam as to vitiate the decision. These are the commonest illustrations of decision being given per incuriam. In order that a case can be decided per incuriam, it is not enough that it was inadequately argued. It must have been decided in ignorance of a rule of law binding on the court, such as a statute. (See the observations in „Salmond on Jurisprudence” Twelfth Edition, pages 150 and 169).”
39. It, therefore, follows that the principle of per incuriam can be applied for such decisions which have been given in ignorance of some statutory provision or some authority that is binding.
40. In the present case, the Tribunal in the decision dated 24.11.2017, distinguished the earlier binding decisions of the Tribunal on a mistaken belief that an amendment had been made in a definition of “input service”, whereas the „means‟ clause of the definition had come up for consideration before the Tribunal and it had not been amended. The Division Bench proceeded on an assumption that the benefit of CENVAT credit was being taken by the appellant therein either under the „includes‟ clause or „excludes‟ clause of the definition of „input service‟, which portion had been amended whereas reliance had been placed by the appellant on the decisions which had interpreted the „means‟ clause of the definition of the „input service‟. It was, therefore, clearly a case where that part of the statutory provision that should have been applied was ignored and that part of the statutory provision that was not relevant to the controversy was considered. When CENVAT credit was sought to be justified by the appellant under the „means‟ clause, for which reliance was placed on the earlier decisions of the Tribunal, there was no necessity to examine whether it can be justified under the „includes‟ clause or „excludes‟ clause of the definition. The decision rendered by the Tribunal on 24.11.2017 is, therefore, clearly per incuriam.
41. It is, therefore, considered appropriate to follow the three decisions rendered by the Tribunal in Carrier Air conditioning & Refrigeration, Honda Motorcycle and Samsung India Electronics in preference to the later decision rendered on 24.11.2017, which has distinguished these three decisions on a non-existent ground. This is what was observed by the Supreme Court in Babu Parasu Kaikadi and the relevant portion is reproduced below:
“18. Furthermore, this Court, while rendering judgment in Dhondiram Tatoba Kadam vs. Ramchandra Balwantrao Dubal was bound by its earlier decision of a coordinate Bench in Ramchandra Keshav Adke vs. Govind Joti Chavare . We are bound to follow the earlier judgment which is precisely on the point in preference to the later judgment which has been rendered without adequate argument at the Bar and also without reference to the mandatory provisions of the Act.”
42. In this view of the matter, the appellant correctly availed CENVAT credit on the amount of service tax paid for the services provided by the dealers to the customers on behalf of the appellant for fulfilling the warranty obligations of the appellant. 43. The order dated 25.05.2018 passed by the Commissioner (Appeals), therefore, cannot be sustained and is set aside. The appeal is, accordingly, allowed.
4.1 The ratio of aforesaid decision is squarely applicable to instant case. Relying on the aforesaid decision, we find that the credit on warranty service provided free of cost during the warranty period through third parties cannot be denied.
5. The demand, therefore, set side and appeals are allowed.
05. In view of the above tribunal’s decision, the issue is finally setttled. Accordingly, the impugned order is set aside. Appeal is allowed.
(Dictated & Pronounced in the open court)
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