Case Law Details

Case Name : Commissioner of Central Excise, Nashik Vs Mahindra & Mahindra Ltd. (CESTAT Mumbai)
Appeal Number : Final Order Nos. A/388-389/2012-WZB/C-I (CSTB)
Date of Judgement/Order : 02/05/2012
Related Assessment Year :
Courts : All CESTAT (609) CESTAT Mumbai (127)


Commissioner of Central Excise, Nashik


Mahindra & Mahindra Ltd.

Final Order Nos. A/388-389/2012-WZB/C-I (CSTB)
APPEAL NOS. ST/43/2009 & E/1742/2010-MUM.

MAY  2, 2012


Ashok Jindal, Judicial Member

Heard both sides.

2. Brief facts of the case are as under.

2.1 Appeal No. ST/43/2009 has been filed by the Revenue against the order passed by the adjudicating authority holding that the assessee is entitled to take input service credit on after sales service provided by the dealer subject to the conditions that the service charges are included in the assessable value of the vehicle.

2.2 Appeal No. E/1742/10 has been filed by the assessee M/s. Mahindra & Mahindra for disallowing the input service credit on after sales service charges paid by the dealer which claimed by the assessee that they have included the same in the assessable value.

2.3 Therefore, from both the appeals the issue arises that whether the assessee is entitled to avail input service credit on after sales service charge paid by the dealer which are included in the assessable value or not.

2.4 As the issue involved is common in both the appeals, therefore both the appeals are disposed of by a common order.

3.Shri Bharat Raichandani, learned Advocate appearing for the appellant submitted that as per the Cenvat Credit Rules, 2004, for any transaction value the assessee is required to include warranty charges/after sales service charges which are provided free of cost to the customer by the dealer. It is further submitted that for the earlier period the assessee was issued a show-cause notice whether they have included these after sales service charges in the assessable value or not. After ascertaining the fact that the assessee has included in the assessable value, the show-cause notice was dropped. He further submitted that as the assessee has included the cost of these after sales service charges in the assessable value, therefore the service tax paid by the dealer, the assessee is entitled to avail input service credit. He further submitted that in the case of Samsung India Electrics (P.) Ltd. v. CCE [2005] 1 STT 289 (Delhi-CESTAT), this issue came up before this Tribunal. This Tribunal has held that the assessees eligible for after sales service charges during the warranty period if any expenses have been incurred by the dealers for the same, assessee is entitled for input service credit. Therefore, he prayed that the order passed by the CCE, Nasik is correct and the order passed by the CCE, Mumbai-V is liable to be set aside.

4.Shri S. Dewalvar, Addl. Commissioner (A.R.) strongly opposed the contention of the learned Advocate and submitted that the input service credit taken by the assessee on after sales service, in fact, is not an ‘input service’. The learned A.R. further submitted that this is not a sale promotion of the goods as every manufacturer in the industry is giving offer to the customers to sell the vehicle. Therefore, it is a general offer given to the customer which does not amount to sale promotion. Therefore, the assessee’s appeal be dismissed and the Revenue’s appeal be allowed.

5. Considered the submissions made by both sides in detail.

5.1 The first issue by the learned A.R. is that after sales service of the vehicle is not an ‘input service’ on the ground that the service has been availed after sale of the vehicle and expenses incurred towards manufacture of the vehicle are entitled for input service credit. We have gone through the Section 4(3) of the Central Excise Act, 1944 which deals with the issue as hereinunder :-

(d) “transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.

By going through the said provision, we find that the transaction value means the price actually paid or which are payable for the goods when sold and those includes servicing and warranty also. Admittedly the service and warranty is post manufacturing expenses which are to be provided to the customer after sale. As per the provision of Section 4(3)(d) the value of warranty and servicing which is a post manufacturing are includible in the assessable value and therefore, these expenses incurred in the service are entitled for input service credit.

5.2 We do not find any force in the arguments of the learned A.R. that the expenses incurred after sales service is not an ‘input service’. The said issue came up before this Tribunal in the case of CCE v. Danke Products [2010] 26 STT 56 (AHD.- CESTAT) wherein the facts of the case are that the appellants were engaged in the manufacture of electrical transformers and those were cleared on payment of duty. As per the terms of contract, the assessee was under obligation to repair and maintain the transformers during the warranty period free of charge. Those job of repair and maintenance was entrusted to 3rd person who raised bills for repair and maintenance on assessee in turn the assessee took input service credit. The issue was dealt with by the Tribunal. In that case wherein the Tribunal has observed as under :-

“The dispute in the present appeal is as to whether such availment of service tax paid by DEL is correct or not. Commissioner (Appeals) has granted the benefit to the assessee by observing as under :

“4.4 It is contended by the appellants and not disputed by the department that the impugned services are in respect of transformers manufactured/sold by the respective parties and in respect of which certain repairs/maintenance became necessary within the warranty period. It is an established trade practice that during the warranty period, the manufacturer is obliged to provide the repair and maintenance of machinery, equipments etc. It is also well settled that the cost of repairs and services during warranty period are a part of the assessable value of the final products and Central Excise duty is paid on the said charges/cost. Further, as per the definition of “transaction value” under Section 4 of the Central Excise Act, 1944 amounts charges towards servicing, warranty etc. are includible in the transaction value. In this case also, the services provided by the repairer i.e. M/s. Danke Electricals by way of repair/maintenance in respect of transformers sold (by the three appellants) to GEB and falling within the warranty period were provided by M/s. Danke Electricals at the instance of the manufacturers and not on their own or at the instance of GEB. The payments for the said services were made by the Appellants including the service tax involved thereon. The aspect that the impugned transformers for repair/service were directly received from the customer (GEB) by the party and returned back to GEB without routing through the Appellants is not relevant for determining as to who was the actual receiver of the services in this case. The movement of transformer from GEB to the repairer and back to GEB was an arrangement for convenience between the Appellants and M/s. Danke Electricals and M/s. GEB to avoid unnecessary movement of the transformers. The fact remains that in these cases, the repairer has no direct relation/agreement with GEB in respect of the said repairs etc. and these repairs were undertaken by the repairer at the instance of the Appellants (who are also the manufacturers of the goods) and on their behalf and were paid for by the Appellants. In view of the above reasons as well as the fact that the repairs during warranty period are the obligation of the manufacturers, in this case the appellants and it is they who had assigned the said work to M/s. Danke Electricals and have paid for the same. I do not find merit in the contention of the Department that the impugned services were rendered to GEB and not to the Appellants. For the reasons as aforesaid, I find that the impugned services – Maintenance and Repair Services – were actually provided by M/s. Danke Electricals to the appellants and not to M/s. GEB even though the transformers during warranty period may have been received from M/s. GEB and returned to them without routing through the manufacturer.”

5.3 As observed by Commissioner (Appeals), the respondents were under a legal obligation to provide repair and maintenance service to GEB. The value of such services already stands included in the assessable value of the transformer in terms of Section 4 of CEA, 1944. The respondents could have provided such services on their own and paid the service tax and availed the credit of the same in which case, there would not have been any dispute. Instead of providing the repair and maintenance service themselves, they engaged DEL to do the same. As rightly concluded by the Commissioner (Appeals) such services were, in fact, being provided by DEL to the respondents and not to GEB. The fact that the same was in respect of the transformers already sold to GEB, would not change the situation inasmuch as the repair and maintenance of the same was a legal obligation of the respondents. As such, I find no reason to take a view different than one taken by the Commissioner (Appeals).

6. Apart from the above, the appellate authority has viewed the problem from angle, when he observed as under :

“4.5 Assuming, though not admitting, for the sake of argument that the services have been provided by M/s. Danke Electricals to M/s. GEB on behalf of the appellants, then the service would be appropriately classifiable as “Business Auxiliary Service” covered under clause (iii) [any customer care service provided by a third party on behalf of another person] and/or under clause (vi) [any service provided by a third party on behalf of another person] of Section 65(19) of the Finance Act, 1994. Keeping in view the fact that services/repairs during warranty period are an obligation of the manufacturer of goods and in a situation, as in the present case, where the said service is rendered by a third party (in this case by M/s. Danke Electricals) on behalf of the manufacturer, then also the said services – Business Auxiliary Service – would be covered with the definition of input service for the appellants.”

Apart from the above, he has also taken note of the definition 7. of the ‘input service’ as appearing under Rule 2(1) of Cenvat Credit Rules, 2004 and has held that it is wide enough to take into its ambit the above kind of service being provided by the respondents to GEB. I note that the definition of ‘input service’ stand examined by Larger Bench of the Tribunal in case of M/s. ABB Ltd. 2009 (15) STR 23 (Tribunal-LB) = 2009 (92) RLT 665 (CESTAT-LB), and it has been held that expression “activities relating to business” are of wide import and would take into its ambit all types of activities. Admittedly, the repair and maintenance of transformers, being an activity relating to the sale of goods, and hence can be said to be relevant to the business, it stand rightly concluded by Commissioner (Appeals) that service of repair and maintenance of transformers during warranty period is a service covered by definition of input service and the assessees are entitled to take Cenvat Credit of service tax paid on such services. I find no reason to take a different view.”

7. 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. Therefore, the appeal filed by the Revenue is dismissed and the appeal filed by the assessee is remanded to the adjudicating authority for verification whether after sales service charges are included in the assessable value or not as the assessee did not produce the Chartered Accountant’s certificate before the adjudicating authority. Therefore, the adjudicating authority shall consider the certificate issued by the Chartered Accountant/Cost Accountant and thereafter pass an appropriate order after giving a reasonable opportunity to the appellant to present their side.

8. Both the appeals are disposed of in the above terms.

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