Ford India Pvt Ltd Vs Commissioner of Customs (CESTAT Chennai)
Introduction: In a landmark decision, the CESTAT Chennai ruled that no Service Tax would be leviable on composite contracts for the repair of vehicles, which includes both the supply of goods and services, for the period leading up to 01.07.2012. This case, involving Ford India Pvt Ltd and the Commissioner of Customs, reflects on the complex nature of taxation laws in India. The following text delves into the intricate details of the case, dissecting the arguments and logic that led to this vital judgment.
Analysis: The case revolves around Ford India Pvt Ltd, a renowned car manufacturer, and its practice of extending warranties to its customers. These warranties include normal factory warranties and optional extended warranties, which are sold through authorized dealers. The core issue was the levy of service tax on the composite contracts, which entail both labor for repairs and material for parts being replaced.
According to the arguments presented, the service tax on the composite contract for maintenance and repair was not leviable for the period up to 01.07.2012. VAT and Service tax were mutually exclusive, and the demand to subject the entire value to service tax was contested. Moreover, the appellant argued for entitlement to claim deduction on the value of goods and materials and requested a cum-tax benefit.
The case also pointed to several legal precedents and specific sections of the Finance Act, reflecting the multifaceted nature of tax law in India. Key takeaways from the analysis include the identification of the contract as a ‘works contract’, the categorization of VAT and Service tax as exclusive levies, and the timing and scope of taxability under various clauses of the Finance Act.
Conclusion: The decision of CESTAT Chennai in the case of Ford India Pvt Ltd vs. Commissioner of Customs is a significant ruling that elucidates the legal position on composite contracts involving both goods and services. By ruling that Service Tax is not leviable on such contracts for the period up to 01.07.2012, the Tribunal has brought clarity to a complex area of taxation. It underscores the need for meticulous understanding and adherence to the provisions of tax laws and highlights the importance of considering all elements within a contract. The case serves as a vital reference for similar disputes and adds to the evolving jurisprudence on service tax in India.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This appeal is filed by the appellant against Order in Original No.LTUC/485/2013-C dated 19.12.2013 passed by the Commissioner, LTU, Chennai.
2. Brief facts of the case are that the appellant herein are manufacturers of cars and have obtained service tax registration for the services rendered by them. The cars manufactured by the appellants are sold to Authorized Dealers (dealers), who in turn sell the cars to the ultimate buyers. During the audit, it came to light that the appellant extended factory warranty to the ultimate customers for a period of two years from the sale of cars and after the completion of two years, the appellant canvases for purchase of extended warranty, scheduled plan and total maintenance plan which are optional in nature. On going through the records, it appeared to the department that the appellant is a service provider to the ultimate buyers of the cars as it is a contract between the appellant and the ultimate buyer of the car and the dealer is only a seller of the three plans as stated at para 8.1 below. Consequent to the amendment of section 65(105)(zo), dealing with repairs to vehicles (for motor cars / two wheelers), with effect from 1.5.2011, it appeared that the appellant were liable to pay service tax on the above services from the said date. However, the appellants were not paying service tax on the same. Further, on perusal of the ST-3 returns of the appellant, it was seen that they have not been disclosing ‘repairs of vehicles’ as one of the services provided by them. As there have been continuous sale of these services to the customers through their dealers without indicating the same in their returns and without discharge service tax, it appears that the appellant have indulged in mis-statement of facts with an intent to evade payment of service tax, thereby attracting proviso to section 73(1) of the Finance Act, 1994. Consequently, Show Cause Notice dated 5.6.2013 was issued to the appellant proposing to demand service tax to the tune of Rs.3,89,87,290/- for the period from 1.5.2011 to 30.6.2012 under proviso to section 73(1) of Finance Act, 1994 along with appropriate interest under section 75 ibid besides imposition of penalty under sec. 78 of the Finance Act, 1994. After due process of law, the adjudicating authority confirmed the proposals in the Show Cause Notice for the three services provided by the appellant to their customers along with appropriate interest and also imposed penalty equal to the service tax demand under sec. 78 of the Finance Act, 1994. Aggrieved by the said order, the appellant is now before the Tribunal.
3. No cross-objection has been filed by the respondent-department.
4. We have heard Shri Raghavan Ramabhadran, learned counsel for the appellant and Shri M. Ambe, learned Deputy Commissioner (AR) for the Revenue.
5. The learned counsel for the appellant submitted that the extended warranty plans are composite contracts involving labour by way of repairs and material by way of parts being replaced. Under the service tax regime, taxability on service tax portion of a composite works contract was made taxable for the first time w.e.f. 01.06.2007 vide insertion of Section 65(105)(zzzza). He placed reliance on the decision of the Hon’ble Apex Court in Commissioner v. Larsen & Toubro Ltd. [2015 (39) S.T.R. 913 (S.C.)]. He hence stated that Service tax is not leviable on composite contract for maintenance and repair of vehicle which entails both supply of goods and services for the period upto 01.07.2012. VAT and Service tax are mutually exclusive levies. The present demand has sought to subject the entire value to service tax, despite the fact that the spare parts were subjected to VAT. He stated that without prejudice, the appellant is entitled to claim deduction on the value of goods and materials in terms of Notification No. 12/2003 – ST dated 20.06.2003. Cum-tax benefit should also be extended to the Appellant. Further the demand of Rs.3,03,65,844/- is time-barred. There can be no interest liability and penalty fastened on the Appellant.
6. Shri M. Ambe, learned Deputy Commissioner (AR) took us through the impugned order and reiterated the findings therein.
7. Heard both sides. We propose to take up each of the issues raised by the appellant sequentially.
8. The extended warranty plans are composite contracts involving labour by way of repairs and material by way of parts being replaced. Service tax is not leviable on composite contract for maintenance and repair of vehicle which entails both supply of goods and services for the period upto 07.2012.
8.1 A contract which has both the elements of goods and service is a works contract. Much water has flown under the bridge since service tax was levied on composite works contracts. The Hon’ble Supreme Court in the case of Commissioner of Central Excise and Customs, Kerala and Others Vs. Larsen and Toubro Ltd. and Others [2015-TIOL-187-SC-ST] after elaborate discussion of the various provisions and judicial pronouncements in no ambiguous terms ruled that works contract cannot be subject to Service Tax before 01/06/2007. The question which remains is whether Service Tax is leviable on composite contract for maintenance and repair of vehicle which entails both supply of goods and services for the period from 01/06/2007 up to 01/07/2012, when the negative list of services was introduced.
8.1 The facts are that the appellant offers warranty for cars manufactured by them and sold to customers through their Authorized Dealers (dealers), who also conduct the servicing of the cars. The Appellant provides factory warranty coverage (“normal warranty”) for 2 years at the time of sale of each car. The present dispute does not deal with the issue of normal warranty. The appellant also offers ‘extended warranty’ under three optional coverage plans (collectively “Plans”) to the customers. The extended warranty plans are sold by the appellant to their car customers through their dealers. The Plans are detailed hereinbelow:
