Introduction: The legal landscape governing taxation and service charges in the automobile industry is intricate and continually evolving. One such crucial case is that of MGF Motors Ltd vs Commissioner of Central Excise (CESTAT Bangalore), which centers around the issue of service tax applicability on free repairs and services provided by car dealers during the warranty period. This article dissects the nuances of this landmark judgement to provide a comprehensive understanding of its implications for both consumers and authorized dealers.
Background: In the mentioned case, MGF Motors Ltd, an authorized dealer for Hyundai Motors, had been providing free services and repairs to customers under warranty. The crux of the matter revolved around whether the amount reimbursed by Hyundai Motors to the dealer for these services is liable for service tax.
Key Points of the Ruling
Conclusion: The case of MGF Motors Ltd vs Commissioner of Central Excise is pivotal as it clarifies the landscape surrounding service tax applicability on free services provided by car dealers under a warranty. The Tribunal’s judgement in favor of MGF Motors Ltd provides valuable legal precedent and could be a relief for authorized dealers and consumers alike. The ruling reinforces the importance of proper legal scrutiny and paves the way for more transparent dealings in the automotive industry.
FULL TEXT OF THE CESTAT BANGALORE ORDER
This is an appeal filed against Order-in -Original No.11/2009-ST dt. 16/12/2009 passed by Commissioner of Central Excise, Cochin.
2. None present for the appellant. Heard the learned AR for the Revenue.
3. Briefly stated the facts of the case are that the appellants are authorised dealers for selling and servicing of Hyundai cars manufactured by M/s. Hyundai Motors India Ltd. (HMIL, for short) During the warranty period, the appellant provided free services to the customers who purchased the new motor cars from the appellants. As per Clause 4.4 of the agreement entered into between HMIL and the appellant, they were not permitted to charge customers for any services for which the appellant is reimbursed by the HMIL for repairs carried out during the warranty period and other free services. Alleging that the amount reimbursed to the appellant is chargeable to service tax for the period April 2006 to March 2007 in terms of Service Tax (Determination of Value) Rules, 2006, demand notice was issued to them on 24/10/2007 for recovery of service tax of Rs.3,22,927/- on the said value along with interest and penalty. On adjudication, the demand was dropped by the Assistant Commissioner of Service Tax. However, on review of the same, the Commissioner after affording an opportunity to the appellant confirmed the demand with interest and imposed penalty under Sections 76 and 77 of the Finance Act, 1994. Hence, the present appeal.
4. We find that for earlier period i.e. May 2003 to March 2004 and April 2006 to March 2007 in appeal No.ST/582/2008 and ST/583/2008, similar issue was considered by this Tribunal and following the ratio laid down in the case of CCE, Indore Vs. Jabalpur Motors Ltd. [2014(36) STR 1160 (Tri. Del.)], the impugned orders were set aside and the appeals filed by the appellant were allowed, where the Tribunal held as under:
6.1 We also find that the free services are covered under clause 7.3(b) of the dealership agreement, which is reproduced below:
7.3 Reimbursement Rates (b) DEALER shall provide policy free services for all Hyundai Products covered under such scope regardless of whether the Hyundai Products have been purchased from them or any other Hyundai dealer. In case the servicing dealer is different from the selling dealer the servicing dealer will service the Hyundai products, as per the policies & procedures laid down by HMI from time to time. DEALER shall adhere to the changes in respect of the policies & procedures as notified by HMI from time to time.
6.2 From the above, it is evident that the show-cause notice as well as the orders of both the lower authorities are based on Clause 4.4 of the dealership agreement, which is not related to free warranty. Free warranty is provided in terms of clause 7.3 of the agreement. The said clause does not provide for any reimbursement. Even from the language of clause 4.4, it does not flow that the repairs covered under warranty are reimbursable. Reference to reimbursement is in relation to any services for which dealer is reimbursed by HMT without limitation. 6.3 We also find that the issue of liability to service tax for free services provided to car purchasers by the authorised dealers is already settled in favour of the assessee by this Tribunal in the case of Jabalpur Motors Ltd. (supra) wherein this Tribunal held as below:
4. We have considered the facts of the case. Authorised Service station is defined as under : “
“authorised service station‟ means any service station, or centre, authorised by any motor vehicle manufacturer, to carry out any service, repair, reconditioning or restoration of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer”, and the related taxable service is defined as “a service rendered to a customer, 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.”
5. It is evident from the above definition that the liability to service tax is on account of the said service provided to a customer. The service is provided to the car buyers who are the customers. For the free services, no amount is charged from the As regards the contention that amount towards the free services is reimbursed by Maruti Udyog Ltd., it is seen that Maruti Udyog Ltd. have categorically stated that they do not reimburse any amount towards such free services to the dealers. The respondents have also stated that providing such free services is part of the functions and duties of dealers who are entitled to the dealership commission. Also the free services are rendered to the car buyers and not to M/s. MUL and the car buyers pay nothing therefor. Seen in this light it is evident that the demand of service tax as per column 5 of the table above is misconceived. Coming to the demand of service tax on the amount received on account of salary of drivers of vans used for providing mobile service to the car owners shown in column 4 of the table, it is evident that the customer in this case is the car owner who is the recipient of service. M/s. MUL receive no service nor are M/s. MUL, the respondents’ customers. Thus the respondents have not provided the service of authorised service station to them (i.e. M/s. MUL). Accordingly this amount cannot be made liable to service tax under the category of authorised service station service.
6. In the light of the foregoing, we find that the appeal filed by the Revenue is not sustainable and is therefore dismissed.”
6.4 The issue is also covered by the decision of this Tribunal in the case of CCE, Nashik vs. Automotive Manufacturers Ltd. (supra); ASL Motors Pvt. Ltd. vs. CCE & ST, Patna: 2008 (9) STR 356 (Tri. -Kolkata) and Indus Motor Company vs. CCE, Cochin: 2009 (9) STR 18 (Tri. -Bang.).
6.5 We also find that in the case of ASL Motors Pvt. Ltd. (supra), this Tribunal took the following view in favour of the assessee:-
“4. We find that the Ministry in its Circular No. 28/2006-Cus. (sic) (Circular No. 87/05/2006-S. T.), dated 6-11-06 has clarified that where service charges are reimbursed by the vehicle manufacturers, such reimbursement should be subjected to service tax. However, it is well-known that free servicing is normally provided by the dealers in the vehicle trade meeting the expenses from the dealers’ margin, yet the Ministry has chosen to keep silent regarding taxability of such free servicing provided by the dealers for which no reimbursements are made by the vehicle manufacturers. It appears to us that such silence about the dominant practice of providing free servicing has resulted in some field officials taking unilateral action as in this case while majority of the dealers are not taxed on free servicing provided by them.
5. We also find that in the constitutional scheme of things, there is mutual exclusivity between the taxability of sale of goods, which is charged to sales tax by the State; the excise duty on manufactured goods which is levied by the Centre; and the tax on services, which is also levied by the Centre. The impugned amount in question is a part of the dealers’ margin which has been recovered by the appellants as a part of the sale value of the cars from the customers and the entire amount has been subjected to sales tax by the concerned State Government authorities. When the appellants sold the cars and recovered the amount including the dealers’ margin, the dominant intent, was to sale the goods, namely, cars and not to provide free after sales service. In our view, the entire amount including the dealers’ margin has been rightly taxed to sales tax representing the value of the cars. The provision of free servicing is merely incidental and intended to promote the sale of the cars. Hence, we are of the view that no service tax can be levied on the amount representing the dealers’ margin or any part of it which already has been subjected to sales tax. Consequently, we set aside the impugned order and allow the appeal.”
6.6. By following the ratio of the above judgments, we hold that the order of the Commissioner (A) is not sustainable and the same is set aside.
5. We do not find any reason not to follow the said judgment of this Tribunal delivered for the earlier period. Consequently, following the said judgment, the present appeal is also allowed with consequential relief, if any, as per law.
(Dictated and pronounced in open court)