Service Tax on Free After sales services by Authorized Service Station

PJ/Case Laws/2011-12/1528

Case: CCE, MEERUT-I v/s M/s SHAKUMBARI AUTOMOBILES PVT LTD

Citation: 2012-TIOL-127-CESTAT-DEL

Issue:- Whether Authorized service station providing free after sale service are liable to pay service tax when said service provided to boost sale of vehicles and the amounts were not reimbursed by the manufacturer?

Brief Facts:- Respondents are authorized Maruti dealer engaged in selling the vehicles of Maruti Suzuki India Ltd. and are their authorized service station. They are also engaged in providing after sale service to the customer. In the present scenarios, more free services are being provided to boost the sale. When the appellants sold the cars and recovered the amount including the dealer's margin, the dominant intent was, to sell the goods, namely cars and not to provide free after sales services.

Appellant’s Contention:- The appellant contended that as regards the charges paid by the seller of car to other authorized service station, where the car was serviced under three free services as per the norms fixed by Maruti Udyog Ltd., these are part of the sale value of car and for the service provided.

Reasoning of Judgment:- The Tribunal held that there is no evidence to substantiate the allegation that either Maruti Udyog ltd. has reimbursed the authorized service station/dealer or there is any evidence to show that the sale price of the vehicle includes the free service charges. It is a common phenomenon in the sale of vehicles that to promote sales of vehicles, three free services are provided for which customer does not pay any charges. In the present scenarios, more free services are being provided to boost the sale. When the appellants sold the cars and recovered the amount including the dealer's margin, the dominant intent was, to sell the goods, namely cars and not to provide free after sales services. The entire amount including the dealer's margin has been rightly taxed to sales tax representing the value of cars. The provision of free servicing is merely incidental and intended to promote the sale of cars. Therefore, no service tax can be levied on the amount of representing the dealer's margin or any part of it, which already had been subjected sales tax. The case law M/s.ASL Motors Pvt. Ltd. Vs. CCE, Patna, 2008-TIOL-114-CESTAT-KOL also support the said stand. As regards the charges paid by the seller of car to other authorized service station, where the car was serviced under three free services as per the norms fixed by Maruti Udyog Ltd., the appellants have contested on the ground that these are part of the sale value of car and for the service provided. The plea made appears to be correct in view of the fact that when free services are provided by the dealer who is also authorized service station, no reimbursement is made to the dealer. In case when free service is provided by the other authorized service station, then seller pays to the other authorized service provider a nominal amount of its sales margin as fixed by Maruti Udyog Ltd. The said mechanism has been floated by the Maruti Udyog Ltd. to have a uniform policy among the dealers keeping the customers to have a facility to get such free services at any of the nearest dealer instead of approaching the dealer from whom they purchased the vehicle. The final amount paid by the customer does not vary whether or not customer avails free services provided by the dealer as a part of the sales transaction. And the amount so given out of the sales value on which sales tax has been given, cannot be subjected to service tax. [Bharat Sanchar Nigam Ltd. Vs.UOI (SC)]. The said judgment was followed by Hon'ble Tribunal in the case of M/s. Idea Mobile Communications Ltd. vs. CCE, Trivandrum, 2006 (4) STR 132 (Tri.-Bang.) = (2006- TIOL-857-CESTAT-BANG).

Further the Tribunal found that the issue is no more res integra and stands settled by various decisions of the Tribunal. In the case of M/s.ASL Motors Pvt. Ltd. Vs. CCE, Patna, 2008 (9) STR (356) (Tri.) = (2008-TIOL-114-CESTAT-KOL), an identical dispute was resolved in favour of the assessee. It was held that free after sale services are provided to boost the sale of the vehicles and the amounts are not being reimbursed by the manufacturers. Amount of free service formed part of dealer's margin and no extra amount is being paid to the dealer by the manufacturer of the vehicles. They observed that the provision of free service are merely incidental and intended to promote sale of cars and cannot be subjected to service tax. Similarly, in the case of Kiran Motors Ltd. vs. CCE, Vadodara-2009 (16) STR 74 (Tri.-Ammd.) = (2009-TIOL-770-CESTAT-AHM), it was observed that the buyer is entitled to three free after sale service and there is no provision for refund or rebate in case such free services are not availed by the buyer. As far as the purchaser of the vehicles are concerned, it is indivisible contract and the component of free services cannot be segregated. It was observed that if the contract can be segregated, the purchaser would have been able to get services from any dealer he wanted and not necessarily from the dealer of Maruti Udyog Ltd only and could claim or rebate in respect of free services which was availed by the dealer of Maruti Udyog Ltd. Similarly, the services provided by the dealer, who had not actually sold the vehicle, cannot be held liable to service tax, even if the cost of free sale service stands reimbursed by another dealer who had actually sold the vehicles.

Decision:- Appeal dismissed.

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PJ/Case Laws/2011-12/1528

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