Valuation of Vehicles

PJ/Case Laws/2011-12/1358

Case: Hindustan Auto House (P.) Ltd. v/s Commissioner of Central Excise, Jaipur

Citation: (2009) 18 STT 249 (New Delhi – CESTAT)

Issue:- Value of warranty charges included in price of vehicles sold by assessee-dealer – whether service tax is payable on the value of free service.

Brief Facts:- Appellant is a dealer of motor vehicles manufactured by Hyundai Motors. When the vehicles were sold to the customers through the dealers, the price paid by the customer took into account not only the cost of vehicle and profit margins but also likely cost towards free services during warranty period. The value of warranty charges was included for the purpose of payment of excise duty and sales-tax.

Department issued show cause notices demanding service tax on the value of free services provided by the appellant to their customers during the warranty period. It was alleged that the appellant has already received the warranty labour charges by including the same in the margin for the dealers from M/s. Hyundai Motors at the time of purchase of the vehicle and, therefore, services are not free: that when a dealer undertakes these services of a vehicle sold by another dealer, the said dealer reimbursed the amounts as fixed by M/s. Hyundai Motors. Therefore, it was proposed to demand service tax taking the said value for each of the three services.

The Original Authority confirmed the demand of service tax along with interest. Penalty was imposed under Sections 75 and 76 of the Act. However, no penalty was imposed under section 78 of the Finance Act. The Commissioner (Appeals) upheld the order of the Original Authority.

The Commissioner in revision proceedings imposed penalty under Section 78 as well.

Aggrieved by the same, appellant is in appeal before the Tribunal.

Appellant’s Contention:- Appellant submitted that they were rendering free services and no service charges were being received from the recipients of service; it is wrongly presumed that they were being reimbursed by M/s. Hyundai Motors for the services rendered free to the customers. That free services were being rendered out of margins provided to them; That the cost of free services also get included in the assessable value for the purpose of paying excise duty and sales tax.

Reliance was placed on the following cases: -

- CCE v Eastern Acromaties (P.) Ltd. [1999 (107) ELT 208 (New Delhi-Trib)]

- CCE &C versus L.D. Textile Ltd [1999 (114) ELT 1036 (New Delhi - Trib.)]

Respondent’s Contention:- Revenue referred to the following terms of the agreement between Ws. Hyundai Motors and the appellant, "dealer also agrees not to charge customers for any service for which dealer is reimbursed by Hyundai Motors without limitation, repairs concerned under the warranty and other free services" and submitted that the manufacturer is reimbursing the appellant for the free services. Therefore, it was submitted that service tax was rightly demanded and penalties had been rightly imposed.

Reasoning of Judgment:- The Tribunal held that 'free services' said to have been rendered by the appellant to the purchaser of the vehicle is not really free. The values of such services are already included in the price of the vehicle paid by the customers. The value has also been included for the purpose of paying excise duty and sales tax. It is also admitted that when the services are rendered by the appellant to the purchaser of vehicles, no payment or service charges are paid by the said customers.

The Tribunal noted that no evidence is produced to show that the vehicle manufacturer has specifically reimbursed amounts for the said free services. Appellant submits that there is no actual reimbursement by Hyundai Motors towards service charges and for this had relied on the certificate of vehicle manufacturer in this regard. The Revenue did not produce any evidence contrary to this.

It was noted that the show-cause notice has also gone on the presumption that one of the methods of reimbursement is to include the said service charges in dealer's margin. In other words, the Tribunal found that in this case, the service provider has not received any service charge from the service recipient.

The Tribunal has also not been shown that the vehicle manufacturers have specifically reimbursed any amounts towards the said services. In these circumstances, payment of service tax and imposition of penalty under various sections are not sustainable.

Decision:- Appeals allowed with consequential refund.

Comment:- Normally, the issue of free service is always raised by audit party while auditing the Authorised service stations. This is very good decision in favour of assessee.

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PJ/Case Laws/2011-12/1358

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