Whether after sale warranty services is “input service” for availing credit?

PJ/CASE LAW/2015-16/2694

Case:-ESCORTS CONSTRUCTION EQUIPMENTS LTD. VERSUSCOMMR. OF C. EX., DELHI-IV

Citation:-2014 (33) S.T.R. 102 (Tri. - Del.)

Brief facts:-The appellants are manufacturers of Hydrolic Mobile Crane, Loaders and Cranes falling under Chapter 84 of the Central Excise Tariff Act, 1985. They availed CENVAT credit of Central Excise duty paid on capital goods and inputs and Service Tax paid on the input services as per the provisions of CENVAT Credit Rules, 2004. The period of dispute in this case is from April, 2005 to December, 2005. The appellants sell their products through a network to dealers and the price charged by them includes the after-sale warranty. In order to provide free after-sale service to the customers during the warranty period, they have agreements with their dealers. The dealers against the coupons issued by the appellant, produced by the Appellant’s customers provided free after-sale service to them and issued the invoices/debit notes for those services to the appellant and paid Service Tax on the amount received from the Appellant. The point of dispute is as to whether after sale warranty services received by the appellant from their dealers is “input service” for the purpose of Cenvat credit or not. The appellant treating after-sale service as the ‘input service’ took Cenvat credit of Rs. 1, 38,21,621/- during the period from April, 2005 to December, 2009. The department was of the view that after-sale warranty services received by the appellant is not covered by the definition of ‘input service’, as it is received after the removal of the goods and issued a show cause notice to them for denial of the credit and its recovery along with interest and also imposition of penalty on the appellant under the provisions of Rule 15 of the Cenvat Credit Rules, 2004. The show cause notice was adjudicated by the Commissioner vide Order-in-Original dated 6-5-2011 by which the Cenvat credit demand of Rs. 1,38,21,621/- was confirmed along with interest and besides this, penalty of equal amount was imposed on the appellant under Rule 15(2) of the Cenvat Credit Rules, 2004. The demand was confirmed by invoking extended period under proviso to Section 11(1) of Central Excise Act, 1944. Against this order of the Commissioner, this appeal along with stay application has been filed.

Appellant’s contention:- Shri Nikhil Agarwal and Shri Dheeraj Srivastava, Advocates for the appellant, pleaded that after-sale service during warranty period is required to be provided by the appellant as per terms of the sale, that the charges for after-sale service provided by the dealers to the Appellant’s customers are reimbursed by the appellant to the dealers and these charges are included in the price of the goods on which the Excise duty has been paid, that when the Excise duty has been paid on the price which includes the charges for after-sale warranty service, the CENVAT credit of Service Tax paid on the after-sale warranty services cannot be denied, that providing free after-sale service during certain warranty period is in the nature of sale promotion activity and is very much covered by the inclusive portion of the definition, of ‘input service’, that the Tribunal in the case of C.C.E., Vadodara-II v. Danke Products reported in 2009 (16)S.T.R.576 (Tribunal-Ahmd.)has held that repair and maintenance of transformers during warranty period being an activity relating to sale of goods is covered by the definition of ‘input service’, that bulk of the duty demand is time barred, as there are absolutely no grounds for invoking longer limitation period for the reason that there is no wilful suppression or mis-statement with intent to evade payment on the part of appellant, that appellant have strong prima facie case and hence, the requirement of pre-deposit of Cenvat credit demand, interest and penalty may be waived for hearing of the appeal and recovery thereof may be stayed till the disposal of the appeal.

Respondent’s contention:- Shri S.K. Panda, learned Joint CDR opposed the stay application by reiterating the findings of the Commissioner (Appeals) in the impugned order and emphasized that the
(a) service of sale repairs/maintenance during warranty period of the goods sold, received by the appellant has no nexus with the manufacture of the goods and hence, the same is not covered by the definition of ‘input service’ and in this regard, he relies upon the judgment of the Tribunal in the case of Ultratech Cement Ltd. v. C.C.E., Bhavnagar reported in 2007 (6)S.T.R.364 (Tribunal-Ahmd.); and
(b) since the service has been received after removal of the goods, the same is not covered by the definition of ‘input services’.
He, therefore, pleaded that this is not the case for waiver from the requirement of pre-deposit.

Reasoning of judgement:- The main ground for denial of Cenvat credit in respect of after-sale repair services during warranty period is that this service has been received after the removal of the goods from the place of removal of the goods and hence, the same is not covered by the definition of ‘input service’. On going through the definition of ‘input service’ and especially the inclusive portion of the definition, they are of the prima facie view that this ground for denial of credit is not correct, as there are a number of services mentioned in the inclusive portion of the definition of ‘input service’ which cannot be linked with the removal of the goods. Moreover, it has not been denied by the Department that the cost of providing free after-sale services i.e. warranty charges are part of the price of the goods on which Central Excise duty had been paid. In view of this, Cenvat credit of Service Tax paid on the after-sale services cannot be denied. They find that same view has been taken by the Tribunal in the case of C.C.E. v. Danke Products reported in 2009 (16)S.T.R.576 (Tribunal-Delhi)and Samsung India Electronics Pvt. Ltd. reported in 2009 (16)S.T.R.570 (Tribunal-Delhi). Moreover, free repair and maintenance services during warranty period, the charges for which are included in the price of the goods, adds to the value of the goods, and, therefore, it would be covered by the expression “activities relating to business” and hence, by the definition of “input service”, and for this reason also, the same would be covered by the definition of “input service”. The judgment of the Tribunal in the case of Ultratech Cement Ltd. reported in 2007 (6)S.T.R.364 (Tribunal-Ahmd.)cited by the ld. Departmental Representative is not applicable to this case.
They are, therefore of the view that the appellant have a strong prima facie case and requiring the pre-deposit of the CENVAT credit demand, interest and penalty would cause undue hardship. In view of this, the requirement of pre-deposit of CENVAT credit demand, interest and penalty is waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal. The stay application is allowed.

Decision:-Stay granted.

Comment:- The essence of the case is that although after-sale and warranty services cannot be linked with removal of goods but this cannot lead to conclusion that they are not covered by input services because the defination of input service covers certain services that are not linked with removal. In the present case, warranty charges are part of price of goods on which Central Excise duty has been paid. Therefore Cenvat credit of Service Tax on after-sale services cannot be denied.

Prepared by:- Monika Tak

Comments

PJ/CASE LAW/2015-16/2694

Post a Comment

Query