Whether credit admissible of service tax paid on services received from sub-contractors?

Case:- CARRIER AIRCONDITIONING & REFRIGERATION LTD. VERSUS C.C.E., GURGAON

Citation:- 2016 (41) S.T.R. 1004 (Tri. - Del.)

Brief facts: - The appellants are manufacturers of air conditioners. The period of dispute in this case is from July, 2005 to May, 2012. The appellant were also providing service of repair and maintenance of the air conditioners sold to the consumers either directly or through the dealers under the Annual Maintenance Contract beyond the warranty period. In respect of the repair and maintenance under Annual Maintenance Contract beyond the warranty period, the appellant were either providing service directly or sub-contracted the same through contractors who were providing the service on behalf of the appellant. The dispute is in respect of the cases where the appellant provided the repair and maintenance service under Annual Maintenance Contract through sub-contractors. In these cases, the appellant paid service tax on the amount received by them from the service recipients whose air conditioners had been repaired/serviced. The appellant had paid certain amount to sub-contractors, who had undertaken the repair and maintenance work on behalf of the appellant and on that amount, the sub-contractors had paid the service tax by treating the service provided by them to the appellant as Business Auxiliary Service. The point of dispute is as to whether the appellant would be eligible for Cenvat credit of the service tax paid on the services received by them from their sub-contractors. There is no dispute that the service received by the appellant from the sub-contractors is Business Auxiliary Service. The department is of the view that the appellant would not be eligible for Cenvat credit of the service tax paid by the sub-contractors on the Business Auxiliary Service. The Cenvat credit demand of Rs. 37,75,54,356/- is on this basis.

During the period of dispute, the appellant utilized the services of commission agents for procuring the sales orders for air-conditioners and they took Cenvat credit of the service tax paid by the commission agents. The Department, however, is of the view that the commission agent’s service is not covered by the definition of ‘input service’ and would not be eligible for Cenvat credit. The Cenvat credit demand of Rs. 3,34,60,922/- is on this basis.

In respect of the air-conditioners sold by the appellant either directly to the consumers or through the dealers, the appellant are under obligation to provide free repair and maintenance service during the warranty period of 12 months. For arranging the repair of air-conditioners, during the warranty period, they had roped in the certain dealers, who had provided the repair & maintenance service during the warranty period and for which, the payment was received by them from the appellant and on such amount, the service tax was paid by the dealers. The point of dispute is as to whether the appellant would be eligible for credit of service tax paid by the dealers on the repair and maintenance service provided by them to the consumers on behalf of the appellant. The department is of the view that the appellant would not be eligible for Cenvat credit. Demand of Rs. 9,82,03,090/- is on this basis.

After issue of show cause notices dated 4-8-2010 for the period July 2005 to June, 2010, dated 9-8-2011 for the period July, 2010 to June, 2011 and dated 30-7-2012 for the period July, 2011 to May, 2012, the Commissioner by a common order-in-original dated 12-9-2012 confirmed the three demands totalling Rs. 50,92,18,368/- against the appellant along with interest and imposed penalty of equal amount on the appellant under Section 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. The Commissioner in this order held that the services, in question, have no nexus either with the manufacture of final products or the same have been received after removal of the goods from the factory. Against this order of the Commissioner, this appeal has been filed.

Appellant’s Contention:- Shri B.L. Narsimhan, Advocate, Id. Counsel for the appellant, pleaded that the bulk of the service tax demand of Rs. 37,75,54,356/- is in respect of the Business Auxiliary Service received by the appellant from the sub-contractors for providing the service of post-warranty repair and maintenance service under Annual Maintenance Contract to their customers (consumers), that the service of sub-contractors was received only in the cases where the appellant did not provide the post-warranty repair and maintenance service to the consumers but had roped in the sub-contractors, that the service provided by the sub-contractors is an input service for the output service of repair and maintenance under AMC provided by the appellant and this would be covered by the definition of ‘input service’ under its main definition clause, that the Cenvat credit demand of Rs. 37,75,54,356/- is, therefore, without any basis, that the Commissioner’s observations in this regard in para 38 of his order that this service having been received after clearance of the goods is not eligible for Cenvat credit is absolutely without any basis, as this service is an input for the repair and maintenance service under AMC being provided by the appellant and on which the appellant were paying service tax, that during the period of dispute, the appellant had paid total service tax of about Rs. 70.45 crores on their output service of post-warranty repair and maintenance of air conditioners under AMC, that as regards the Cenvat credit of service tax paid by the commission agents in respect of service of procuring sales orders received by the appellant, this service is nothing but sales promotion which is specifically covered by inclusive portion of the definition of “input service”, that the Tribunal in the case of Birla Corporation reported in 2014 (35) S.T.R. 977 has held that the commission agent’s service is covered by the definition of “input service”, even after the period w.e.f. 1-4-2011 when the term “activities relating to the business” had been deleted from the definition of “input service”, that this view has been affirmed by the Punjab & Haryana High Court in the case of Ambica Overseas reported in 2012 (25) S.T.R. 348 (P & H), that in view of this, the Cenvat credit demand of Rs. 3,34,60,922/- is without any basis, that as regards the Cenvat credit demand of Rs. 9,82,03,090/-, this Cenvat credit had been taken in respect of the service of repair and maintenance service provided by the dealers on behalf of the appellant during the warranty period, that this service received from the dealers is an input service for the appellant and is covered by the definition of “input service” and hence the same would be eligible for Cenvat credit, that in this regard he relies upon the Tribunal’s judgment in the cases of CCEv. Danke Productsreported in 2009 (16) S.T.R. 576 (Tribunal-Delhi) and also the judgment in the case of Gujarat Forging Ltd. v. CCE reported in 2014 (36) S.T.R. 677 and Zinser Textile Systems Pvt. Ltd. v. CCEreported in 2014 (33) S.T.R. 301 (Tribunal-Ahmd.) and that in view of this, the Cenvat credit demand of Rs. 9,82,03,090/- is also without any basis. She pleaded that the impugned order is not sustainable.

Respondent’s Contention: - Shri Pramod Kumar, ld. Joint Chief Departmental Representative differed the impugned order by reiterating the findings of the Commissioner (Appeals) pointed out that the appellant had been registered only as manufacturer of air conditioners and had no service tax registration.

Reasoning Of Judgement: - The tribunal have considered the submissions from both the sides and perused the records. The appellant are manufacturers of air conditioners chargeable to Central Excise duty. Though the ld. Jt. CDR states that they were not providing any input service and were not registered as service providers, from the appellant’s Service Tax Registration Certificate placed on record, it is clear in addition to Central Excise registration as manufacturer of air conditioners, the appellant had been issued a centralized Service Tax Registration for various services including maintenance and repair service. Thus, the appellant, during the period of dispute, in addition to manufacture of air conditioners, were also providing the post-warranty maintenance and repair service directly to the consumers under Annual Maintenance Contracts. They were either providing this service directly and in those cases, there was no dispute, but in some case, they had engaged sub-contractors, who were providing the repair and maintenance service under Annual Maintenance Contract on their behalf. In such cases, sub-contractors have provided Business Auxiliary Services to the appellant and the appellants have provided the post-warranty repair and maintenance service under AMC to the consumers. While the appellant were paying the service tax on the repair and maintenance service provided by them to the consumers, the sub-contractors were paying service tax on the amount received by them from the appellant for the Business Auxiliary Service being provided by them. The point of dispute is as to whether the appellant would be eligible for Cenvat credit of the service tax paid on the Business Auxiliary Service received by them from their sub-contractors. There is no dispute that the appellant during the period of dispute were paying service tax on their output service on repair and maintenance under AMC Contract. In our view, the service received by the appellant from these sub-contractors (Business Auxiliary Service) is to be treated as “input service” for the output service of repair and maintenance under AMC and the ground on which the Commissioner has denied the service tax in respect of these services is totally wrong. In view of this, the Cenvat credit demand of Rs. 37,75,54,356/- is not sustainable and has to be set aside.
As regards the Cenvat credit demand of Rs. 3,34,60,922/- this demand is in respect of the service tax paid by the commission agents on the service of procuring sales orders provided by them to the appellants. The Department’s contention is that the Commission Agent service received by the appellant for procuring sales orders is not covered by the “input service”. We are of the view that this service is nothing but sales promotion service which is specifically mentioned in the definition of “input service”. This issue has been discussed at length by the Hon’ble Punjab & Haryana High Court in its judgment in the case of Ambika Overseas (supra) and by the Tribunal in the case of Birla Corporation (supra), wherein it has been held that this service is covered by the definition “input service” and would be eligible for Cenvat credit. In view of this, the Cenvat credit demand of Rs. 3,34,60,922/- is also not sustainable.
The Cenvat credit demand of Rs. 9,82,03,090/- is in respect of the service received from the dealers who had provided repair and maintenance service during warranty period on behalf of the appellant to the customers. The sale price of the air conditioners sold by the appellant to their consumers during the period of dispute included the warranty charges. There is no dispute that Central Excise duty had been paid on the value which included the warranty charges. During the warranty period, the appellant were under obligation to provide free repair and maintenance services to the consumers, who had purchased the air conditioners from them. However, instead of providing the free repair and maintenance service directly in discharge of their obligation, the appellant roped in the dealers who provided free repair and maintenance to the consumers on their behalf and the dealers for providing this service on behalf of the appellant, received the payment from the appellant and on that amount, they paid the service tax. The point of dispute is as to whether the service provided by the dealers to the appellant is an input service and whether the appellant would be eligible for Cenvat credit in respect of the same. The service received by the appellants from their dealers is Business Auxiliary Service which has to be treated as an input service for the appellant used in or in relation to manufacture of their final products, as free warranty repair and maintenance during warranty period, has enriched the value of the goods. This issue stands decided in favour of the appellant by the Tribunal’s judgment in the case of Danke Products (supra) and Gujarat Forgings (supra) and also in the case of Zinser Textile Systems Pvt. Ltd. (supra). In view of this, this Cenvat credit demand is also not sustainable and has to be set aside.
In view of the above discussion, the impugned order is not sustainable. The same is set aside. The appeal is allowed.

Decision:-Appeal allowed.

Comment:- The substance of this case is that the appellant is entitled for cenvat credit of service tax paid on repair/maintenance of air-conditioner services availed by them as appellant is under obligation to provide free repair and maintenance services to the consumers, who had purchased the air conditioners from them during the warranty period. As the appellant have sub-contracted their repair or maintenance work, the services thus received by the appellant squarely falls under the defination of input service. Such service has to be treated as an input service for the appellant as it is used in or in relation to manufacture of their final products.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3110

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