Whether pre-delivery inspection of vehiclesis taxable as ‘technical inspection and certification’ service?

PJ/CASE-LAW/2015-16/2752

Case:-ANTONY GARAGES PVT. LTD. VERSUSCOMMISSIONER OF CENTRAL EXCISE, RAIGAD

Citation:-2015 (38) S.T.R. 49 (Tri. - Mumbai)

Brief facts:-There are two appeals against the impugned order. In the first appeal, the appellant M/s. Antony Garages Pvt. Ltd. (AGPL) are aggrieved with the order of Commissioner demanding Service Tax along with appropriate interest and penalties under Sections 76 & 78 of the Finance Act, 1994 on their activities by classifying them under the category of ‘technical inspection and certification’ service. Commissioner also appropriated the amount already paid.
In the Second appeal Revenue is aggrieved by the order of Commissioner dropping the demand of Service Tax on the other activity of AGPL sought to be classified in the show cause notice as ‘storage and warehousing’ service.
The facts are that the appellants engaged in manufacture of body building of buses, trucks, etc., also undertake repair, maintenance and servicing of commercial vehicles. M/s. Tata Motors Ltd. (TML) sent vehicles after manufacturing, to AGPL under a works order for performing activities such as pre-delivery inspection and Preventive Treatment (P.T.) before exporting them. The AGPL after conducting inspection and taking rectificatory action as recorded in the vehicle data sheets send the vehicles back to TML for export. Appellants contended their activity is not covered under the ‘technical inspection and certification’ service. However, Commissioner held otherwise and confirmed the demand of duty. On the second issue in which appeal has been filed by Revenue, AGPL had given open land to enable TML to park the vehicles received from various locations for general checking and inspection by AGPL. AGPL charged TML rental for this purpose. They also arranged for security service by security agency. Charges incurred for security and telephone expenses were reimbursed by TML to AGPL. However, the insurance of vehicles was arranged directly by TML. The diesel filled in the vehicle tanks was reimbursed by TML. Revenue issued show cause notice demanding duty on this activity under ‘Storage and Warehousing’ service. Commissioner however dropped the demand holding that AGPL have not provided any management and safe keeping for the vehicles to warrant classification under ‘storage and warehousing’ service. Revenue is in appeal against the order of Commissioner.

Appellant’s contention:- The ld. Counsel of the appellant stated that only standard checks of the vehicles were, conducted by them as detailed in the vehicle data work sheets of job cards. These data sheets indicated that the vehicles are checked for mechanical parts, electrical parts, leakages, body fitments paints etc. According to them, by no stretch of imagination can this activity be covered under the “technical inspection and certification” service. In fact, all the vehicles are technically inspected and certified for export by the Technical Inspection Agency namely VERITAS. They (AGPL) do not issue any certificate similar to one issued by a Certification Agency. According to them, their activity is similar to that performed in any repair workshop and in any case the servicing of heavy vehicles such as trucks being not one of the specified categories of motor vehicles is outside the scope of Service Tax as clarified by the Board vide Circular No. 96/7/07-S.T., dated 23-8-2007. It was contended that the demand for the period 1-7-2003 to 30-9-2005 is time barred as no intention to evade payment of Service Tax has been established. On the issue of parking/storage of vehicles, it was stressed by ld. Counsel that they have only rented out space to TML who reimbursed security and telephone charges. They do not perform inventory management and insurance activity so as to be covered under ‘storage and warehousing’ service.

Respondent’s contention:- The ld. AR took us through the definition of technical inspection and certification which includes inspection or examination of goods to certify that such goods qualify or maintains the specified standards including functionality or utility, or quality or safety etc. According to him, this definition shows that the activity undertaken by AGPL is nothing but technical inspection and certification. On the issue of storage/parking of vehicles, he referred to Commissioner’s findings and C.B.E. & C. Circular F. No. B-II/1/2002/TRU, dated 1-8-2008 in which it was clarified that the essential test for classifying an activity as storage and warehousing is whether the storage keeper provides for security of goods, stacking, loading, unloading etc.

Reasoning of judgement:-They have carefully considered the submissions made by both sides. To examine whether the service provided by AGPL is ‘Technical Inspection and Certification’ Agency Service, they may refer to the definition of ‘Technical Inspection and Certification’ under Section 65(108) during the relevant period as reproduced below :
“Technical Inspection and Certification’’means inspection or examination of goods or process material or information technology software or any immovable property to certify that such goods or process or material or information technology software or immovable property qualifies or maintains the specified standards, including functionality or utility or quality or safety or any other characteristic or parameters, but does not include any service in relation to inspection and certification of pollution levels.
They have gone through the work order issued by TML. The work order requires AGPL to carry out jobs such as the following :
Washing; Preparing Vehicle for display; PDI w/o. O/C/; PDI with O/C, PT as per Schedule, Waxing as per Schedule; Rewaxing; PDI & PT with O/C; Removing & Redoing PT Refurnishing etc.
On receiving this work order AGPL undertakes the jobs as indicated in the vehicle data sheet. The data sheets give details of defects and rectificatory action under various Heads, namely Leakages, Electricals, Mechanicals, Body paint, Body Fitments. To understand the activities undertaken they may refer to the few activities and action taken as below :
Both Blinker glass cracked, Air leakage from front both brake Chamber pipe H/B beeper n/w-defective-New/F, Battery indicator fudded-new fitted, LHS Panel corner due to paint damage rectify.
The rectification job of these defects certainly seem to be activities conducted by any vehicle repair shop. If the argument of Revenue is accepted, every motor garage will become a ‘technical inspection and certification’ agency. This would lead to a ridiculous situation. Revenue appears to have misread the meaning of technical inspection and certification. They note that the definition conveys the purpose of certification along with inspection to meet specified standards.
The kind of certification covered under this definition refers to certification to ensure that characteristics of the goods meet specified standards. The standards may relate to functionality, utility, quality or safety. The definition of technical inspection cannot be read to mean that any checks on functionality, safety etc. would amount to technical inspection and certification. The word “technical inspection and certification” would appropriately refer to certain standards laid down in some statute or some Guidelines. For example in the Motor Vehicles Act certain standards are required to be met. They may think of many other examples of technical inspection e.g. the Food Safety Standards which require articles of food and drinks to meet certain standards of composition of ingredients etc. Similar is the case where pharmaceutical products are required to meet certain specified standards by law. In the present case the job card or vehicle data sheets clearly indicate that AGPL are merely rectifying/replacing some damaged/defective parts etc. By no stretch of imagination can this activity be termed as technical inspection and certification. They therefore, set aside the Order-in-Original confirming the demand of duty on the activities undertaken by the appellant.
On the second issue, Revenue has relied on Board’s Circular mentioned above which distinguishes between whether a service would amount to ‘renting of immoveable property’ or to ‘storage and warehousing service’. They find that the facts are clearly in favour of AGPL. AGPL has merely rented space out to TML. Although they arranged for security, the expenses on this account are met by TML. The ld. AR stated that it is not clear from records whether the management and safekeeping of the vehicles is done by AGPL. On the contrary, they find that there is a clear finding of the Commissioner that handling, management and safekeeping of the vehicles is the responsibility of TML. Even the security is paid for by TML and so are the telephone expenses and diesel expenses. They find that none of the ingredients which are essential part of ‘warehousing and storage service’ are fulfilled so as to cover the activity of AGPL under this service. In fact this view is supported by Board Circular referred to above. They agree with the findings of the Commissioner.
In terms of the above, the appeal of M/s. AGPL is allowed with consequential relief, if any. Revenue’s appeal is rejected.

Decision:-Assessee’s appeal allowed/Revenue’s appeal rejected.

Comment:-The analogy of the case is thatAGPL undertakes the jobs as indicated in the vehicle data sheet and does not inspects the goods for giving any certificate and so cannot be considered to have provided technical inspection and certification services. The data sheets give details of defects and rectificatory action under various Heads, namely Leakages, Electricals, Mechanicals, Body paint, Body Fitments. Job card or vehicle data sheets clearly indicate that AGPL are merely rectifying/replacing some damaged/defective parts etc. By no stretch of imagination can this activity be termed as technical inspection and certification.
As far as the second issue is concerned, it is found that open land is given to manufacturer to park vehicles received from various locations. Appellant charged is nothing but rent for providing land. Merely because the charges incurred for security were also reimbursed by the manufacturer it cannot be concluded that appellant had provided storage and warehousing services. From the agreement, it was clear that the management and safekeeping of vehicles was responsibility of principal manufacturer, and even payments for security, telephone expenses and diesel incurred by principal manufacturer. Hence, land given on rent is not taxable as Storage and Warehousing’ service.

Prepared by:-Monika Tak

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PJ/CASE-LAW/2015-16/2752

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