By TIOL News Service

MUMBAI, FEB 27, 2019: COMMISSIONER, LTU, Mumbai passed the following orders –

i. Show Cause Notice dated 16.10.2009: Confirmed the demand of Rs. 312,45,23,327/- along with interest in respect of Authorized Service Station Services, Banking and Other Financial Services and Business Auxiliary Services. Period 1/4/2004 to 17/04/2008.

ii. Show Cause Notice dated 22.10.2010: Confirmed the demand of Rs. 25,60,88,900/- [Authorized Service Station Services].Period 1/4/2009 to 31/3/2010.

iii. Show Cause Notice dated 19.10.2011: Confirmed the demand of Rs. 41,01,97,500/- [Authorized Service Station Services].Period from 1/4/2010 to 31/3/2011.

iv. Show Cause Notice dated 17.10.2012: Confirmed the demand of Rs. 46,63,42,800/- [Authorized Service Station Services]. Period 1/4/2011 to 31/3/2012.

v. Show Cause Notice dated 21.02.2014: Confirmed the demand of Rs. 46,00,63,920/- [Authorized Service Station Services]. Period 1/4/2012 to 31/3/2013.

vi. Show Cause Notice dated 19.10.2011: Confirmed the demand of Rs. 43,91,01,360/- [Authorized Service Station Services]. Period 1/4/2013 to 31/3/2014.

Penalties and interest have also been imposed.

The appellant is before the CESTAT.

In a verbose order, spanning more than seventy-odd pages, the Member (Technical) writing for the Bench, after considering the elaborate submissions made, inter alia observed–

Authorized Service Station Services:

+ In the present case the crux of dispute is in respect of the identification of the taxable person, whether it is Appellant or the Authorized Dealer who are providing the Taxable Service under the category of "Authorized Service Station Services" to the recipient of the services, i.e. the customers who have purchased the car.

+ Appellants, while determining the price of the car, have taken into account the "estimated warranty expenses" and have also made the provision for the same in their book of accounts. This implies the customers purchasing the car/light motor vehicle/ two wheeled motor vehicle from the appellants, directly or through their authorized dealers have paid the consideration for provision of the free after sales services during the warranty period.

+ Appellants are thus under contractual obligation to provide the said after-sale services free of cost during the warranty period to its customers.

Taking note of the findings of the Commissioner made in paragraphs 6.24 to 6.32, 6.35 & 6.36, the Bench observed-

+ The Commissioner has in above para's misdirected himself debating the contractual obligations of the appellant rather than determining the service provider and service recipient.

+ In any case, before any tax liability can be determined the law mandates that service provider and service recipient should be determined, and also the taxable person and the registered person. Without making such a determination no tax liability could be determined.

+ The contractual obligation cannot mean that appellant is responsible for providing the warranty services himself . The Contractual obligation is to ensure that service is provided free. Once that service is provided free of cost, the contractual obligation is discharged.

+ The appellants are free to organize the manner of provision of the service in the manner they desire i.e. it can be by themselves, or by arranging the same through some other person. In case, where the appellants themselves provide the free warranty services they should be held liable for providing the said services to the consumer of the said service and in case the same is provided through some third person that person becomes liable for providing the service.

+ A contractual obligation, or collection of consideration for the same cannot be equated to the providing the service, as has been held by the Commissioner.

+ In the case under consideration, appellants have provided the warranty services to their customers through the dealers network and for providing free warranty services as per their contractual obligation they have made the payments to the dealer's which is evident from the debit entries made by them in their book of accounts.

+ These debit entries by themselves will not mean that taxable services have been provided by them. However, the fact that these debit entries made were inclusive of service tax is a fact that needs to be verified.

+ In our view the matter needs to be relooked for determination of tax liability and all the documents that appellants would like to produce in their support.

It was also held that the extended period of limitation was rightly invoked in the demand notice dated 16.10.2009 as the information as sought was not made available by the appellant.

Services provided through Tata Car Service Centre, Worli:

+ With effect from 1.04.2007 (upon registration) onwards appellants have been paying service tax on the services provided from the said service centre, and have been filing the service tax returns in form ST-3, therefore, they should have paid the Service Tax for the period prior to 01.04.2007.

+ We uphold the demand of service tax for the period 1/4/2004 to 31/3/2007 in respect of the services provided from the said service centre.

Business Auxiliary Services:

+ Whenever appellants export vehicles directly to customers outside, they paid commission to the overseas parties who assisted them in procuring orders and in other activities associated with the delivery, realization of payment, after sale services etc.

+ Appellants do not dispute the classification of services provided by overseas parties as classifiable under the taxable category of "Business Auxiliary Service".

+ Appellants have challenged the demand stating that these services have been provided by the foreign buyers outside India, they cannot be taxable in India.

+ Section 66A (introduced w.e.f 18.04.2006) clearly and unambiguously provides that, the services provided by the person (person A) having any fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India to any person (person B) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, shall be treated to be provided by the person B to himself and shall be taxable in India.

Relying on the Tribunal decision in Tata Steel Ltd -  2015-TIOL-2464-CESTAT-MUM, it was held thatthere is no merit in the submissions of the appellant.

The demand confirmed by the Commissioner on this account is upheld.

Banking and Financial Services:

+ The demand has been made on the basis of income as recorded in Profit and Loss Account of the appellant from Hire and Purchase activity undertaken by the appellants and also the loans provided by them.

+ Primary contention of the Appellants is that Income from the interest on loan contracts is not leviable to service tax, and for this they relied upon the Explanation (1) to Section 67 of the Finance Act, 1994 and also Rule 6(2) of the Service Tax (Determination of Value) Rules, 2006.

+ The reference made by the appellants is to the provisions relating to the Valuation of Taxable Services and wherein it is provided that for the purpose of determining the value of taxable service, interest on loans may not be included in the value of taxable services.

+ However, said provision does not perse exempt the income earned against loan contract from the levy of service tax, if the same is classifiable under category of taxable services specified under the Finance Act, 1994.

+ Commissioner has found that the loan agreement between the appellant and the prospective purchaser (s) of a vehicle is titled "Loan Cum Hypothecation Cum Guarantee Agreement." Commissioner has thus recorded that the very title suggests that agreement is not merely for providing loan, but consists of series of transactions relating to loan, hypothecation and guarantee, thus services provided under the agreement are not relating to loan transactions only.

After extracting the findings of the Commissioner appearing in paragraphs 7.10 to 7.14 of the o-in-o, the Bench also reproduced paragraphs 37 to 39 of the apex court ruling in Association of Leasing and Financial Service Companies -  2010-TIOL-87-SC-ST-LB  and observed -

+ In this case, the agreement is not of a loan as understood in general terms but incorporates various other factors which are taxable under the category of Banking and Financial Services. Appellants have by way of these agreements extended credit facility to the buyers, for a consideration.

+ The part of consideration which cannot be classified as "interest on loan" would be subjected to service tax, by way of determination of value of taxable service by application of Section 67 or Service Tax (Determination of Value of Taxable Services) Rules, 2006.

Insofar as the claim of the appellant to the exemption under Notification 4/2006-ST dated 01.03.2006, the Bench remarked –

"For claiming the benefit of the said Notification appellants need to show that the contracts entered by them with the borrowers are in respect the services covered by the notification. In view of the decision of the Apex Court in case of  Commissioner of Customs (Import) Vs M/s Dilip Kumar and Company & Others - 2018-TIOL-302-SC-CUS-CB  the exemption notification needs to be construed strictly and person claiming the exemption has to show that he falls within the purview of the Notification."

The Bench also held that in respect of the dealer subvention scheme, the entire amount shall in toto form the gross amount charged for the purpose of determining taxable value u/s 67 even if the dealer undertakes to pay part of the financial charges on behalf of the vehicle purchaser; that late payment charges which are integrally related to the financial services provided are also part of the consideration received from service recipient; that (in the matter of ‘Loan-cum-hypothecation-cum-guarantee agreement) the material facts and documents on record clearly show that the assessee is not in the business of giving ‘loan' on interest and consequently the consideration received for various services provided does not qualify as ‘interest on loan' and the services provided would appropriately fall under BOFS.

Theparagraphs 7.50 and 7.51 of the o-in-o were also extracted and it was observed-

"5.19 The real context of the above observations is not understood or clear. The observations of Commissioner do not deal with the issue of classification of certain incomes claimed as appellant "interest on loan". Commissioner has made reference to all irrelevant and extraneous issues to skirt the issue on hand….In such a situation we are not in position to uphold the order of Commissioner to this extent and remand the matter for consideration of the issues afresh in light of observations made in previous paras."

Conclusion:

++ Demand of Service Tax made in respect of services provided from Tata Car Care Centre, Worli, Mumbai and also in respect of the services provided under the category of Business Auxiliary Services is upheld.

++ In respect of the Service Tax demands made for the reimbursements made to Authorized Dealers and that in respect of Banking & Financial Services,matter is remanded to the original adjudicating authority for redetermination of the issues and quantum of demand/penalty etc.

The Commissioner was directed to adjudicate the matter within four months as the matter was quite old.

The appeals were disposed of.

In passing: Please also see 2013-TIOL-1818-CESTAT-MUM.

(See 2019-TIOL-618-CESTAT-MUM)