By TIOL News Service

MUMBAI, MAR 20, 2019: THE Appellants are engaged in the manufacture of machinery and parts thereof and also undertake service of repair and maintenance of the machines to those buyers who opt for it. The repairs are usually carried out at the factory of the Appellant.

SCNs were issued demanding service tax for the aforementioned service.

The appellant is now before the CESTAT.

It is submitted that the repair and refurbishing is done at the premises of the Appellants and, if needed, by changing parts and after reassembly and necessary testing, machines are returned to their customers on payment of Excise Duty on the replaced parts; that, in case the goods are covered under the standard guarantee/warranty period (12 months), refurbishing is done free of cost i.e. the spares are replaced and no amount is charged from customers and no service charge is recovered. Nonetheless, excise duty was paid on the parts used in the repairs. That in case the goods are returned beyond the guarantee/warranty period then the refurbishing is done on chargeable basis and the charges are only for the cost of the replaced/damaged parts. In such cases also, no service charge is recovered, therefore, the services are always free for the customers.

It is further submitted that the case was made out after a visit of the audit party and the General Manager, in his statement, had clearly stated that the service rendered is free of cost. The appellant also highlighted the fact that even the SCN mentioned that the noticee used various bought out Cenvatable/manufactured parts/equipment for the aforesaid job and raised invoices charging the Central Excise duty therein. Reliance is placed on the decisions in Kiran Motors - 2009-TIOL-770-CESTAT-AHM, Hindustan Auto House - 2008-TIOL-1815-CESTAT-DEL, AVG Motors - 2007-TIOL-2058-CESTAT-BANG& ASL Motors P Ltd. - 2008-TIOL-114-CESTAT-KOL to buttress their claim.

The AR placed reliance upon the decision in Bata India Ltd. - 2017-TIOL-4295-CESTAT-DEL.

After considering the submissions and recording the facts, the Division Bench inter alia observed –

"…Arguably, service tax payment is necessary when the four things are satisfied;

(i)  There is a service

(ii)  There is a service provider

(iii)  There is a service recipient

(iv)  There is a consideration for such service paid by the recipient of service to the provider of the service.

In the instant case, among the above 4 only 3 conditions have been satisfied and 4th condition is not satisfied. In the absence of any consideration, service tax cannot be charged obviously service tax cannot be charged on the value of the spare parts used for such repair or maintenance. It is not the department's case that the Appellants have not discharged applicable Central Excise duty on the spare parts used by the Appellant in discharge of the service. The order-in-original and order-in-appeal have only cursorily mentioned that the Appellants are receiving consideration for the service rendered by them. However, as discussed above, on going through the sample invoices it is seen that the Appellants submissions are correct."

Noting that the department had not produced any evidence to the effect that the Appellants had received remuneration for such repair or maintenance service, the Bench held that no service tax is payable and, therefore, the demands did not survive.

The appeals were allowed with consequential relief.

(See 2019-TIOL-823-CESTAT-MUM)