CESTAT Grants Relief to Popular Vehicles By Holding No Service Tax on Free Warranty and Labour Services

CESTAT Grants Relief to Popular Vehicles By Holding No Service Tax on Free Warranty and Labour Services

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Bangalore bench granted relied on Popular Vehicles and held that service tax cannot be levied on the services regarding warranty and labour services provided free of cost since the same is already subjected to sales tax/ value-added tax (VAT).

The CESTAT Judicial Member S.S Garg in the case titled Popular Vehicles and Services Ltd. [Appellant(s)] v. Commissioner of Central Tax & Central Excise [Respondent(s)] while allowing the appeal by the assessee found that the Department has no case that the cost of these services is reimbursed to the dealers.

The assessee contended that they did not receive any income concerning free service and warranty labour provided to customers and these services are rendered free of charges.

The Tribunal noted that as the service was free of charge and hence there cannot be any levy of service tax. The cost of these services is included in the cost of the product accounted at the sales showroom and VAT has been paid at the time of sale of the vehicle which is cleared from the cenvat reversal at the sales showroom under Rule 6(3A).

The CESTAT further observed that the income in service center for free service and warranty labour is booked through notional entries being worked under the concept 'separate profit center' and corresponding expense is accounted in Head Office books and thereby net income is ZERO.

The Tribunal clarified that the service tax can be levied on amounts representing the dealer's margin or any part of it that was already subject to sales tax.

The CESTAT held that no service tax is due on free services and warranty service and set aside the order of demand on free service.