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Authorised Service Station Services [Sec 65(105)(zo)]
Effective upto 30th June, 2012
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Landmark Service Tax Judgment - Authorised Service Station Services

INTRODUCED: With Effect From 16th July 2001

 Service tax levied on:

Service and repair of car/two wheeled motor vehicle: w.e.f. 16-07-2001:

Service and repair of light motor vehicle: w.e.f. 01-07-2003

Reconditioning or restoration of above vehicles: w.e.f. 16-06-2005

Decoration or any similar service of above vehicles including all vehicles other than specified ones: w.e.f. 01-05-2011

 

Contents
Scope
Exemption
Clarification
Relevant Notifications / Circulars
Landmark Judgements
Accounting Code
Service Tax 00440258
Interest or Penalty 00440259
 
DEFINITION:

According to Section 65 (105) (zo), any service provided or to be provided to any person, by any other person, in relation to any service, repair, reconditioning, restoration or decoration or any other similar services, of any motor vehicle, other than three wheeler scooter auto-rickshaw and motor vehicle meant for goods carriage, in any manner, is a taxable service.

OMITTED w.e.f. 01.05.2011 [According to Section 65 (9), “authorized service station” means any service station, or centre, authorized by any motor vehicle manufacturer, to carry out any service, repair, reconditioning or restoration of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer.]

According to Section 65 (72) "motor car" has the meaning assigned to it in clause (26) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988); accordingly "motor car" means any motor vehicle other than a transport vehicle, omnibus, road-roller, tractor, motor cycle or invalid carriage;

According to Section 65 (73) motor vehicle" has the meaning assigned to it in clause (28) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988); accordingly "motor vehicle" or "vehicle" means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty-five cubic centimetres;

According to Section 65 (62) "light motor vehicle" means any motor vehicle constructed or adapted to carry more than 6 passengers, but not more than 12 passengers, excluding the driver

 
SCOPE:
TOP

Prior to 16/6/2005, the definition of authorized service station covered only service or repair of motor cars, two-wheeled and light motor vehicles by service stations or centres authorized by the manufacturers. A number of motor vehicle manufacturers provide a scheme by which the old vehicles are sold to the customers after reconditioning or restoration. For this purpose, old vehicles are reconditioned or restored by such authorized service stations or centres. Such reconditioning or restoration of an old vehicle was not explicitly covered as a taxable service. Amendments have been made to specifically include reconditioning or restoration of motor cars, two-wheeled and light motor vehicles carried out by the authorized service station.

Taxable services rendered by authorized service stations in relation to motor cars or two-wheeled motor vehicles was covered under clause (zo) of section 65 (105), while such taxable services performed in relation to light motor vehicles were covered under clause (zzj) of section 65 (105). Amendments have been made in clause (zo) so that taxable services rendered by authorized service stations in respect of motor cars, light motor vehicles or two-wheeled motor vehicles would now be taxable under this clause. Consequently, clause (zzj) has been omitted.

Examples of taxable services include services provided during warranty period, subsequent services such as routine check of performance of engine and vehicle, engine tuning, engine oil check, gear oil check, wheel alignment, wheel balancing, clutch and brake adjustment, wheel rotation, cleaning/washing and any repairs undertaken.

Authorized service station provides free service in respect of new vehicles during the warranty period on behalf of the manufacturer and they are reimbursed for the same by the manufacture of such vehicle. Since the definition for value of taxable service specifically provides that the reimbursement received from the manufacturer of motor vehicles for free service rendered to the customer is includible in the taxable value, such reimbursement is leviable to Service Tax.

The value of taxable service means gross amount charged by service provider for such service rendered by him and includes the reimbursement received by the authorized service station from manufacturer for carrying out any service, but does not include the cost of parts or accessories, if any, sold to the customer during the course of service

During the course of providing service, an authorised service station also replaces engine oil, gear oil and coolants etc. as per the request of the customer. The price charged by authorised service station for engine oil, gear oil and coolants is towards sale of these consumables to the customer. Therefore, the sale of consumable during course of providing service is akin to sale of parts and accessories and therefore value of such consumables is not includible in the value of taxable services provided value of such consumables is shown separately.

However, there are certain items such as paints used for painting body etc. during the course of providing service, and form intrinsic part and parcel of service in so much as that these are not distinctly and separately identifiable from the services rendered. Therefore, value of such items, which form intrinsic part of service, is includible in the value of taxable service.

The activity of providing Teflon Coating at the time of sale cannot be construed as a service or repair provided by an authorised service station even though the same dealer may also be authorised to carry out after sale services. The authorised sales dealer and authorised service station are appointed to perform two distinct functions for the car manufacturer and therefore the activity performed at the time of sales of vehicle by the dealer is distinct from the service provided by the authorised service station. Normally, authorised service station comes into picture only after vehicle comes on road. Therefore, it is envisaged that any activity of sales dealer at the pre-sale state or at the time of sale will not come under the purview of service tax.

 
SERVICE TAX EXEMPTIONS:
TOP

(a)  Small service providers whose aggregate value of taxable services rendered in the previous year has not exceeded the limit of Rs. 10,00,000/-  (Service Tax Notification No. 8/2008-ST dated 01.03.2008)

(b)  Services provided to the United Nations or International Organisations

(c)  Services provided to Special Economic Zones (SEZ) units (including unit under construction) and SEZ developers

(d)  Services which are exported as per ‘Export of Services’ Rules

(e)  Services provided for official or personal use of foreign diplomatic missions and family members of diplomatic missions.

(f)  Services provided by Reserve Bank of India

(g)  Out of total value of service provided proportionate value of goods and material provided by the Service Provider

 
CLARIFICATION OF SOME ISSUES:
TOP

ISSUE 1: Authorized dealers of motor vehicles provide to customers free servicing of motor vehicles without charging any amount as service charge from the customers. The vehicle manufacturer promises such a facility to attract customers and reimburses the service charges to the authorised dealers, who provide to customers free servicing of motor vehicles. However, as per agreement, consideration for the service provider is not directly paid by the customer but by the vehicle manufacturer.

Whether such ‘free services’ given to the customer free of cost by the authorized dealers (for which they are reimbursed by the vehicle manufacturers) are liable to service tax under authorised service station service [section 65(105) (zo)]?

ANSWER 1: In this case, service is provided by an authorised service station to a customer and the service provider receives the consideration for the services provided from the manufacturer.

Service tax is liable on the amount received from the vehicle manufacturer for the purpose of servicing of vehicles.

ISSUE 2: Whether servicing/repair of heavy vehicles like trucks by authorized service station is liable to service tax under section 65(105)(zo)?

ANSWER 2: Service tax is liable on services provided by an authorised service station to a customer in relation to service, repair, reconditioning or restoration of motorcars, light motor vehicles or two-wheeled motor vehicles [section 65(105)(zo)].

Thus, servicing of heavy vehicles like trucks, not being one of the specified categories of motor vehicles, is at present not covered within the scope of the said taxable service.

ISSUE 3: Whether spare parts sold by a service station during the servicing of vehicles are liable to payment of service tax? Whether exemption can be claimed on the cost of consumables that get consumed during the course of providing service?

ANSWER 3: Service tax is not leviable on a transaction treated as sale of goods and subjected to levy of sales tax/VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/sales tax on a transaction indicates that the said transaction is treated as sale of goods.

Any goods used in the course of providing service are to be treated as inputs used for providing the service and accordingly, cost of such inputs form integral part of the value of the taxable service.

Where spare parts are used by a service station for servicing of vehicles, service tax should be levied on the entire bill, including the value of the spare parts, raised by the service provider, namely, service stations. However, the service provider is entitled to take input credit of excise duty paid on such parts or any goods used in providing the service wherein value of such goods has been included in the bill. The service provider is also entitled to take input credit of service tax paid on any taxable services used as input services for servicing of vehicles.

 
RELEVANT SERVICE TAX CIRCULARS/INSTRUCTIONS/TRADE NOTICES:
Service Tax  CBEC Instruction Letter F. No. 334/312011 - TRU), dated 28-02-2011 Clarification regarding the changes made by the Finance Bill, 2011
Service Tax CBEC Master Circular 96/7/2007, dated 23-08-2007 Clarification that free services could be chargeable to service tax and that value of spares sold with service is not chargeable to service tax. Also, the definition does not cover service of buses and truck
Service Tax Letter F.No. B1/6/2005-TRU, dated 27-07-2005

Service Tax Circular No. 35/2001-Trade Notice (Madurai Commissionerate) dated 24-05-2001

 
 
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Case Laws Related

  • STO 2013 CESTAT 952
  • Authorised Service Station: Demand: Stay: From the evidences available on record, it is clear that the appellant has been functioning as an 'Authorized Service Station' of M/s Tata Motors and, therefore, the services rendered by the appellant is prima facie classifiable under the category of "Authorized Service Station": Directions issued for partial pre deposit.

  • STO 2011 CESTAT 275
  • Demand: Stay: Various services involved on which demand raised: Prima facie ground found on limitation ground: Pre-deposit waived.

  • STO 2010 CESTAT 25
  • Service Tax:  Authorised Service Station: Service Tax with interest paid before issue of SCN:  Since the respondents had paid the service tax along with applicable interest before issue of show cause notice and no fraud or willful intention on the part of the respondent was found by the authorities, in terms of provisions contained in Section 73(3) of the Act, no further proceedings were warranted. Further it had been clarified by the CBEC vide Circular No.F.No.137/167/2006-CX-4 dt. 3/10/2007, that in such cases, no show cause notice was to be issued.  The appeal filed by the Revenue is rejected as devoid of merits. (para 2)

  • STO 2010 CESTAT 20
  • Penalty: Authorised Service Station: The failure to pay Service Tax on the part of the respondents was occasioned by its ignorance of law on the liability and not due to intention to evade any payment of service tax. This finding has not been successfully challenged. In the circumstances, there is no case for imposing any penalty. Appeal filed by the Revenue is rejected.

  • STO 2009 CESTAT 412
  • Free service by Authorised Service Station: The provision of free servicing is merely incidental and intended to promote the sale of the cars. No service tax can be levied on the amount representing the dealers' margin or any part of it which already has been subjected to sales tax.

  • STO 2007 CESTAT 1431
  • Authorised Service Station: Input Service: The appellants are undertaking after-sales service in the authorized service station. ‘Input service’ includes activities relating to business. Therefore, it is required to be examined as to whether these services are related to the activities of business. Impugned orders are set aside and the matter is remanded back.

  • STO 2007 CESTAT 1028
  • Sales tax v/s service tax: The dealers’ margin which is recovered by the appellants as a part of the sale value of the cars from the customers and the entire amount subjected to sales tax by the concerned State Government authorities. When the appellants sold the cars and recovered the amount including the dealers’ margin, the dominant intent, was to sale the goods, namely, cars and not to provide free after sales service. The entire amount including the dealers’ margin has been rightly taxed to sales tax representing the value of the cars. The provision of free servicing is merely incidental and intended to promote the sale of the cars. Hence, no service tax can be levied on the amount representing the dealers’ margin or any part of it which already has been subjected to sales tax.

  • STO 2007 CESTAT 1030
  • Levy: Service tax not leviable for free services rendered by the authorized agency in respect of the cars sold by them.

  • STO 2007 CESTAT 450
  • Stay: Authorised Service Station: penalty: It is now well-settled that penalty is not leviable on mere venial breach. There has to be intention to evade payment of duty, facts of suppression, mala fide, etc. for levy of penalty. Waiver granted.

  • STO 2007 CESTAT 1137
  • Free Service : When no consideration is received for the services rendered, there cannot be any question of levying Service Tax.

  • STO 2007 CESTAT 697
  • Stay: Authorised Service Station: Divergent views expressed by Board in two different Circulars : Prima Facie Service tax on free services leviable.

  • STO 2007 CESTAT 294
  • Service Tax: Liability on "warranty labour charges" for the free services: The warranty labour charges are fixed by Maruti Udyog and form a part of Dealer's commission. It has been specifically mentioned by Maruti in their service circular that the warranty labour charges were paid to the dealers in advance i.e. with the dealer's commission. And, therefore, for the purpose of assessment of service tax of these free services do not remain free. In this regard, the appellant has contended that, the value of the services is zero, therefore, the service tax will also be zero. In this regard, I find that, the value of the service tax has been defined under Section 67 of the Finance Act, 1994, which reads as under: "for the purpose of this Chapter the value of any taxable service shall be the gross amount charged by the service provider of such service rendered by him". In view of the above definition, I find that, there is sufficient evidence on record to prove that the appellant has charged certain amount for the services, therefore, it is incorrect to say that the value of the services was zero. The said agreement clearly indicates the nexus between the manufacturer and the dealer in terms of free services during the warranty period. The authorized dealer draws commission from the manufacturer which obviously includes certain cost in terms of the three free services during the warranty period as elaborated in Article X of the said dealership agreement.(Para 1,4).

    Pre-deposit ordered.

  • STO 2007 CESTAT 301
  • Service Tax: Taxable value: Cost of engine oil used during servicing of two wheelers: The contention is that exclusion in such a situation is specifically provided under Section 67(iii). Prima facie, there is merit in the appellant's contention.(Para 2,3).

    Pre-deposit waived, stay allowed.

  • STO 2007 CESTAT 166
  • Service Tax: Authorized service station: No prima facie case has been made out by the revenue in view of the finding of the lower appellate authority that handling charges are in relation to sale and not in relation to any services provided by the respondents and further, the revenue has not been able to show that the handling charges on which the Service tax has been demanded is in the nature of repair charges liable to Service tax.(Para 1).

    Appeal rejected.

  • STO 2006 CESTAT 150
  • Service Tax: Authorised service station: Demand on value of free service: Issue pertains to interpretation of the activity carried out by the appellants. The activity of authorized service station as subsequently been amended by Finance Act that if the free service is inbuilt in the sale consideration, then service tax is not leviable, and this benefit has been given to other service stations by Commissioner (Appeals) Cochin and Kannur. The Commissioner (Appeals) should have considered this plea. The appellants have a wrong case in their favour.(Para 3).

    Pre-deposit waived and stay allowed.

  • STO 2005 CESTAT 39
  • Consulting Engineer Service: Royalty and Know-how Payment: Revenue has not made out a clear case that the respondents have incurred certain expenditure for availing the services of a consulting engineer from their foreign collaborators. Whole agreement is based on what can be called as a transfer of know-how, involving royalty. While one cannot rule out the possibility of camouflaging certain component of services under the carpet of royalty, it is not the case here as neither the show cause notice issued nor the appeal petition filed by the Revenue alleges before us such a situation.

     
     

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