Landmark Service Tax Judgment - Authorised Service Station Services

 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

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) audemars piguet royal oak offshore diver replica, “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

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.

(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

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.

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