Service Tax on Authorised Motor Vehicle Service Station

Service Tax on Authorised Motor Vehicle Service Station

In the new regime of Service Tax Law i.e. ‘Negative List Based Taxation of Services’ all services are taxable except specified in negative list and mega exemption notification. Prior to this there was a specified services wise taxation where specific provision was available to particular services. The statutory provisions of Service Tax law on ‘Authorized Motor Vehicle Service Station’ was as under:

“Taxable Service” means any service provided or to be provided to any person, by an authorised service station, in relation to any service, repair, reconditioning or restoration of motor cars, light motor vehicles or two wheeled motor vehicle in any manner [Section 65 (105) (zo) of Finance Act, 1994 as amended]

“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 vehicles or two wheeled motor vehicles manufactured by such manufacturer; [Section 65(9) of Finance Act, 1994 as amended] 

“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; [Section 65 (62) of Finance Act, 1994 as amended]

“Motor Car” has the meaning assigned to it in clause (26) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988);[Section 65 (72) of Finance Act, 1994 as amended]

 “Motor Vehicle” has the meaning assigned to it in clause (28) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988); [Section 65 (73) of Finance Act, 1994 as amended]

 

After introduction of new service tax law w.e.f. 01-07-2012 the above provisions ceased to effect. In the new law there is no specific treatment of taxation for ‘Authorised Motor Vehicle Service Station’. The same is governed by general charging provision of new Service Tax law which is as under:

Definition of ‘Service’: Section 44 of Finance Act, 1994

 “Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

(a) an activity which constitutes merely,—

(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii) such transfer, delivery or supply of any goods which is deemed to be sale within the meaning of clause (29A) of article 366 of the Constitution; or

(iii) a transaction in money or actionable claim;

(b) a provision of service by an employee to the employer in the course of or in relation to his employment;

(c) fees taken in any Court or tribunal established under any law for the time being in force.

 

Chargeability of Service Tax: Section 66B of Finance Act, 1994 

There shall be levied a tax (hereinafter referred to as the service tax) at the rate of [fourteen] per cent, on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.

 

Valuation of Services: 67 of Finance Act, 1994 

(1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,–

(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.

(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.

(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.

(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.

 

Valuation Rules: Rule 5(1) of Service Tax (Determination of Value) Rules, 2006

5. Inclusion in or exclusion from value of certain expenditure or costs.

(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.

Explanation.- For the removal of doubts, it is hereby clarified that for the value of the telecommunication service shall be the gross amount paid by the person to whom telecommunication service is actually provided.

From above referred statutory provisions we can understand the applicability of Service Tax on services of authorised service stations in summarized way as under:

Generally the servicing of a vehicle involve following components:

1. Labour and technical assistance for servicing of vehicle
2. Replacement of old and damaged parts of vehicle with new parts
3. Use of consumables i.e. engine oil, lubricant, Greece etc. in course of servicing.

Taxability: The authorized service station service is taxable no specific exemption is providing either in Negative List or Mega Exemption.

Basic Exemption of Rs.10 Lacs: As the Authorised Service Stations are providing services under the brand name of other, they are barred small service provider exemption of Rs.10 lacs. [Refer Notification no. 33/2012-ST dated  20-06-2012]

Valuation of Services: As per section 67 read with rule 5(1) of service tax valuation rules the gross amount received against provision of service is the value of service.

 

Critical Issues  : Valuation of Services where spare parts are also sold during the servicing of motor vehicle

The determination of value of service is still a burning and unresolved issue between industry and department. In number of cases department issued SCN and confirmed demand against authorized motor vehicle service station for non-including value of spare parts and consumables in value of taxable service. In mostly cases the basis of show cause notice of department is Circular No.96/7/2007-ST dated 23.08.2007 issued by Board (CBEC). There is two limbs in this circular, one say that sale of material is not liable to Service Tax and other limbs say that material used/sold during servicing of motor vehicle should be included in taxable value of service and calculate service tax accordingly. The department follow the second limbs which is in favour of revenue and issue show cause notice and confirm demand against assessee.

Followings are the Judgments in the context of Non Applicability of Service Tax on the value of spare parts sold by authorised service station:

In the case of Automotive Manufacturers P. Ltd. v/s CCE, Nagpur FINAL ORDER NO. A/183/2015-WZB/STB APPEAL NO. ST/260/2009-MUM, JANUARY 16, 2015 (Tri. – Mumbai), where handling charges were collected and the value of which was included in the spare parts sold from the customers on which VAT was charged, it has been held that handling charges are in relation to sale of goods and when VAT has been charged on the sale of goods inclusive of handling charges, service tax cannot be levied on the handling charges again.

In case of CCE & ST, Meerut-II v/s Krishna Swaroop Agarwal [Appeal No. ST/3720/2012-CU[DB]] (Tri. – Del.), the same bench has held that when assessee established that amount on which impugned Service Tax was demanded actually pertains to sale of spare parts/accessories/consumables, etc. by showing copies of VAT assessment orders, benefit of Notification No. 12/2003-S.T. available and no service tax is chargeable on the sale of spares/consumables on which VAT is charged.

Ketan Motors Ltd. CCE & ST, Nagpur, Final Order No. A/321/2013-WZB/C-1 (CSTB), dated 18-2-2013 (MUM CESTAT) confirmation of demand on basis of value of spare parts as reflected in balance sheet, incorrect – Question of levy Service Tax not to arise where transaction involves sale of spare parts – Payment of VAT/Sales Tax on transaction indicating transaction to be treated as sale of goods – As per C.B.E. & C. Master Circular No. 96/7/2007-S.T., dated 23-8-2007 spare part value not includible even in composite transaction if bills/invoices clearing showing Sales Tax/VAT payment.

M/s Sudarshan Motors vs CCE, Nagpur (Appeal No. ST/85359/13) Date of Decision: 25.2.2013 Appellant is an authorized Service agents for Honda cars and undertake maintenance/service of motor cars – appellant selling spare parts for MV during the course of undertaking repair on which they were paying VAT – As per Master Circular dated 23/08/2007, ST is not leviable on a transaction treated as sale of goods and subject to levy of Sales Tax/VAT – Adjudicating authority has not considered the clarification issued – all transactions involving only sale of spare parts should be excluded for computation of ST demand – secondly, even in a case where transaction involves both sale of spare parts and also rendering of services, the value of such spare parts should be excluded if sales tax/VAT has been discharged on such sales as is evident from invoices/bills issued.

M/s Jaika Motors Ltd.v. CCE & ST, Nagpur [Order Nos. S/226/2013/CSTB/C-I & A/335/2013/CSTB/C-I] [Application No. ST/S-92219/2013] [Appeal No. ST/85152/2013] Dated of Decision 19-02-2013 (Mumbai – CESTAT) It has been held that from the reading of the above circular 23-08-2007, it would appear that even in a case of composite transaction involving sale of goods and rendering of service, if the Bill/Invoices issued clearly shows payment of Sales Tax/VAT on the spare parts, then the value of such spare parts would not be includable in the gross consideration received for rendering of service.

T.A.F.E. Access Ltd. v. CCE & ST, Coimbatore, [Misc. Order nos. 40439-40440 of 2013] [Application Nos. ST/S/433 & 517 of 2012] [Appeal Nos. ST/526 & 628 of 2012] date of decision 18-02-2013 (Chennai – CESTAT) No service tax leviable on sale of spare parts in the course of providing service of authorised service station.

In the case of CCE, Lucknow v/s Mahendra Engineering Limited 2015 (38) S.T.R. 233 (All.) while relying on the judgment in case of Balaji Tirupati Enterprises (reported in 2013 (32) S.T.R. 530 (All.)], the High Court has upheld the finding recorded by tribunal that in the invoices issued by the assessee, the value of goods used, such as transformer oil and service charges are shown separately and in respect of the supply of consumables used in providing the service of repair, sales tax or, as the case may be, VAT is paid. When the value of goods used was shown separately in the invoices on which sales tax or VAT has been paid, the Service Tax would be chargeable only on the service/labour component and the value of goods used for repair would not be includible in the assessable value of service.

Followings are Circulars issued by CBEC where board itself clarify that no service tax be levied on spare parts used during the course of servicing of vehicles:

Circular No. 699/15/2003-CX., dated 5-3-2003 : 

“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.”

Circular no. 87/05/2006-ST dated 6-11-2006

“2. The issues have been examined. As regards, the issue relating to sale of spare parts and consumables. Notification No. 12/2003-ST, dated 20-06-2003, exempts service tax to the extent of value of the goods and materials sold by the service provider to the service recipient, if documentary proof of such sale exists and no credit of excise duty paid on such spares or consumables have been taken. It may, however be pertinent to note that for availing such exemption, the goods must be sold and consequently, they must be available (whether independently or as part used for repair of a vehicle) for sale. In other words, the exemption would not be available to such consumables which have been consumed during the process of providing service and are not available for sale.”

Circular No. 96/7/2007-S.T., dated 23-8-2007

Reference Code	Issue	Clarification
(1)	(2)	(3)
036.03 / 23.08.07	Whether spare parts sold by a service station during the servicing of vehicles is 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?	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.

Concluding : As the various court decisions are in favour to not levy the service tax on spare parts used during the servicing of motor vehicles, the CBEC should issue fresh Circular on the matter without leaving any scope for further dispute.