No Service Tax leviable on Cost of Spares and Material used for Free Services during Warranty Period: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that no service tax is leviable on cost of spares and material used for free services during the warranty period.

The appellant, M/s. T.A.F.E Access Ltd, is an authorised dealer of M/s. TATA Motors and are engaged in selling passenger cars and also provide free services to their customers during warranty period.The Department was of the view that the appellant has to include the cost of the spares/materials used for providing the free services. Show cause notice was issued proposing to demand service tax along with interest and also for imposing penalties.

After due process of law, the original authority confirmed the demand along with interest and imposed penalty under Section 78 of the Finance Act, 1944. Aggrieved by such order the appellant preferred an appeal before the Commissioner (Appeals) who upheld the order passed by the adjudicating authority. Hence the present appeal.

N. Viswanathan appeared and argued on behalf of the appellant. The Counsel submitted that the Department has erroneously raised the demand holding that the appellant has to pay service tax on the reimbursements received from the manufacturer towards supply of parts and accessories used during the free warranty service alleging that the spares/parts are inputs and these are consumed while providing services.

The issue that arises for consideration is whether the cost of spares and accessories reimbursed for free services provided during the warranty period has to be included in the taxable value or not.

In M/S. TATA MOTORS LTD vs THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES(SPL) & ANRCITATION: 2023 TAXSCAN (SC) 182, the Supreme Court has held that the free replacement of defective motor vehicle parts during warranty period is subject to the levy Sales Tax.

The Two-Member Bench of the Tribunal comprising Vasa Seshagiri Rao, Technical Member and CS SulekhaBeevi, Judicial Member relied on the judgment in M/s. ABT Ltd. and others Vs. Commissioner of Central Excise, Coimbatore, wherein it was held that “The cost of spare parts cannot be included for purposes of levy of service tax. Such demand of service tax is not justified.”

To Read the full text of the Order CLICK HERE

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