No Service Tax under Management, Maintenance or Repair in absence of Receipt of Consideration during warranty period: CESTAT [Read Order]

Top Stories No Service Tax under Management, Maintenance or Repair in absence of Receipt of Consideration  during warranty period: CESTAT [Read Order] The CESTAT held that Service Tax under Management, Maintenance or Repair not demandable in absence of Receipt of Consideration during warranty period By Yogitha S. Yogesh – On February 14, 2024 9:01 am – 3 mins read The Bangalore bench of the Customs Excise & Service Tax Appellate Tribunal ( CESTAT ) held that no service tax is leviable under management, maintenance or repair in the absence of receipt of consideration during the warranty period. M/s. Hewlett Packard India Sales Private Limited, the appellant is engaged in the manufacture, trading and servicing of computer systems, CPUs, servers etc., falling under Chapter 84 of the Central Excise Tariff Act, 1985.  During the audit, it was noticed that the appellant was providing output services under the category of ‘Management, Maintenance or Repair Service’ ( MMR ) either under a warranty period or under an Annual Maintenance Contract ( AMC ).  They procured parts and spares on which cenvat credit was availed.

The appellants are discharging service tax on AMC service; however, no service tax was paid for services rendered during the warranty period even though defective components were replaced and the cost of the said components charged from their overseas entities, who in turn, recovered the cost of the same from the Original Equipment Manufacturer ( OEM ).  Further, he has submitted that the provisions of Section 67 read with Rule 3 of the Service Tax Valuation rules do not provide for the determination of value in case of free service/service provided without consideration.  He contended that since the warranty service is provided free, no value can be attributable to the service in terms of Section 67 of the Finance Act, 1994.  Assailing the findings recorded in the impugned order, which holds that if the consideration is not ascertainable, then recourse is to be made to Section 67(4) read with the Valuation Rules, he has submitted that Section 67(4) of the Finance Act lays down that value shall be determined in the prescribed manner i.e. according to Rule 3 of Service Tax (Determination of Value) Rules, 2006.  It was submitted that the Department has wrongly adopted Rule 3(b) of the Valuation Rules 2006 to ascertain the value of nonmonetary consideration.

In the present case, there is no non-monetary consideration to be converted into the equivalent of money; hence, the said rule is inapplicable. It was argued that since the appellant has not received any consideration for providing the warranty services; therefore, no service tax is attracted on the services provided during the warranty period.  He contended that for the period before 01.07.2012, Section 65 of the Finance Act provides for the levy of service tax only where the provision of service is against consideration of the service provided.  In the absence of any consideration, no service tax is leviable.  For the period after 01.07.2012, Section 66B read with Section 65B (44) of the Finance Act provides for the levy of service tax on service which is defined as an activity for consideration.

The defective parts were reexported in terms of the warranty provided by the OEMs and the cost of the said parts was reimbursed by the OEMs to the foreign manufacturer of the equipment, who in turn compensates the appellant.  Dr D.M. Misra, Member ( Judicial ) and Mr Pullela Nageswara Rao, Member ( Technical ) held that “It is an incorrect approach of the adjudicating authority that the consideration be determined by resorting to valuation when no such consideration is received from the customers for providing services during the warranty period. It is not the case of the department that the Appellant though received the value of the services but the same could not be quantified or ascertained, hence resort to the method of valuation becomes necessary. It is a case of non-receipt of any consideration for the service rendered.”

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