TVS Automobile Solutions Ltd. Versus Commissioner of GST and Central Excise, Madurai (Vice-Versa)
Service Tax
2018 (9) TMI 1515 – CESTAT CHENNAI – TMI
CESTAT CHENNAI – AT
Dated:- 17-9-2018
ST/41980/2015, ST/41981/2015, ST/42339/2015 – 42427-42429/2018
Service Tax
Ms. Sulekha Beevi C.S., Member (Judicial) And Shri Madhu Mohan Damodhar, Member (Technical)
For the Appellant : Shri N. Venkataraman, Senior Advocate assisted by Shri M.N. Bharathi, Advocate
For the Respondent : Shri A. Cletus, Addl. Commissioner (AR)
ORDER
PER BENCH
The assessees are inter alia, engaged in servicing of motor vehicles and also trading of automobile parts to franchisees and vehicle customers who avail services at the workshop. Vide a letter dated 1.12.2011, the assessees informed the Central Excise authorities inter alia that
* They are engaged in the business of multi-brand car servicing and also trading of automobile parts to franchisees and to vehicle customers who are availing se
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011, informed the assessees to pay an amount equal to 5% on taxable value determined under Section 67 of the Finance Act, 1994 i.e. 5% of the gross value of the franchisee service and servicing of motor vehicles (both value of goods sold and service charges received). The assessees were reminded by the jurisdictional Superintendent vide letter dated 2.3.2012 asking them to follow the procedure as advised. However, in response, the assessee vide letter dated 8.3.2012, reiterated their reply and further added that:-
* They buy and sell parts as a pure trading activity, which is governed by the definition of „exempted services‟ read with explanation to 1(C) to Rule 6(3) they have remitted 5% amount equivalent to duty after working out differences between sale price and the cost of goods sold;
* They also perform divisible contract of goods and rendition of servicing on motor vehicles. Here again, sale of parts constitute pure trading. They have already remitted a sum equiv
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sought to be re-assessed.
They do not have any other transaction at present to be governed by explanation 1(C) to Rule 6(3) and
Thus, the request to pay a sum equal to duty for the entire sales turnover is clearly impermissible and is sought to be re-assessed.
1.2 A show cause notice dated 11.6.2013 was issued to the assessee inter alia alleging that the goods sold to service recipient of franchisee services and servicing of motor vehicles is not trading of goods but is actually sale of goods in the course of providing taxable service; hence value of such goods sold during the course of providing franchisee service and servicing of motor vehicles it to be included in the gross value of taxable services under Section 67 of the Finance Act, 1994; that the assessees are liable to pay an amount of 5% of gross value of exempted services as per Explanation 1(a) to Rule 6(3) and Rule 6(3A) of CENVAT Credit Rules, 2004 r/w Rule 2(e); in addition to payment of 5% on gross profit of trading a
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vice tax liability for the period April 2011 to March 2012 with interest thereon and also for imposition of penalties under various provisions of law. For subsequent period, April 2012 to June 2012, statement of demand dated 23.4.2014 was issued on identical grounds proposing demand of an amount of Rs. 30,69,417/- with interest thereon and for imposition of penalty under Rule 15 of CENVAT Credit Rules, 2004. Both the show cause notice and the statement of demand were adjudicated in a common order dated 30.6.2015 (impugned order) wherein the tax proposed in the show cause notice / statement of demand were confirmed along with interest. Penalties were also imposed as proposed in the respective show cause notice / statement of demand.
Aggrieved, the assessee is before Tribunal in Appeal No. ST/41980 & 41981/2015 primarily on the following grounds:-
i) Whether the activity of trading could be considered as falling under the definition of exempted service prior to 1.7.2012 and after 1.7.
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Whether in the facts and circumstances of the case penalty under Rule15 can be sustained.
1.6 Department has also come in appeal against the impugned order before this forum in Appeal No.ST/42339/2015 primarily on the following grounds:-
i. It could be seen from the show cause notice dated 11.06.2013 and the statement of demand dated 23.04.2014 that the charge against TVS was that the method adopted by them for payment of amount under Rule 6 of CENVAT Credit Rules, 2004 was wrong as they had adopted the method provided under Explanation 1(C) to Rule 6 instead of Explanation 1(a) to Rule 6 and sought to demand 5% of the total value of spares sold by them during the course of providing the services under MRS/FRA though exempted under Notification No. 12/2003 ST dated 01.03.2003 was covered by the definition of „exempted service‟ value in terms of definition of under cause of Rule 2 of CENVAT Credit Rules, 2004. The argument provided in the notice was that the value of goo
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show that the goods were sold and that there was no evidence on record to show that they had availed CENVAT on such goods by TVS, the value of such goods sold during the course of provision of services were eligible for the exemption under Notification No. 12/2003 ST dated 01.03.2003 for the purpose of service tax. However for the purpose Rule 6(3)(i) of CENVAT Credit Rules, 2004 such value had to be treated as an exempted value „in terms of the definition of exempted service which is defined under Rule 2(e) of the CENVAT Credit Rules, 2004.
iii. Hence, for the purpose of amount payable under Rule 6(3) (i) of the CENVAT Credit Rules, 2004 the exempted value had to be taken in to account and therefore the notice was liable to pay an amount equal to 5% of such exempted services „provided under clauseEUR of Rule 2 of CENVAT Credit Rules, 2004. The adjudicating authority has not given any findings either to support this aspect or counter the arguments of the notice and has s
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types of activities done by them and also in particular regarding the manner of reversal of CENVAT credit taken in respect of such contracts.
(c) The adjudicating authority instead of providing arguments as to why the method adopted by TVS for payment of amount under Rule 6(3) of CENVAT Credit Rules, 2004 was wrong, has elaborately gave findings to the effect that the value of materials sold by them were to be included in the value of services as per Section 67 of the Act ibid and that as the Assessee had not fulfilled the conditions stated in the notification No. 12/2003 St dated 01.03.2003 namely “credit of duty paid on goods and materials sold has been taken under provisions of CENVAT Credit Rules, 2004 and not paid the amount equal to such credit availed before the sale of such goods and materials” were not eligible for the exemption provided in the said notification. In the further paras also the adjudicating authority had elaborately discussed citing the instructions of the Boa
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ween sale price and the purchase price, that no input credit is taken and hence no duty is payable.
2.2 In reply to the show cause notice, the appellant had inter alia made the following submissions:-
2.3 The following are some of the submissions taken by the appellants in their reply to Show Cause Notice:-
(i) The allegation that the method of calculation of amount payable at the rate of 5% is not correct is not tenable in law as they have paid the said amount based on explanation 1(c) of Rule 6(d) of the Cenvat Credit Rules.
(ii) The appellants buy and sell parts as a pure trading activity which is covered under exempted services „read with rule 6(3) and 6(3D).
(iii) The appellants render service under divisible contract for sale of goods and service of motor vehicles. They have not claimed any exemption nor benefit on non-taxable sale transaction. Therefore Cenvat Credit Rule 6(1) and Rule 6(3) do not arise/ They provide pure labour and service contracts which do not i
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letter written to the Deputy Commissioner dated 30.012014 before issuing the statement of demand wherein the case of Ketan Motors td (v) CESTAT, Nagpur was enclosed, in which it was held that, if a transaction involves only sale of parts, question of levying service tax would not arise at all”.
(viii) Since Cenvat Credit Rules themselves use the expression trading as synonymous with sale as seen from the explanation 1(c)to Cenvat Credit Rules 6(3D) as referred to earlier, it is clear that the subject activity of sale of spare parts sold in the course of providing of the service to the vehicles is nothing but trading and falls under definition of exempted service prior to 01.07.2012 and that is the reason why the appellants have chosen to pay 5% of the value of exempted service i.e. on the difference between sale price and cost of goods sold or 10% on the cost of goods sold whichever is more. Similarly after 01.07.2012 for the same reason the appellants have treated sale/trading activ
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y are required to pay an amount of 5% on the value of exempted service and at the same time he gives a finding that in addition to the payment of 5% of the gross value of exempted service the appellants should also pay 5% of the gross profit of the trading activity. On the one hand, Commissioner does not consider the activity of sale of parts as „trading‟ falling under the exempted service and on the other hand for the purpose of demand, he treats the same as exempted service and invokes the provision of Cenvat Credit Rules 6(3) and explanation 1(c) to Cenvat Credit Rule 6(3D).
(xi) In para 21 of the impugned order the Commissioner gives a finding that the spares are not directly sold to the customers and there is no sale taking place over the counter and the customer brings a vehicle to the servicing station where the service engineer inspects the vehicles and prepares the job card with the details of the vehicle and the spares are directly delivered to the servicing eng
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rules and Appellants genuinely believed that they had compiled with provisions of Cenvat Credit Rules and provision relating to valuation.
(xiv) Therefore for the above reasons the resort to Cenvat Credit Rule 15 for the imposition of penalty is improper, illegal and unsustainable.
3. On the other hand, ld AR Shri A. Cletus reiterates the grounds of appeal. He also made submissions which can be broadly summarized as under:-
3.1 He submits that it is evident that the adjudicating authority instead of providing arguments as to why the method adopted by the assessee for payment of amount under Rule 6(3) of CCR was wrong, has elaborately gave findings to the effect that the value of materials sold by them were to be included in the value of services as per section 67 of the act ibid and that as the Assessee had not fulfilled the conditions stated in the notification No 12/2003 ST dated 01.03.2003 namely “credit of duty paid on goods and materials sold has been taken under the provision
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registration number which was serviced in the sale invoice also thus connecting the sales to the services provided by them. In respect franchisee service also the franchise was not given for servicing of motor vehicles under the brand name of TVS and the spares required for such service were also sold by TVS. Thus in respect both types, the sale had a direct connection to the services rendered by TVS and so the value of such goods said would form part of the gross value of service in terms of section 67. But as there is clear evidence in the invoice to show that the goods were sold and that there was no evidence on record to show that they had availed Cenvat on such goods by TVS, the value of such goods sold during the course of provision of services were eligible for the exemption under Notification No12/2003 ST dated 01.03.2003 for the purpose of service tax However for the purpose Rule 6(3) (i) of CCR such value had to be treated as an „exempted value‟ terms of the defin
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first take up the appeal of the department. The main grievance of the department is that the impugned order is a non-speaking order without giving detailed findings either to support or counter the arguments of the noticee but has simply confirmed demands proposed in the notice and the statement of demand. We find that the show cause notice had alleged in para 5.1 that “value of goods (sold during taxable service) is to be included in the gross value of taxable service under section 67 of the Finance Act, 1994”. The same paragraph also alleges that “assessees are liable to pay an amount of 5% of gross value of exempted service as per explanation 1(a) to rule 6(3) and 6(3A) of CENVAT Credit Rules, 2004. In para 5.1 (iv) and (v), there is a proposition if the assessee opts to pay an amount of 5% of value of exempted goods under Rule 6(3)(i) of CENVAT Credit Rules, 2004, they are required to pay an amount equivalent to 5% of the gross value (both value of goods sold and service charges r
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003-ST dated 1.3.2003 has been fulfilled by the assessee in this case. Discernibly, non-fulfillment of Notification No. 12/2003-ST was not an allegation or charge raised in the show cause notice. True, para 4.4 of the notice dated 11.6.2013 did reproduce a portion of the Notification 12/2003-ST, however, without making any reference or connection to the facts of the case or making any allegation that the conditions of the notification have been violated by the department. We further find that in para 19, the adjudicating authority has made a reference to Circular No.96/7/2007-ST dated 23.8.2008 which had inter alia clarified that 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. That however service provider is entitled to take input credit of excise duty paid on such parts or any goods used in providing service wherein value of such goods has been included in the bill. We a
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aken and hence no duty is payable”.
5.4 The assessee also, in their grounds of appeal and other contentions made by them, have consistently found fault with the adjudicating authority which have already been set out above. For example, the appellant has submitted that the Commissioner has contradicted in para 19 of the impugned order, the reason adopted for the demand in question. So also appellant has contended that the reasoning adopted by the Commissioner in para 21 based on alleged bifurcation of value and service of goods is not correct. Appellant has also argued that in para 24 of the impugned order, the Commissioner has totally misunderstood the entire concept of sale and service and inclusion of sale value of the goods in the taxable value of service.
6. From the discussions and findings herein above, it is evident that the order of the adjudicating authority has not addressed the allegations and concerns raised in the show cause notice but has instead veered off into other a
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