The Customs, Excise Service Tax Appellate Tribunal (CESTAT), Chennai Bench has held that service tax demand cannot be raised on mere book entries assuming figures as consideration.
The bench of Sulekha Beevi C.S. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that on the provision made in the balance sheet as per Accounting Standards to meet future expenses that may be incurred for carrying out the obligation of warranty services the demand of service tax has been raised. The appellant has made such provision from the commission received from the parent company. They have already discharged service tax on the commission. Demand of service tax cannot be raised on mere book entries assuming such figures as consideration. The appellant has not received any separate consideration for providing maintenance and repair services during the warranty period.
The appellant is a wholly owned subsidiary of M/s.Heidelberg International, Germany / Denmark and are providing the services of procuring orders, for supply of printing machinery in India to M/s.Heidelberg Germany. The appellant gives a quotation / proforma invoice based on which customer opens a Letter of Credit in Heidelberg, Germany. After the sale is effected, the machineries received are cleared at the port and the installation is done by the appellant. The appellant provides warranty services for 12 months. M/s.Heidelberg Germany pays commission to the appellant for all these services provided in India. The appellant installs the machines supplied by the Germany company and are providing maintenance and services during the warranty period. For this purpose, a warranty provision is made in the books of account of the appellant as “warranty income” from the commission received by them from M/s.Heidelberg Germany.
The ‘warranty income’ for which provision is made in their books of account is a consideration for providing maintenance and repair services as defined under Section 65 (64) of the Finance Act, 1994 as introduced w.e.f. 1.7.2003, amended w.e.f. 16.6.2005 and later amended on 1.5.2006.
A combined reading of Section 65 of the Finance Act, 1994 and the Board’s Circular No.59/8/2003 dated 20.06.2003 reveals that the service provided by the appellant falls under the category of “Maintenance and Repair Services” and the appellant ought to have paid service tax on the warranty income for which provision is made in their books of account. The appellant did not discharge service tax on this income. The show cause notice was issued to the appellant proposing to demand service tax for the period 1.7.2003 to 31.12.2006 invoking the extended period.
After due process of law, the original authority vide order dt. 25.6.2008 confirmed the demand of service tax in the SCN along with interest and imposed penalties.
The appellant preferred an appeal before the Commissioner (Appeals) who vide Order-in-Appeal No.160/2009 dated 15.12.2009 remanded the matter to the adjudicating authority with a direction to verify whether the appellant has received consideration apart from the commission income.
The assessee contended that the parent company viz. M/s.Heidelberg Germany is in the business of manufacturing printing machinery. During the relevant period, the appellant was the exclusive distributor of the said machinery in India. The distribution was done in two manners. Firstly, the appellant purchased the machinery and sold it to customers in India. Secondly, the appellant supported the sale, installation and after-sale service, for a commission paid by HIL Germany, where the sale was done directly by HIL Germany to the customers in India.
The Department has merely referred to the provision of this anticipated expense maintained in their books of accounts in accordance with AS-29 and alleged that the same is consideration received by the appellant from HIL Germany for providing maintenance and repair services during warranty period. The allegation raised in the SCN is completely baseless and not in accordance with the agreement entered by the appellant and the parent company.
The tribunal while allowing the appeal held that the department has not been able to establish that any separate consideration is received by appellant over and above the commission income. From the SCN, it can be seen that the demand has been raised on the basis of entries made in the books of account of the appellant. AS-29 provides for making Provisions, Contingent Liabilities, Contingent Assets.
Case Details
Case title: M/s.Heidelberg India Private Limited V/S The Commissioner of CGST & Central Excise
Citation: Service Tax Appeal No. 40764 of 2015
Decision date: 27/08/2024
Tribunal: CESTAT Chennai
