Unreported Decisions – ST – May 2020

By Vinay Jain & Sachin Mishra, Advocates

1. Whether after-sale and warranty services provided by a foreign dealer to its customers in relation to the vehicles purchased from an Indian Manufacturer shall be considered as after-sale services on behalf of such Indian Manufacturer? Whether discount by way of price reduction given by such Indian Manufacturer shall be considered as consideration for such after-sale service? Whether Indian Manufacturer shall be liable to pay service tax under the category of ‘Business Auxiliary Service’ under reverse charge mechanism on such transactions?

Facts and Pleading: M/s. MAN Trucks India Pvt. Ltd. (hereinafter referred to as Appellant) is inter alia engaged in the business of manufacture of heavy commercial vehicles. The Appellant had entered into Agreement with M/s Man Trucks & Bus AG, Germany (hereinafter referred to as ‘MAN Germany’) for supply of Heavy Commercial Vehicles bearing the “MAN” trademark for sale outside India. The transaction involved sale of heavy commercial vehicles by the Appellant to MAN Germany and thereafter by MAN Germany to its buyers. For such supply since the after-sale services were to be provided by MAN Germany, the Appellant extended a price reduction to MAN Germany.

The Department alleged that the aforesaid discount by way of price reduction shall be considered as consideration of the obligation of MAN Germany for warranty and after-sale services. Thus, as per the department the said amount is paid to MAN Germany for carrying out the after-sale services on behalf of the Appellant, and hence, would be covered under the ambit of ‘Business Auxiliary Service’. The Appellant contended that the provision of after-sale and warranty services by MAN Germany to the end customers was in pursuance of its own obligations to such end customers and no service was rendered by MAN Germany on behalf of the Appellant.

The Appellant also submitted that the discount offered by the Appellant is merely an adjustment in the price of the goods sold and is not towards provision of any service by MAN Germany. The Appellant further contended that the transaction between the Appellant and MAN Germany is in the nature of a sale transaction and not for provision of ‘Business Auxiliary Service’

Judgment: The Hon’ble CESTAT agreed with the submission of the Respondents and held that the role of the Appellant assigned under the Agreement was limited to sale of trucks including spare parts and the Appellant was not responsible for rendering any after-sale services. The Hon’ble CESTAT held that the fact that the agreement provided that MAN Germany has to provide warranty and after-sale service to its customers, does not in any manner mean that MAN Germany was rendering after-sale service on behalf of the Appellant. The Hon’ble CESTAT was of the view that in fact, the agreement was to the contrary and the discount that was being offered by the Appellant to MAN Germany was merely an adjustment in the price of goods sold. Hence, according to the Hon’ble CESTAT, the service provided by MAN Germany cannot be classified under the category of ‘Business Auxiliary Service’.

M/s. MAN Trucks India Pvt. Ltd. vs. CCE, Indore, CESTAT, New Delhi, decided on 24.02.2020 in the Final Order No. 50461/2020.

M/s. MAN Trucks India Pvt. Ltd.

2. Whether Writ Petition is maintainable in cases wherein undue delay in issuing the order by the adjudicating authority after personal hearing has caused prejudice to the Petitioner? Whether relying on the wrong taxable entry while determining the place of provision of service and ignoring the affidavit filed by the Petitioner during the personal hearing shall be considered as gross error on part of the adjudicating authority?

Facts and Pleading: M/s. Infra Dredge Services Pvt. Limited (hereinafter referred to as the ‘Petitioner’) is interalia engaged in providing dredging services. A show cause notice was issued against the Petitioner demanding service tax under the categories of ‘Management Maintenance and Repair Service’, ‘Supply of Tangible Goods for Use Service’ and ‘Dredging Service’ for various periods. The personal hearing in the said matter was undertaken on 3.1.2019, however, the order was passed on 29.7.2019. The Petitioner filed a Writ Petition before Hon’ble High Court of Bombay on the count that there was delay of seven months in passing the Orderin- Original from date of the personal hearing which resulted in gross prejudice to the Petitioner.

The department alleged that all the contentions raised by the Petitioner could be raised by the Petitioner before the Appellate Authority and merely because statutory pre-deposit is mandated, the Petitioner cannot invoke writ jurisdiction.

The Petitioner relied upon the decisions in the case of Shivsagar Veg Restaurant Vs. ACIT, ITXA No.144 of 2006 dated 14.11.2008 and EMCO Ltd. Vs. UOI, Writ Petition No.12124 of 2013 dated 11.2.2014 to submit that that there is not only delay of six months from conclusion of the argument till pronouncement of order but because of this delay, gross errors have occurred in the order which has caused severe prejudice to the Petitioner. The Petitioner submitted that the impugned order has relied upon wrong provisions while confirming the tax liability upon the Petitioner. The Petitioner further submitted that though on record, the impugned order has ignored an affidavit of the Petitioner placing certain factual position on record supported by the decisions of the Tribunal. The Petitioner also submitted that the impugned order has also ignored binding precedents cited before the authorities. The Appellant also contended that in view of this the Writ Petition be entertained without relegating the Petitioner to the appellate remedy.

Judgment: The Hon’ble High Court referred the aforesaid two decisions in Shivsagar Case and EMCO Case to held that the basis of the said two decisions is not the delay alone but the resultant prejudice apparent from such omissions. The Hon’ble High Court observed that the impugned order wrongly relies upon Section 65 (105) (zzzg) of the Finance Act, 1994 related to ‘Mailing List Compilation and Mailing’ while confirming the demand under ‘Management, Maintenance or Repair Service’ by considering it to be covered by Rule 3 (iii) of the Import of Service Rules. However, Section 65 (105) (zzg) of the Finance Act, 1994 which actually deals with ‘Management, Maintenance or Repair Service’ was covered by Rule 3 (ii) of the Import of Service Rules. Similarly, the Hon’ble High Court also observed that the impugned order did not deal with the affidavit of Managing Director of Petitioner through which the Petitioner sought to place relevant facts on record. The Hon’ble High Court relying on the aforesaid EMCO Case held that when the proceedings are disposed of expeditiously by the authorities, it ensures there is an application of mind and litigants are satisfied that their submissions have been considered. In view of the above, the Hon’ble High Court set aside the order on the count that the delay of seven months in passing the order has caused prejudice to the Petitioner.

M/s. Infra Dredge Services Pvt. Limited vs. UOI, High Court of Bombay, decided on 29.01.2020 in the Writ Petition No. 3625 of 2019.

M/s. Infra Dredge Services Pvt. Limited