Service Tax Demand Unsustainable Where Warranty Services Qualify As Works Contract: CESTAT New Delhi

The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 19 March, held that a service tax demand cannot be sustained if warranty services qualify as Works Contract Services and all material particulars are duly disclosed, and that invoking the extended period of limitation is improper in the absence of suppression.

A Bench of Judicial Member Dr. Rachna Gupta allowed the appeal filed by Electrocare, set aside the service tax demand raised for FY 2014–15, holding that the demand was unsustainable both on merits and limitation.

The Tribunal stated:

“The documents on record makes it clear that the appellant had given sufficient documentary evidence to the department to prove that they were rendering work contract services… There seems no element of suppression on part of the appellant. Impugned SCN… is held to have wrongly invoked the extended period of limitation. The SCN is held to be barred by time.”

The dispute arose when the Department, relying on third-party data, noticed a discrepancy between the income reflected in Electrocare's Profit & Loss account and the ST-3 returns. Based on this, it alleged that the appellant had short-paid service tax of Rs. 1,70,702/- for FY 2014–15 and issued a show cause notice invoking the extended period of limitation.

Electrocare contended that it was an authorized service centre of LG Electronics, providing both warranty and post-warranty services. It submitted that warranty services were covered under Works Contract Services, with 50% of the service tax liability discharged by LG under the Reverse Charge Mechanism in terms of Notification No. 30/2012. It produced a certificate from LG confirming payment of its share of service tax.

The appellant also argued that all relevant details were disclosed in the ST-3 returns, and that the demand arose solely from third-party data without proper verification, showing no suppression of facts and rendering the invocation of the extended period unjustified.

The Tribunal observed that the agreement between Electrocare and LG clearly established that the appellant was not merely providing services but also supplying parts, satisfying the definition of Works Contract Services. It further noted that LG had acknowledged the nature of services and confirmed that 50% of the service tax liability had been discharged, a fact not disputed by the department.

The Bench emphasised that Electrocare had submitted sufficient documentary evidence and consistently filed ST-3 returns disclosing all material particulars, including the nature of services and applicable notifications.

Accordingly, the Tribunal held that Electrocare correctly discharged its service tax liability under the Reverse Charge Mechanism and allowed the appeal.

For Appellant: Shri Deepak Bajpai, Advocate

For Respondent: Shri Rohit Issar, Authorized Representative