Autobahn Enterprises Pvt Ltd Vs Commissioner of Service Tax (CESTAT Mumbai)
Service Tax not leviable on discounts offered by car manufacturers to their dealers for onward transmission to corporate customers
Autobahn Enterprises Pvt. Ltd. (Appellant) was an authorized dealer of M/s Skoda Auto India Pvt Ltd. and in accordance with their agreements, the Appellant was allowed to offer discounts on the sale of vehicles to their corporate customers to be reimbursed to them and had facilitated banks and financial companies, as well as insurance companies, to service loan and insurance requirements of customers from their premises.
The Appellant contended that the dispute pertaining to discounts offered by car manufacturers to their dealers for onward transmission to corporate customers was not liable to tax as promotion or marketing or sale of goods produced or belonging to clients’ within the enumeration of ‘business auxiliary service’ in section 65(19) of Finance Act, 1994. and the demand of ₹ 3,70,994/- along with interest and penalty under section 78 of Finance Act, 1994 is not valid.
The Hon’ble CESTAT, Mumbai relied on the decision of Toyota Lakozy Auto Pvt. Ltd. v. Commissioner Service Tax and Jaybharat Automobiles Limited v. Commissioner of Service Tax in which it was held that the relationship between the Appellant and the dealer is on a principal to principal basis. Only because some incentives/discounts are received by the appellant under various schemes of the manufacturer cannot lead to the conclusion that the incentive is received for promotion and marketing of goods. It is not material under what head the incentives are shown in the Ledgers, what is relevant is the nature of the transaction which is of sale. All manufacturers provide discount schemes to dealers. Such transactions cannot fall under the service category of Business Auxiliary Service when it is a normal market practice to offer discounts/institutions to the dealers.
The Hon’ble CESTAT then noted the decision in Gemini Mobiles Pvt. Ltd v. Commissioner of Central Excise & Service Tax, Lucknow for arriving at the conclusion of circumstances not being conducive for invoking section 78 of Finance Act, 1994.
Then Hon’ble CESTAT, Mumbai in the present case ruled that finality was accorded to tax liability by circular no. 87/05/2006-ST dated November 06, 2006 of the Central Board of Excise and Customs. And in view of the circumstances and the stand taken by the Tribunal in these several decisions, invoking of the extended period for the purpose of imposition of penalty is not sustainable. Accordingly, the penalty imposed under section 78 of Finance Act, 1994 is also set aside.
FULL TEXT OF THE CESTAT MUMBAI ORDER
Though the impugned order-in-appeal no. 469/PD/2014 dated 28th February 2014 of Commissioner of Central Excise & Service Tax (Appeals -IV), Mumbai – I has upheld demand of ₹29,57, 199/-, for the period from 2003 to 2006, on discount allowed by the supplier of goods for sale to corporate customers, on commission from banks and financial companies and on payments received for insurance referral, the dispute that persists is limited to the demand for tax of ₹3,70,994/- on the first of the issues and to the entirety of penalties imposed.
2. The appellant is an authorized dealer of M/s Skoda Auto India Pvt Ltd and, in accordance with their agreements, is allowed to offer discounts on sale of vehicles to their corporate customers to be reimbursed to them and had facilitated banks and financial companies, as well as insurance companies, to service loan and insurance requirements of customers from their premises. The demands were confirmed by the original authority under section 73 of Finance Act, 1994, along with interest thereon under section 75 of Finance Act, 1994, while imposing penalty of like amount under section 78 of Finance Act, 1994. On appeal, the demand, interest and penalties were upheld leading to the proceedings before us.
3. Learned Chartered Accountant, appearing for the appellant, submits that the dispute pertaining to discounts offered by car manufacturers to their dealers for onward transmission to corporate customers is not liable to tax as ‘promotion or marketing or sale of goods produced or belonging to clients’ within the enumeration of ‘business auxiliary service’ in section 65(19) of Finance Act, 1994. Reliance has been placed on the decisions of the Tribunal in Commissioner of Service Tax, Mumbai – I v. Sai Service Station Ltd ]2014 (35) STR 625 (Tri.-Mumbai)], Jayabharat Automobiles Ltd v. Commissioner of Service Tax, Mumbai [2015-TIOL-1570-CESTATMUMBAI] and Toyota Lakozy Auto Pvt Ltd v. Commissioner Service Tax, Mumbai –II & V [2017 (52) STR 299 (Tri.-Mumbai)].
4. It was also contended that the dues leviable on the ‘commission’ received from banking and financial companies, as well as on insurance referral, had been discharged and that only the imposition of penalty is contested. Reliance has been placed on the decision of the Tribunal in Addis Marketing v. Commissioner of Central Excise, Mumbai [2017 (50) STR 56 (Tri. -Mumbai)] in support of the plea for quashing of penalty. It is also contended that, insofar as the first issue is concerned, the demands for the subsequent period were dropped at the adjudication stage.
5. Learned Authorised Representative informs that the order for the subsequent period which dropped the demands arising therefrom had been accepted by Revenue. It was contended by him that the appellant had failed to discharge their tax liability at the appointed intervals on ‘commission’ earned by them and, therefore, the imposition of penalties was valid.
6. From the decisions cited by Learned Chartered Accountant, we find that the dispute pertaining to discount offered to corporate customers has attained finality. In this connection, the decision of the Tribunal in re Toyota Lakozy Auto Pvt Ltd, which has referred to the other two decisions, observing that
‘2. Separate appeals have been preferred against two orders-in-original pertaining to the period from July, 2004 to March, 2007 and from April, 2007 to March, 2011. The demands confirmed in the two appeals are ₹ 1,58,69,430/- and ₹1,57,12,236/-; the impugned order holds appellant liable to tax on commission earned on sale of cars, on facilitation charges collected from customers for registration of vehicles and commission foregone on loans marketed by appellant to customers. It is the contention of the appellant that these are not consideration leviable to tax and that, even if these are, the adjudicating authority has erred in computing the tax liability. As the issues in the two appeals are common, we dispose both by a common order.
3. Appellant contends that ₹ 81,35,813/- and ₹ 1,21,47,133/- for the two periods has been wrongly subjected to tax because the agreement between the appellant and M/s. Toyota Kirloskar Motor Limited is one of supply of vehicles by the latter on ‘principal-to-principal’ basis on which title and risk, as per Agreement, are passed on to appellant when the vehicles are excise cleared and placed on common carrier. Depending on order quantity, the manufacturer raises invoices after according discounts which are designated as commission/incentive merely as a management terminology. Learned Chartered Accountant for appellant places reliance in the decisions of the Tribunal in Jaybharat Automobiles Limited v. Commissioner of Service Tax, Mumbai [2015-TIOL-1570-CESTAT-MUM = 2016 (41) S.T.R. 311 (Tri.)], Sai Service Station Limited v. Commissioner of Service Tax, Mumbai [2013-TIOL -1436- CESTA T-MUM = 2014 (35) S. T.R. 625 (Tri.)], Tradex Polymers Private Limited v. Commissioner of Service Tax, Ahmedabad [2014 (34) S.T.R. 416 (Tri.-Ahmd.)] and Garrisson Polysacks Private Ltd. v. Commissioner of Service Tax, Vadodara [2015 (39) S.T.R. 487 (Tri.-Ahmd.)]. In re Jaybharat Automobiles Limited, the Tribunal held that
“6.5 On the appeal by Revenue on the issue of incentives received by the appellant from the car dealer, we find that the relationship between the appellant and the dealer is on a principal to principal basis. Only because some incentives/discounts are received by the appellant under various schemes of the manufacturer cannot lead to the conclusion that the incentive is received for promotion and marketing of goods. It is not material under what head the incentives are shown in the Ledgers, what is relevant is the nature of the transaction which is of sale. All manufacturers provide discount schemes to dealers. Such transactions cannot fall under the service category of Business Auxiliary Service when it is a normal market practice to offer discounts/institutions to the dealers. The issue is settled in the case of Sai Service Station (supra). Therefore, we reject the appeal of the department.”
and in re Sai Service Station Limited it was held that
“14. In respect of the incentive on account of sales/target incentive, incentive on sale of vehicles and incentive on sale of spare parts for promoting and marketing the products of MUL, the contention is that these incentives are in the form of trade discount. The assessee respondent is the authorized dealer of car manufactured by MUL and are getting certain incentives in respect of sale target set out by the manufacturer. These targets are as per the circular issued by MUL. Hence these cannot be treated as business auxiliary service”
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10. To enable a re-visit of the taxability of subvented amounts as well as the above-mentioned accounting entries, we deem it appropriate that the matter be remanded to the original authority for deciding afresh on the last two issues. The other two issues are not the subject of this remand as they stand decided in favour of appellant.’
offers valid precedent.
7. Accordingly, the demand of ₹ 3,70,994/-, along with interest, and penalty under section 78 of Finance Act, 1994 fails to survive.
8. Appellant has admitted and discharged liability arising on receipt of ‘commission’ from financial institutions and insurance companies. We take note that in the decision of the Tribunal in re Addis Marketing, the exposition of the Tribunal in Gemini Mobiles Pvt Ltd Commissioner of Central Excise & Service Tax, Lucknow [2015- TIOL-15670-CESTAT-ALL] which examined several aspects thus
‘5. The conflicts came up for consideration before a Larger Bench in Pagariya Auto Center v. C. C.E., Aurangabad and the legal position was clarified by the order dated 12-9-2013 reported in 2014 (33) S.T.R. 506 (Tri.-LB) = 2014-TIOL -141- CESTAT-DEL-LB. The Larger Bench answered the reference observing that the large number of decisions cited at the bar and in the order of reference to it, spelt out uniform principle to guide determination of whether a particular transaction involving an interface between an automobile dealer and a bank or a financial institution would per se amount to BAS. The Larger Bench clarified that identification of the transaction and its appropriate classification as BAS or otherwise must depend upon a careful analysis of the relevant transactional documents and only such scrutiny and analysis would ensure a rational classification of the transaction. The Tribunal pointed out that where mere space is provided along with furniture for facilitating accommodation of representatives of financial institutions in the premises of an automobile dealer and consideration is received for that singular activity, such consideration may perhaps constitute a rent for the provision of space and associated amenities and such transaction would not amount to BAS. Alternatively, held the Tribunal, if the transactional documents and other material on record indicate a substantial activity falling within the contours of any of the integers of the definition of BAS, spelt out in Section 65(19), then it would be legitimate to conclude that BAS is provided.
6. In the light of the Larger Bench ruling clarifying contours of BAS, in respect of transactions involving automobile dealers and banks or financial institutions, there was a bona fide doubt as to whether appellants herein had provided BAS during the relevant period in issue. Therefore non-filing of returns and non-remittance of tax for rendition of BAS could not be characterised as arising with a view to suppression of material facts or failure to remit tax with an intent to evade the same, inviting application of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994.
7. The period in issue in the present appeals is July, 2003 to November, 2005. Show cause notice was issued on 3 1-1- Only part of the period is therefore within the normal period of limitation. In the light of the fact that there were conflicting decisions of the Tribunal which stood resolved by the Larger Bench decision in Pagariya Auto Center (supra), we are satisfied that invocation of the extended period was not justified. We so declared the position. The appellants are however liable to tax, interest and penalties for the normal period of limitation specified in Section 73.
for arriving at the conclusion of circumstances not being conducive to invoking of section 78 of Finance Act, 1994 is relevant.
9. Furthermore, finality was accorded to tax liability by circular no. 87/05/2006-ST dated November 06, 2006 of Central Board of Excise and Customs. In view of the circumstances and the stand taken by the Tribunal in these several decisions, invoking of the extended period for the purpose of imposition of penalty is not sustainable. Accordingly, the penalty imposed under section 78 of Finance Act, 1994 is also set aside.
(Order pronounced in the open court on 07/09/2021)
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