S.M. Autokraft Pvt. Ltd Vs Commissioner of CGST & Central Excise (CESTAT Kolkata)

Summary: The appeals were filed against orders confirming Service Tax demands, interest, and penalties for two periods: February 2012 to March 2014 and 2014–15 to 2015–16. The demands were raised on the allegation that the appellant, an automobile dealer, had received “commission” from the manufacturer and failed to pay Service Tax under the category of Business Auxiliary Service. Both show cause notices (SCNs) invoked the extended period of limitation.

The appellant operated as an authorised dealer for sale of vehicles under an agreement executed on a “principal to principal” basis. Under this arrangement, the appellant purchased vehicles from the manufacturer and sold them to customers. The difference between purchase and sale price constituted its profit margin. The appellant also received incentives and reimbursements of discounts based on sales performance and customer offerings. It was already registered under Service Tax and had been paying tax on taxable services such as repair and maintenance, while filing regular ST-3 returns.

The Department relied on Income Tax returns and higher turnover disclosed therein to allege that the appellant earned commission and failed to discharge Service Tax. The appellant contended that the margin between purchase and sale price was profit from trading activity and not commission. It further argued that incentives and discounts received from the manufacturer were trade-related and formed part of sale transactions, not consideration for any service. It was also submitted that trading of goods falls under the negative list and is not liable to Service Tax.

Upon examining the dealership agreement, the Tribunal found that the relationship between the parties was clearly on a principal-to-principal basis and not that of agent and principal. The appellant purchased vehicles and sold them independently, and therefore the margin earned was profit from sale of goods. Incentives and discounts were found to be linked to sales performance and part of the trading transaction. These could not be treated as consideration for any service rendered.

The Tribunal referred to several decisions on similar issues, where it had been consistently held that such incentives and discounts received by automobile dealers are in the nature of trade discounts forming part of sale price and not liable to Service Tax. Following these precedents, the Tribunal concluded that the demand of Service Tax on incentives, discounts, and margins was not sustainable on merits.

On the issue of limitation, the Tribunal examined whether the extended period could be invoked. It observed that the appellant was registered with the Department, regularly paying Service Tax on taxable services, and filing returns. The Department had conducted audit and had access to relevant records, including income and turnover details. Despite this, there was a delay of more than two and a half years in issuing the first SCN, without any explanation for such delay. The Tribunal held that this delay could not be justified by alleging suppression on the part of the appellant.

For the second SCN, the Tribunal noted that the Department had already obtained documents from the appellant and was aware of its activities, including closure of operations. Despite this, the notice was issued after a considerable delay, and the attempt to invoke suppression was found to be unjustified. The Tribunal also relied on judicial precedent holding that once facts are within the knowledge of the Department, subsequent SCNs on the same facts cannot invoke extended limitation on grounds of suppression.

Based on these findings, the Tribunal held that no case of suppression was made out against the appellant. Consequently, invocation of the extended period of limitation was invalid, rendering both demands time-barred.

In conclusion, the Tribunal set aside the impugned orders both on merits and on limitation, holding that the amounts received by the appellant were not liable to Service Tax and that the demands were barred by limitation. The appeals were allowed with consequential relief.

FULL TEXT OF THE CESTAT KOLKATA ORDER

1. The appellants have been appointed as Dealer by Volkswagon, for selling their cars in Assam. The Agreement entered into between the appellant and Volkswagon was on ^„principal to principal‟ basis. As per this Agreement, the vehicles would be purchased by the appellant and the same would be sold to the customers. The difference between the purchase price and sale price would be the profit margin for the appellant. The appellants were also given incentive in terms of discounts based on the total sales achieved [turnover] and they were also reimbursed the discounts offered to their customers.The appellant was paying Service Tax on the services which are taxable and filing ST 3 Returns. They have discharged the Service Tax liability for FY 2014­15 Rs.17,29,058 and for FY 2015-16 Rs. 19,40,398 which is as per the ST-3 Returns. On the ground that the appellant has shown higher turnover in the IT Returns and has not paid the Service Tax on the Commission received from Volkswagon, the SCN C. No. V(15)01/SCN/ST/SM Autokraft/GHY/2017/950 dated 24.02.2017 was issued for the period February 2012 to March 2014 , demanding 16,16,905. The extended provisions were invoked while issuing this SCN. After due process, the lower authorities confirmed the demand along with interest and penalty. Thereafter, one more SCN C. No. V(15) 474/GHY/DIV-II/HQAE-II/SM/SCN/2019-20/3755 dated 22.10.2019 was issued for the period 2014-15 to 2015-16, demanding Rs. 17,90,886. For issuing this SCN, once again the extended period provisions were invoked. Even this demand came to be confirmed by the lower authorities. Being aggrieved by the impugned OIAs, the appellant has filed the present appeals before the Tribunal.

2. Since the issue in both the Appeals are common, we have taken up both the appeals together for disposal.

3. The Ld Counsel appearing for the appellant makes the following submissions :

4. The appellant is duly registered with the Department having Service Tax Registration Certificate No. AAJCS4937NSD001 and carrying on the business of sale of Automobiles (cars), procuring the same from the manufacturer M/s. Volkswagon Group Sales India Pvt. Ltd, Mumbai. They also undertake sale of spare parts of such cars. They have entered into an Agreement with Volkgswagon on 03.12.2010, as per which they operate on principal to principal basis. The appellants buy the cars from Volkswagon for which they raise the Invoice on the appellant wherein the CST is charged for the VAT portion. Such vehicles are sold to the customers, wherein the appellant is raising the Invoices on the customers, on which the VAT applicable to the State of Assam, is charged / paid by the appellant. The difference the purchase and sale price, is the profit margin of the appellant. The Revenue is in error in taking the difference between the purchase and sale price, as the ^„commission‟ received by the appellant and accordingly, the proceedings have been initiated to recover the Service Tax under the category of ^„Business Auxiliary Service‟.

5. The appellant has also been providing the service of repairs and maintenance of the cars, for which the appellant has been discharging the Service Tax liability and has also been filing the ST 3 Returns. This being so, the Department has relied upon the Income Tax Returns filed by the appellant to take the view that the turnover shown therein is on account of the ^„Commission‟ received. The Revenue has failed to consider the fact that the purchases and sales are shown in the P & L account. Therefore, the margin between the purchase and sale is nothing but ^„profit margin‟ of the appellant. The same cannot be viewed as ^„commission‟ received by the appellant. It is further, submitted that after implementation of Negative List concept w.e.f 01.07.2012 – “Trading of Goods” – is included in clause (e) of Sec. 66D.

6. The Ld Advocate submits that the discounts passed on the customers are reimbursed by Volkswagon. Such amounts received are not liable for Service Tax Similarly based on the total number of cars sold / turnover of the year, further discounts are granted by Volkswagon. These are part of the profit of the appellant for selling of the cars and cannot be treated as ^„Commission‟, falling under the category of Business Auxiliary Service for demanding the Service Tax.

7. The appellant relies on the following case laws, on identical / similar issue :

(a) Toyota Lakozy Auto Pvt Ltd Vs CSTCEX Mumbai 2017(52) str 299 (Tri Mum)

(b)Prem Motors Pvt Ltd Vs CCE – Jaipur 2023(73) GSTL 97 (Tri-Del)

(c) Bimal Auto Agency Vs CCGST Dibrugarh 2023 (10) Centax 55 (Tri-Cal)

8. In view of the above submissions, it is prayed that the appeal may be allowed on merits.

9. The Ld Counsel further takes the stand of time bar in respect of both the SCNs. The first SCN was issued on 24.02.2017 for the period February 2012 to March 2014 and the second SCN was issued on 22.10.2019 for the period 2014-15 to 2015-16. In both the cases, the extended period provisions have been invoked. It is submitted that the appellant is duly registered with the Department and has been paying the Service Tax on Repairs and Maintenance Services and filing ST 3 Returns. Similarly they have been filing all their Income Tax Returns, showing the full turnover in their P & L Accounts and Balance Sheets. Therefore, the appellant has not indulged in any suppression or concealment. It was the Revenue, which has issued the SCNs belatedly. For the delay in issuing the SCN, they have resorted to invoking the extended period provisions, without any evidence of suppression on the part of the appellant.

10. It is also submitted that the present SCN has been issued on the strength of IT Returns submitted under the provisions of Income Tax Act, 1961. It is pertinent to mention here that Service Tax is levied under the provisions of Finance Act, 1994 and is Indirect Tax. Service tax and tax on Income are enforced under two different Acts of the parliament. Under the circumstances, demand raise on the basis of IT Returns and Profit & Loss Account is not sustainable in law and is liable to be set aside in the ends of justice. The appellant relies on the decision of the Hon‟ble Tribunal as held in the case of Pappu Crane Service Vs. Commr. of C. Ex & S.T, Lucknow, reported in 2019 (India Kanoon),

11. The appellant also relies on the case law of Karamchand Thapar & Brothers (Coal Sale) Ltd. Vs. Commr. Of Service Tax, Kolkata, reported in 2013(32) STR 577 (Tri-Kol).

12. In view of the above submissions, it is prayed that the appeals may be allowed even on account of time-bar.

13. The Ld AR appearing for the Revenue submits that the appellant has received incentives and discounts from the Car manufacturer. These are liable to be taxed under the category of Business Auxiliary Services. He submits that the SCNs were issued based on the IT Returns. The appellants delayed the submission of the relevant documents called for from them. Therefore, he justifies the invocation of the extended period provisions.

14. Heard both the sides and perused the appeal papers and documentary evidence brought in by the appellant.

15. We have gone through the Agreement entered into between the appellant and Volkswagon. The relevant portion is reproduced below :

–

16. We find that the relationship between the parties is that of ^„principal to principal‟. It is specifically mentioned in the Agreement that the appellant is not the ^„agent‟ of the supplier. Therefore, it is clear that the appellant is purchasing and selling the cars. The margin between the purchase and sale can be termed only as ^„profit‟. Apart from this profit margin, the appellants also get incentive based on the turnover of the cars sold. They also get reimbursed for the additional discounts and incentives offered to the customers while buying the cars. These issues have come up before the Tribunals on various occasions. We have gone through some of the decisions, which are discussed below :

Prem Motors Pvt Ltd Vs CCE – Jaipur
2023(73) GSTL 97 (Tri-Del)

8. The issue which arises for our consideration is whether service tax is leviable on incentives/discount, reimbursement extended by MSIL to the appellant.

9. The issue is no longer res integra and as referred to by the Learned Counsel for the appellant the same has been considered and decided in favour of the assessee in the following cases:

(i) Rohan Motors Limited v. Commissioner of Central Excise 2021 (45) 315 (Tri-Del.)/[2020] 122 com 24 (New Delhi – CESTAT)

(ii) TV Sundram Iyengar & Sons (P.) Ltd. v. Commissioner of CGST & C.EX. Madurai 2021 (55) 144 (Mad.)

(iii) B M Autolink v. Commissioner of Central Excise 2022-VIL-900-CESTAT-AHM-ST

(iv) Roshan Motors (P.) Ltd. v. Commissioner of Central Excise 2022-VIL-654-CESTAT-DEL-ST

10. Anand Motor Agencies Limited v. Commissioner of Customs 2022-VIL-116-CESTAT-ALH-ST (vi) Kafila Hospitality and Travels (P.) Ltd. v. Commissioner of Service Tax 2021 (47) 140(Tri LB)/[2021] 125 com 309 (New Delhi – CESTAT) That all the above cases relates to dealership agreement between the manufacturer of motor vehicles (MUL, MSIL ,TML) with their dealers for sale purchase of vehicles. In terms of the agreement it has been noticed that the dealer works on principal to principal basis and not as an agent of the manufacturer. The agreement itself provides for certain sales promotion activities which are for the mutual benefit of the business of the manufacturer as well as the dealer. The observations of the Ahmedabad Bench of the Tribunal in B. M. Autolink (supra).

“4. We have carefully considered the submissions made by both the sides and perused the records. We find the fact is not under dispute as the appellant being a dealer purchase the vehicles from M/s Maruti Suzuki India Ltd and subsequently sell the same to various customers. The transaction between M/s Maruti Suzuki India Ltd and the dealer and subsequently sale transaction between the dealer and the end customers are purely on principle to principal basis. The vehicle manufacturer M/s Maruti Suzuki India Ltd. on the basis of yearly performance of sale grants the discount to the dealer, this discount is nothing but a discount in the sale value of the vehicle sold throughout the year therefore these sales discount in the course of transaction of sale and purchase of the vehicles hence, the same cannot be considered as service for levy of service tax.

13. We also find that the activity undertaken by the appellant is for the sale and purchase of the vehicle and the incentives are in the nature of trade discounts. The incentives, therefore form part of the sale price of the vehicles and have no correlation with the services to be rendered by the appellant. That in terms of the dealership agreement, the appellant purchases the vehicles from MSIL and sells the same to its end customers. The activity of promoting the sale is with respect to the vehicles owned by the appellant which incidentally is in interest of both the parties. Reliance is placed on the observations referred above in the case of Kafila Hospitality and Travels Pvt Ltd. (supra).

15. We are therefore of the considered view that the amount of incentives and discounts cannot be treated as consideration for any service and therefore no Service Tax is leviable there

Bimal Auto Agency Vs CCGST Dibrugarh
2023 (10) Centax 55 (Tri-Cal)

4. As regards the demand of service tax of Rs. 3,86,36,400/- it is the allegation of the department that the Appellant had received incentives from MSIL as per terms and conditions of the Agreement and since they were acting on principal to principal basis, the Appellant was liable to pay service tax on such incentives received. On the other hand, it is the contention of the Appellant that such incentives are in the nature of trading income as the same arises out of sales of vehicles made by the Appellant and there is no element of service to attract service tax on the same. The Appellant also submitted that as per Para 35 of the Dealership Agreement between MSIL and the Appellant, it is mandatory for the dealer viz. the Appellant to promote sales of the MSIL vehicles. Further, MSIL also provides various discounts to the Appellant based on their purchases from MSIL, overall performance and customer satisfaction etc. Further, MSIL provides compensation to the Appellant on account of rate difference when a vehicle is sold by the Appellant to a customer at a lower price due to reduction in the recommended sale price of MSIL after the purchase of said vehicle by the Appellant from MSIL. These activities cannot be stated to be any service provided by the Appellant to MSIL. In support of its contention, the Appellant has relied on the following judgments in their written submissions :

a. Commissioner of Service Tax v. Sai Service Station Ltd.,

b. Roshan Motors Pvt. Ltd. v. Commissioner of Central Excise and Customs, Central Goods and Services Tax, Jaipur

c. BM Autolink v. C.C.E. – Kutch, (Tri Ahmd)

d. Anand Motors Agencies Ltd. v. Commissioner of Customs, Lucknow, MANU/CN/0007/2022

e. Veer Prabhu Marketing Ltd. v. Commissioner of Central Excise, Jodhpur, MANU/CE/0062/2023

f. Prem Motors Private Limited v. Commissioner, Central Excise & CGST – Jaipur, MANU/CE/0091/2023

g. Jaipur Jewellery Show v. C.C.E. & S.T. Jaipur – I, MANU/CE/0645/201

5. We find that the issue is no longer res integraand is squarely covered by the judgment of the Tribunal in the case of BM Autolink v. C.C.E. – Kutch, MANU/CS/0359/2022 (Tri Ahmd), wherein the Tribunal had referred to the judgement of Roshan Motors Pvt. Ltd. v. Commissioner of Central Excise and Customs, Central Goods and Services Tax, Jaipur as stated supra and held as under :

“4……. We find that the fact is not under dispute that the appellant being a dealer purchase the vehicles from M/s. Maruti Suzuki India Ltd. and subsequently sell the same to various customers. The transaction between M/s. Maruti Suzuki India Ltd. and the dealer and subsequently sale transaction between the dealer and the customs are purely on principal to principal basis. The vehicle manufacturer M/s. Maruti Suzuki India Ltd. on the basis of yearly performance of sale grants the discount to the dealer, this discount is nothing but a discount in the sale value of the vehicle sold throughout the year therefore, these sales discount in the course of transaction of sale and purchase of the vehicles hence, the same cannot be considered as service for levy of service tax. This issue is no longer res-integra as the same has been decided in various judgments cited by the appellant.”

That being the position of law, in our view also, the demand of service tax of Rs. 3,86,36,400/ cannot survive and we accordingly set aside the same.

17. From the above case laws, we find that the issue is well settled in favour of the dealers in respect of the discounts and incentives. Therefore, considering the factual details and applying the ratio of the cited case laws, we set aside the impugned orders and allow the appeals on merits.

18. Now we take up the issue of time-bar issue raised by the appellant. Admittedly, the appellants are registered with proper Service Tax Registration and have been paying the Service Tax on the taxable services and were filing the ST 3 Returns. In the first SCN, at Para 2 it is stated that the Audit Officers of the Commissionerate Hqrtrs audited the unit on 08.07.2014 for the period February 2012 to March 2014 and have found that the appellants have received ^„commission‟ of Rs.1,30,81,756 on which as per the Audit Rs.16,16, 905 is payable as Service Tax. The Revenue has not brought out any explanation as to what made them wait for further two and half years to issue the SCN on 24.02.2017 demanding the exact Service Tax of Rs.16,16,905. There is nothing to indicate that any further investigation / verification was taken during the intervening period. This is clear case of fastening the suppression clause on the appellant for the lethargic approach of the Revenue. We hold that no case of suppression has been made out by the Revenue.

19. We also find that in the similar issue before the Kolkata Bench in the case of Bimal Auto Agency discussed above, the Tribunal has set aside the demand even on account of time-bar holding as under :

7. It is also submitted by the Appellant that the service tax audit was conducted for the period from April, 2014 to September, 2016 by the Assistant Commissioner (Audit), Guwahati Audit Circle – 2 in January 2017 and such income reconciliation was satisfactorily explained to the department and thus again issuing a show cause notice for such difference by invoking extended period of limitation cannot be maintained.

8. We agree with the submissions of the Ld. Advocate for the Appellant as since there had been service tax audit conducted prior to the DGGI investigation covering the period under dispute, we are of the considered view that suppression cannot be alleged by the department for income reconciliation of books and ST 3 returns as no such allegation was raised during department audit. Hence we find that extended period of limitation also cannot be invoked to raise any demand. Thus, we are of the view that the entire demand of service tax has to go and the order of the Ld. Adjudicating authority is set aside. The appeal filed by the Appellant is allowed with consequential relief to the appellant, if any

20. Coming to the second SCN, it is seen from the SCN / OIO that on 10.11.2016, the documents like Invoice, Service Tax Returns, IT Returns were sought by the Dept for the period 2014-15 to 2015-16. It is also recorded that these documents were submitted by the appellant and they also intimated that the operations have been stopped from 31.03.2016. It is not mentioned in the Order-in-Original as to on what date the documents were submitted. It is mentioned that some more documents like surrendering of ST 2 , copies of ST 3 and Balance Sheets were called for on 29.07.2019, but the same were not submitted. This failure on the part of the appellant is used as a ploy for issuing of the SCN by invoking the suppression clause. First of all, it is on record that the appellant has responded and provided the documents sought for and has also intimated that their operations are closed from 31.03.2016. In spite of these documents being available with the Revenue, we do not see as to why the next communication was sent on 29.07.2019, i.e, after about more than 3 years, knowing fully well the unit is closed and no further documents may be brought in by the appellant. The surrender of S T 2 and filing of ST 3 Returns are very much available within the website of the Revenue. Therefore, even seeking of these documents in July 2019, is clearly seen an effort to justify the delay in issuing the SCN. The Range / Division was very much aware of the activities of the appellant and that the Audit was conducted in 2014 and the issue was raised for the period February 2012 to March 2014. The first SCN was issued on 24.02.2017. But still no action was taken to call for the details for the subsequent period, even as the appellant was filing their normal ST 3 Returns. Therefore, even in the proceedings under the second SCN, we do not find any case of suppression has been made out against the appellant.

21. We also find that the Hon’ble Supreme Court in the case of NIZAM SUGAR FACTORY Versus COLLECTOR OF CENTRAL EXCISE, A.P – 2008 (9) S.T.R. 314 (S.C.), the Hon’ble Supreme Court has held as under :

8. Without going into the question regarding Classification and marketability and leaving the same open, we intend to dispose of the appeals on the point of limitation only. This Court in the case of P & B Pharmaceuticals (P) Ltd. v. Collector of Central Excise reported in (2003) 3 SCC 599 = 2003 (153) E.L.T. 14 (S.C.) has taken the view that in a case in which a show cause notice has been issued for the earlier period on certain set of facts, then, on the same set of facts another SCN based on the same/similar set of facts invoking the extended period of limitation on the plea of suppression of facts by the assessee cannot be issued as the facts were already in the knowledge of the department.

9. Allegation of suppression of facts against the appellant cannot be sustained. When the first SCN was issued all the relevant facts were in the knowledge of the authorities. Later on, while issuing the second and third show cause notices the same/similar facts could not be taken as suppression of facts on the part of the assessee as these facts were already in the knowledge of the authorities. We agree with the view taken in the aforesaid judgments and respectfully following the same, hold that there was no suppression of facts on the part of the assessee/appellant.

22. In view of the above discussions, relying on the cited case law, we hold that the confirmed demands in respect of both the proceedings are time-barred. Accordingly, we set aside the impugned orders even on account of time-bar.

The appeals stand allowed, with consequential relief, if any, as per law.

(Pronounced in the open court on 23.04.2026…)