Case Law Details
Reliable Automotive Private Limited Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)
The appellant is a dealer. It purchases heavy vehicles from Tata Motors and cars from Hyundai Motors. The said vehicles are sold to customers. A demand of service tax of over Rs.33 crores was raised on the appellant on the ground: (i) the discount/incentive offered by the manufacturer by way of various schemes is consideration for providing business promotion/business auxiliary services; (ii) the free services provided during warranty period are liable to service tax; (iii) sharing of business promotion expenses is providing of business auxiliary service to the manufacturer; (iv) incorrect reversal of cenvat credit in terms of Rule 6(3A) of the Cenvat Credit Rules, 2004. Hence, appeal against order passed by the Commissioner.
The Hon’ble CESTAT, Mumbai allows the appeal and set aside the demands and penalties. It held: (i) the demands were for period prior to and post negative list regime (i.e. 01.07.2012). Analyzing the statutory provisions along with the dealership agreement, the incentives were in nature of discount offered by the manufacturer which were ultimately passed on the customer. Hence, it cannot be considered as business auxiliary service; (ii) follows decision in the case of My Car Pune and Sai service station; (iii) distinguishes judgment, on fact, in the case of Tata Motors and HDFC Bank relied upon by the Commissioner; (iv) that free service provided during the warranty period is not liable to service tax; (v) that cost sharing of expenses incurred is not subject to service tax; follows decision in the case of Reliance ADA; (vi) the appellant is not liable to reverse cenvat credit in terms of Rule 6(3A) as the audit had accepted the explanation and commissioner has not given any finding on the same.
The matter was argued by Ld. Counsel Bharat Raichandani
FULL TEXT OF THE CESTAT MUMBAI ORDER
These appeals have been filed by M/s Reliable Automotive Private Limited (herein after, referred to as ‘the appellants’), assailing Order-in-Original Nos. 28 to 30/COM/SB/2020-21 dated 13.10.2020 (herein after, referred to as ‘the impugned order’) passed by the Commissioner of CGST & Central Excise, Thane Rural, Mumbai.
2.1 Briefly stated, the facts of the case are that the appellants herein is in the business of providing sales of commercial vehicles manufactured by Tata Motors Ltd. and also sales of passenger vehicles manufactured by Hyundai motors Ltd. Further, the appellants were also engaged in providing servicing of aforesaid vehicles of Tata and Hyundai Brand from their various automobile service centers situated at different places under the tradename of ‘Kamal Motors’. The appellants were also providing trucks on hire basis to various Goods Transport Agencies (GTA) for transportation of goods. Besides these activities, the appellants were also engaged in trading of ‘tyers and cement’ under the name and style of ‘Bindhiya Trading Company (BTC)’. For the purpose of payment of service tax on taxable services the appellants had registered separately for various locations of their business with the jurisdictional Service Tax Commissionerate.
2.2 During the course of EA 2000 Audit conducted by the Department in September, 2015 covering the activities of the appellants for the financial years 2011-2012 to 2014-2015, it was noticed by the department that they were providing taxable services as well as exempted services; they had availed Cenvat credit on common input services within each of the registered locations, which in certain cases the credit was foregone and had also reversed certain amount of Cenvat credit taken on common inputs which the audit identified to be as violative of Rule 6 (3A) of Cenvat Credit Rules, 2004 resulting in short payment of service tax. Accordingly, the audit wing of the Department by letter dated 21.12.2015, informed the appellants to clarify various observations made by them, which are in gist as follows:
| S. No. |
Gist of the audit observations | Service Tax payable (in Rs. Lakhs) |
| 1 | Reconciliation differences – short payments | 1397.32 |
| 2 | Incorrect reversal of Cenvat credit in terms of Rule 6(3A) of Cenvat Credit Rules, 2004 | 37.25 |
| 3 | Short payment in September, 2011 as declared in ST – 3 | 0.09 |
| 4 | Short payment (GTA-RCM) Taloja Unit | 0.33 |
| 5 | Short payment (Legal Fees – RCM) Khargar unit | 0.45 |
| 6 | Failure to obtain service tax registration for premises at Nerul and Bhiwandi | Penalty to be quantified |
The appellants had agreed to the observations in respect of Sl. No. 3,4 and 6 of the above table and discharged the said service tax liabilities; upon clarification by the appellants that Sl. No.5 pertained to ‘franking charges’, the said observation/audit objection was dropped by the Department. However, in respect of the observations at Sl. No.1 & 2, the explanation offered by the appellants was not agreeable to the Department and thus show cause proceedings were initiated providing in detail the various issues on which demand of service tax was raised by the Department. The Show Cause Notices (SCNs) issued the appellants during the disputed period were as follows:
| S. No. |
Show Cause Notice No. and Date |
Period of demand | Amount of Service Tax demanded (In Rs. Lakhs) |
| 1 | ST/85129/2021 dated 13.10.2016 | April, 2011 to March, 2015 | 1397.32 |
| 2 | ST/85131/2021 dated 19.02.2018 | April, 2015 to March, 2016 | 1089.43 |
| 3 | ST/85130/2021 dated 16.04.2018 | April, 2016 to March, 2017 | 814.81 |
| Total demand of service tax | 3301.56 |
2.3 In adjudication of the aforesaid three SCNs by issue of the impugned order, the learned Commissioner summarized the issues arising in dispute which are required to be decided by him and listed these as follows:
(i) whether the services in relation to providing vehicles to associates, in course of its business activities falls under the category of ‘Business Support Services’ (BSS) as defined under Section 65 (104c) read with Section 65(105) (zzzq) of the Finance Act, 1994;
(ii) whether the services in relation to business promotion activities provided/rendered in the course of business activities falls under the ‘Business Auxiliary Services’ (BAS) services as defined under Section 65 (19) read with Section 65(105) (zzb) ibid;
(iii) whether the services involved in ‘servicing of vehicles’ during the ‘free warranty’ period provided/rendered during the course of its business activities falls under the ‘Authorised Service Station’ services as defined under Section 65 (62) (72) & (73) read with Section 65(105) (zo) ibid;
(iv) whether the method adopted by the appellants assessee by foregoing certain amount of Cenvat credit in respect of provision of exempted service is correct in terms of provisions of Rule 6(3A) of CCR, 2004; and
(v) whether penalty is impossible on appearance under Section 77, 78/76 ibid.
Upon examination of each of the above issues, the learned Commissioner had decided these issues by confirmation of the service tax demands along with imposition of penalty, with the exception of dropping the demand raised in respect of the issue of taxability of services in relation to vehicles provided to its associates in the SCN dated 13.10.2016 by holding that the same cannot be made liable for service tax under the category of ‘Business Support Services’. Feeling aggrieved with the impugned order in confirmation of service tax demands on other issues, the appellants have preferred these appeals before the Tribunal.
3.1 Learned Advocate for the appellants contends that the service tax is not applicable in respect of various sales promotion activities involved in sale of vehicles and explained that the appellants are engaged in the sale of heavy commercial vehicles and passenger vehicles for which they have entered into separate agreements with the manufacturers of automobile vehicles viz., Tata Motors Ltd., (TATA) and Hyundai Motors Ltd. (HYUNDAI); that in order to achieve higher sales or target, the manufacturers bring out various schemes and incentive programs for which they had offered discounts to their dealers by way of reduction in price. The incentives/discounts offered depends on bulk quantity of purchase or lifting of new vehicles during the period in terms of number of vehicles and its variants. They stated that manufacturers of automobiles viz., TATA and HYUNDAI had announced the incentives/discounts periodically/monthly basis by conveying it to the various dealers by email, who in turn being dealer had passed on the benefit to the ultimate buyers of automobiles. These incentives/discounts include Note for approval scheme, Flat retail payout, Early bird offtake, Target linked incentives, offtake target link, Gold coin scheme, Captive loyalty, Welcome scheme etc. The appellants had not retained any benefit of such incentives/discounts with them. The manufacturers of automobiles had paid Central Excise duty and VAT on the sale of vehicles to the appellants. Further, upon sale of vehicles the appellants had also paid the applicable VAT on the sale of the vehicles to the ultimate consumers/buyers. The agreement entered by the appellants with the manufacturers of automobiles provides clearly that sale of vehicles is made at Net Dealer Price, and in case of the appellants dealer becomes eligible to various discounts/incentives, then the Net Dealer Price to customers in such case shall be the discounted price of the vehicles. Thus, learned Advocate had claimed that the discounts/ incentives offered by TATA and HYUNDAI are nothing but reduction in final purchase price of vehicles which is subjected to applicable VAT and there are no services involved in these sales of vehicles.
3.2 Learned Advocate also stated that the appellants also incur various expenses, jointly by dealers and manufacturers, for promotion of sales of vehicles and such expenses are shared among them in agreed ratio. Further, while arranging loan for purchase of vehicles by customers through banks / financial institutions certain amount was offered as interest subvention, by reimbursement from manufacturers to the appellants, to the benefit of ultimate customers. Further, every sale of new vehicles is provided with free services during the warrant period as a part of standard sale arrangement and the value of such services are embedded in the selling price of vehicles. Thus, these transactions are not in the nature of service but is a sale which is subject to State VAT. As regards reversal of Cenvat credit, he stated that the appellants render no services in the premises dealing with sale of vehicles and hence there is no common inputs or input services requiring reversal of Cenvat credit; the appellants had taken Cenvat credit only at workshops where the activity of maintenance and repair services have been carried out; however, in certain premises where the service of motor vehicles and sale of spare parts is carried on, they had reversed the Cenvat credit attributable to input services on non-taxable activity.
3.3 Further, as regards ‘other income’ during the adjudication stage, the appellants had explained the same with supporting documents as to how these are not covered under the taxable category; however, the learned Commissioner in the impugned order dated 13.10.2020, did not deal with the same properly. Thus, they claimed that the service tax demands confirmed in the impugned order is not sustainable.
3.4 In support of their stand, the learned Advocate had relied upon the following decisions of the Tribunal and the judgement of the Hon’ble Supreme Court, in the respective cases mentioned below:
- Commissioner of Service Tax, Mumbai-I Vs. Sai Service Station Ltd. – 2014 (35) S.T.R. 625 (Tri.-Mumbai)
- My Car Private Ltd. Vs. Commissioner of Central Excise, Kanpur– 2015 (40) S.T.R. 1018 (Tri.-Del.)
- Reliance ADA Group Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai-IV – 2016 (43) S.T.R. 372 (Tri.-Mumbai)
- My Car (Pune) Limited Vs. Commissioner of Central Excise, Pune-I – 2016 (45) S.T.R. 139 (Tri.-Mumbai)
- Kafila Hospitality and Travels Pvt. Ltd. Vs. Commissioner of Service Tax, Delhi – 2021 (47) G.S.T.L. 140 (Tri-LB)
- Commissioner of Central Excise, Pune-IVs. Sai Service Station Ltd. – 2017 (5) TMI 1144 – CESTAT Mumbai
- Union of India and others Vs. Bombay Tyres International Pvt. Ltd.-1984 (17) ELT 329 (SC)
4. Learned Authorised Representative (AR) reiterated the findings made by the Commissioner CGST & C. Ex., Thane Rural, Mumbai in the impugned order and submitted that the appeal filed by the appellants is liable to be dismissed as the nature of the services offered by them is Business Auxiliary Service, Business Support Service and is covered by the specific category of taxable services. Hence, learned AR stated that the appeals filed by the appellants is need not be entertained.
5. We have heard both sides and perused the case records and the written paper books submitted in this regard.
6.1. The main issues arising out of the Show Cause notice proceedings under three SCNs have been summarized by the learned Commissioner in the impugned order and the same is summarized at paragraph 2.3 above. The period of dispute in this case relates to 01.04.2011 to 30.06.2017. In order to examine in detail, the facts and legal position on each of the above issues, we would firstly like to refer to the relevant legal provisions under the Finance Act, 1994 as follows:
“Finance Act, 1994
65. (105) “taxable service” means any service provided or to be provided,-
(a) ….
xx xx xx xx xx
(zo) to any person, by any other person, in relation to any service for repair, reconditioning, restoration or decoration or any other similar services, of any motor vehicle other than three wheeler scooter auto-rickshaw and motor vehicle meant for goods carriage;
xx xx xx xx xx
(zzb) to a client, by any person in relation to business auxiliary service;
xx xx xx xx xx
(zzzq) to any person, by any other person, in relation to support services of business or commerce, in any manner;
xx xx xx xx xx
65. (19) “business auxiliary service” means any service in relation to
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;
(v) production or processing of goods for, or on behalf of, the client;
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision,
and includes services as a commission agent, but does not include any activity that amounts to manufacture of excisable goods.
Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this clause,—
(a) “commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person—
(i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services;
(b) “excisable goods” has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944 (1 of 1944);
(c) “manufacture” has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944);”
65. (104c) “support services of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, 1[operational or administrative assistance in any manner], formulation of customer service and pricing policies, infrastructural support services and other transaction processing”
65. (62) “light motor vehicle” means any motor vehicle constructed or adapted to carry more than six passengers, but not more than twelve passengers, excluding the driver;”
65. (72) “motor car” has the meaning assigned to it in clause (26) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988);
1Substituted for “operational assistance for marketing” by the Finance Act, 2011, w.e.f. 01.05.2011.
65. (73) “motor vehicle” has the meaning assigned to it in clause (28) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988);
65. (9) 2“authorised service station” means any service station, or centre, authorised by any motor vehicle manufacturer, to out any service, repair, reconditioning or restoration of any motor car, light motor vehicles or two wheeled motor vehicles manufactured by such manufacturer;”
Interpretations.
“65B. In this Chapter, unless the context otherwise requires,—
xx xx xx xx xx
(44) “service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—
(a) an activity which constitutes merely,—
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or in relation to his employment;
(c) fees taken in any Court or tribunal established under any law for the time being in force.
Explanation 1.— For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,—
(A) the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or
(B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
(C) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section.
Explanation 2.— For the purposes of this clause, the expression “transaction in money or actionable claim” shall not include—
(i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
(ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out—
(a) by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998);
(b) by a foreman of chit fund for conducting or organising a chit in any manner.
2Omitted by the Finance Act, 2011, w.e.f. 1-5-2011.
Explanation 3.— For the purposes of this Chapter,—
(a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;
(b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons.
Explanation 4.— A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory;”
6.2. From plain reading of the above legal provisions, it transpires that for the disputed period relating to the pre-negative list regime i.e., prior to 01.07.2012, the taxability was determined in terms of coverage of an activity under the service tax net by defining taxable services under Section 65(105) ibid, which enumerated each of the specified services. However, for the period post-negative list regime, i.e., from 01.07.2012, the category of services hitherto defined under the erstwhile regime were merged under a common phrase i.e., ‘service’ as defined under Section 65B(44) ibid, which was brought into effect from 01.07.2012. As the disputed period relate to pre-negative list regime as well as post-negative list regime, we are governed by the relevant provisions of Section 65(105) and Section 65B(44) ibid, as applicable to the relevant period.
7.1 In the impugned order dated 13.10.2020, learned Commissioner had dealt with the five issues under dispute summarized in para 2.3 above, by categorizing these as (A) to (E) and arrived at the conclusion, as follows:
(A) Services in relation to providing vehicles to associates, in course of its business activities: (page 56 of impugned order)
“From the discussion in the show cause notice and the reply tendered by the assessee, I find that the nature of activity of supplying vehicle to the goods transport agency, as is done by the assessee in the instant case, is squarely covered by the ambit of the notification No.25/2012–ST dated 20.06.2012 and thus the argument tendered by the assessee is maintainable and the said service cannot be categorized/classified under the head ‘Business Support Services’. Held accordingly.”
(B) Services in relation to business promotion activities provided/rendered in course of its business activities: (page 58 of impugned order)
Learned Commissioner had relied upon the decisions of the Tribunal in the case of Tata Motors Ltd. in Excise Appeal No.1362 to 1365 of 2012 and HDFC Bank in ST Appeal No.85741 of 2014, in deciding the above issue.
“In view of the above, I hold that the said service/business promotion rendered to Tata Motors falls under the category of Business Actually Services and is subject to payment of service tax. Held accordingly.”
(B)(i) Reimbursement of joint promotion expenses recovered from the principal: (page 59 of impugned order)
“In view of the decision of the Hon’ble CESTAT, WZB, Mumbai in the case of M/s Tata Motors Ltd. in Appeal Nos. E/1362 to 1365/2012 vide Order dated 25.03.2014 and the case of M/s HDFC Bank Ltd. in Service Tax Appeal No.85741 of 2014 vide Order dated 13.09.2019, as discussed above, I hold that the said service/business promotion rendered to Tata Motors falls under the category of Business Auxiliary Services and is subject to payment of service tax. Held accordingly.”
(B)(ii) Amount of sale consideration received from the principal for the sale price of vehicle whether amounts to subvention: (page 60 of impugned order)
“In view of the decision of the Hon’ble CESTAT, WZB, Mumbai in the case of M/s Tata Motors Ltd. in Appeal Nos. E/1362 to 1365/2012 vide Order dated 25.03.2014 and the case of M/s HDFC Bank Ltd. in Service Tax Appeal No.85741 of 2014 vide Order dated 13.09.2019, as discussed above, I hold that the said service/business promotion rendered to Tata Motors falls under the category of Business Auxiliary Services and is subject to payment of service tax. Held accordingly.”
(B)(iii) other ethical as per row ‘N’ of para 2 of SCN whether falls under business axillary services: (page 61 of impugned order)
“…In the absence of any reconciliation statement/clarification from the assessee, I am inclined to hold that the same pertains to amount applicable to service tax and service tax is payable by them on the same. Held accordingly.”
(C) Servicing of vehicles during the ‘free warranty’ period provided/ rendered during the course of its business activities: (page 62 of impugned order)
“…The assessee had submitted to the audit that the value of ‘Free service’ is adjusted by way of additional discount and the time of purchase of vehicles from ‘Hyundai Motors’. Thus there is some consideration flowing to the assessee on this behalf which is appropriately chargeable to service tax. I therefore hold that the service tax is currently leviable thereon. Held accordingly.”
(D) The method adopted for foregoing certain amount of Cenvat credit in respect of provision of exempted salaries, in terms of the provisions of Rule 6(3A) of the CCR, 2004: (page 63&64 of impugned order)
“…In the absence of any such evidence, I am inclined to hold that the procedure as set out in Rule 6 (3) & 6(3A) of the Cenvat Credit Rules, 2004 have not been followed scrupulously and thus the Cenvat credit wrongly availed, is required to be reversed on recovered from them. Since, the said aspect has not been declared by them to the Department, the same appears to be with magnified intention of making illegal gains at the cost of revenue. Thus, the proviso to section 73 (1) of the Finance Act, 1994 is invocable. Held accordingly.”
(E) whether penalty is impossible on them under Section 77, Section 78/76 of the Finance Act, 1994: (page 64&65 of impugned order)
“…Even after issue of the show cause notice, on some points, they have just contested the issue citing the decision of the Apex Court without even submitting the reconciliation statement or explanation for the said high amounts received by them under the head ‘other income’. This shows the mens rea that they intended to make illegal gains at the cost of the government exchequer.
…
In view of the above, I hold that mandatory penalty is impossible on the assessee under Section 78 of the Finance Act, 1994. I do not propose to impose penalty under Section 76. The penalty under Section 77 is also impossible since the assessee have failed to self-assess service tax & file correct ST-3 returns.”
7.2 As regards the issue relating to levy of service tax in respect of services provided in relation to business promotion activities in course of appellant’s business activities, the facts of the case need to be examined along with the legal position in respect of levy on payment of service tax. From the facts of the case, we find that the various schemes under which the discount/incentives were received by the appellants from the manufacturer of motor vehicles by way of credit notes, were essentially in the nature of schemes conceptualized by such manufacturer wherein the discount given to the ultimate consumer is borne by both the manufacturer and the appellants dealer. As per such schemes, the appellants had forwarded to the manufacturer the proposal of discount to be given to the ultimate consumer, for their consideration and approval. Upon receipt of the approval from the manufacturer, the vehicles were sold by the appellant to the customer by extending the discounts. Hence, we find that the net sale price of the vehicles have been reduced to the ultimate purchaser of the vehicle extending the above discounts. Further, we also find that under target-based schemes, the discount/incentives is offered to the appellants dealer when they achieve particular target in terms of quantity of sales, or value of sales as per various schemes introduced by the manufacturers. The discounts offered in the above manner by issue of credit note also amount to reduction in purchase price of the individual vehicles which are covered during the aforesaid volume/value of sales. In respect of reimbursements scheme, various discounts offered depending on the specific model of the vehicles being sold during a particular specified period, the appellants dealer extends such benefits to all eligible buyers of the vehicles. Hence, we find that the said benefit of discount for incentives/ reimbursable amounts also results in reduction of net sale price of vehicles to the ultimate consumer.
7.3. Further, we also find that on perusal of the ‘dealership agreement’ dated 15.09.2017 entered into by the appellants with Tata Motors Limited, submitted along with the paper book, has specifically provided about the ‘Net Dealer Price’ under which the appellants are required to sell the product under such an contractual arrangement. The extract of the said clause is given below:
“12 (a) The dealer shall buy the products and value added services at the Net Dealer prices as notified by the company from time to time and as ruling on the day of delivery. The prices will be for delivery from the company’s works, regional sales offices, regional spare parts warehouses, Spare parts centres or any of the specified locations of the company. The dealer shall also be eligible for getting discounts on the net dealer price on the basis of the schemes which may be communicated by the company from time to time subject to the dealer fulfilling the terms and conditions thereof. In such a case the net dealer price shall be the discounted price of the products.”
The aforesaid facts of the case indicate that the effective ‘Net Dealer price’ by which the vehicles are sold to the ultimate consumers have taken into account the various benefits/incentives and the net sale price of the vehicles to the ultimate customer have passed on such benefits/ incentives offered under various schemes of the manufacturer.
7.4. We find from the impugned order, that the learned Commissioner had heavily relied upon the Order of the Tribunal in the case of Tata Motors Ltd. Vs. Commissioner of Central Excise, Pune vide Final Order Nos. A/200-203/2014-WZB/C-II(EB), dated 25-3-2014 passed in Appeal Nos. E/1362-1365/2012 reported in 2015 (328) E.L.T. 321 (Tri. – Mumbai). On perusal of the facts of the above referred case, we find that the said order is clearly distinguishable from the present set of facts in the case before us, as evident from paragraph 5.14 of the said Order, which is extracted below:
“5.14 Dealership Agreement
M/s. TML has submitted on record one Representative Dealership Agreement dated 15-11-2007 with M/s. Concorde Motors India Limited. On a perusal of this agreement, it is seen that it does not provide for any kind of discount to the dealer(s) on sale of its cars, namely, Tata Indica, Tata Indigo etc. From this, it is evident that there was no policy/established practice for grant of discount on sale of its cars in the agreement entered into with the dealers.”
Further, we also find that the invoice for sale of vehicle issued by manufacturer of vehicles to appellants indicate the special discounts offered by them which in turn have been reflected in the tax invoices issued by the appellants. Whereas in the case of Tata Motors referred by the learned Commissioner, there was also no evidence on record to show that the goods on which the discounts were given while effecting sales to the dealers were passed on to the customers, that is, buyers of the cars. There was also a case of false/fabricated circulars claimed to have been issued to the dealers, the receipt of which has been denied by all the dealers, in that referred case. Thus, we are of the view that the ratio of the said decision cannot be applied in the present case before us, as the facts of the case are entirely different.
7.5. We further note that the learned Commissioner had also relied upon the Order of the Tribunal in the case of HDFC Bank Ltd. Vs. Commissioner of Central Excise, Thane-II vide Final Order Nos. A/86593/2019 dated 13.09.2019 passed in Appeal No. ST/85741 of 2014 for conforming the service tax demand under the category of Business Auxiliary Services. In this regard we find that the Tribunal in the above relied upon case had referred to the services provided by HDFC bank, who had entered into agreement with various vehicle manufacturers/dealers, for providing loan to customers/clients of vehicle manufacturers/dealers at a rate lower than the rate at which they grant loan for purchase of motor vehicles to their clients in general, and by holding that the Bank is liable to pay service tax on the amount paid by the vehicle manufacturer/ dealer and accounted by the Bank as ‘subvention income’ as the consideration for the provision of such service. On the other hand, we find that the facts of the present case are different to the extent that the appellants dealer are not providing such services as is done in the case of HDFC bank, and hence the ratio of above referred case is not applicable to the case in hand before us.
7.6 In view of the above detailed examination of the facts of the present case as distinguishable with respect to the facts of the case laws relied upon by the learned Commissioner, we are of the considered view that the confirmation of the demand on the services provided in relation to business promotion activities by the appellants in the course of their business activities in the impugned order is not legally sustainable.
7.7 We further find that the issue of incentives offered by a manufacturer to their dealer, whether taxable for payment of service tax, have been decided in a number of Orders passed by the Tribunal. In the case of Commissioner of Service Tax, Mumbai Vs. Sai Service Station Ltd. (supra), the Tribunal has held that the incentives on account of achievement of sales target cannot be treated as Business Auxiliary Service. The relevant paragraph is extracted and given below:
“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.”
Similarly in the case of My Car Pvt. Ltd. Vs. Commissioner of Central Excise, Kanpur (supra), the Tribunal has held that various incentives offered by the manufacturer cannot be treated as Business Auxiliary Service. The relevant paragraph is extracted and given below:
“…(iv) For incentive on spare parts it is the case of the appellant that these incentives are given to the appellant for achieving certain targets of purchase of spare parts which is purely an activity of buying and selling on which local VAT is paid at the time of sale. Appellant strongly argued that such an incentive is only a trade discount based on performance. Appellant has relied upon the case law Deputy Commissioner of Sales Tax v. Motor Industries Co., Ernakulam (supra). Similarly appellant is getting incentives on MGA, Incentive on Free MGA, Balance Score Card, Incentive on Wagon R and Alto Cars, Incentive on Esteem and Maruti 800 etc., Incentive of free Credit, Incentive on sale of employees of LIC, SBI and Fetchers Scheme, Misc. Spot Credit and IFC, Finance pay out and National Subvention of MUL, part reimbursement of advertisement and incentive for arranging camps/sales mela and Free Mega Checkup Camps. It is the case of the appellant that all these amounts received from MUL, are either compensatory payments or in the nature of performance based trade discounts on achieving certain performance targets or is an activity which is mutually beneficial to both the appellant and MUL. It is not the case of the Revenue that MUL continues to remain the owner of the goods dealt by the appellant. All the vehicles/spares are purchased by the appellant and then sold. The incentives given by MUL has to be considered performance based trade discounts and will not be in the nature of BAS commissions. On perusal of the case records and the factual matrix we agree with the arguments of the appellant that payments received on these accounts cannot be held to be classifiable as provision of taxable services of BAS under Section 65(19) of the Finance Act, 1994.”
Further in the case of Kafila Hospitality & Travels Pvt. Ltd. Vs. Commissioner of Service Tax, Delhi (supra), the Larger Bench of the Tribunal has held that incentives offered for achieving targets are not leviable to service tax. The relevant paragraphs are extracted and given below:
“Whether incentives paid for achieving targets are taxable?
72. The contention advanced by Learned Counsel of the interveners is that incentives cannot be construed as “consideration” and if it is so, no service tax can be levied on this amount because under Section 67 of the Finance Act, service tax is leviable on “consideration”, which is the gross amount charged by the service provider for rendering a particular taxable service.
73. It would, therefore, be appropriate to examine the scope of the term “incentives”. Incentives are generally given to encourage performance of a party. The factual position described above, reveals that incentives have been paid by the airlines or CRS Companies to travel agents when they achieve a pre-determined target of sales.
74. The relevant portion of Section 67 of the Finance Act, on which reliance has been placed by Learned Counsel for the appellant, is reproduced below :-
“67. (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, –
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.”
(emphasis supplied)
75. Section 67 of the Act deals with valuation of taxable services for charging service tax. Sub-section (1) of Section 67 provides that where service tax is chargeable on any taxable service with reference to its value, then such value shall, where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by the service provider. It is, therefore, clear that only such amount is subject to service tax which represents consideration for provision of service and any other amount which is not a consideration for provision of service cannot be subjected to service tax.
76. In this connection, it would be appropriate to refer to the decision of the Supreme Court in Union of India v. Intercontinental Consultancy and Technocrats [2018 (10) G.S.T.L. 401 (S.C.)]. The Supreme Court observed that service tax is on the “value of taxable services” and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the service tax. It is for this reason that the expression “such” occurring in Section 67 of the Act assumes importance. The Supreme Court, therefore, observed that the authority has to find what is the gross amount charged for providing “such” taxable services and so any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as the amount is not calculated for providing “such taxable service.” This, according to the Supreme Court, is the plain meaning attached to Section 67, either prior to its amendment on 1 May, 2006 or after this amendment.
77. Consideration, which is taxable under Section 67 of the Finance Act, should be transaction specific. Incentives, on the other hand, are based on general performance of the service provider and are not to be related to any particular transaction of service. It needs to be noted that commission, on the other hand, is dependent on each booking and not on the target. If the air travel agent does not achieve the predetermined target, incentives will not be paid to the travel agents.
78. In this connection it will be appropriate to take note of the decision of the Federal Court of Australia AP Group. The Federal Court of Australia held that in order to levy tax, the payment must be attributable to a particular supply and not to supplies in general and so the target incentives paid by a motor vehicle manufacturer to a dealer would not qualify as consideration as the incentives would be in relation to all supplies and not in relation to a particular supply. The relevant portion of the decision of the Federal Court is reproduced below :-
“17. Insofar as the Ford “retail target incentive” payments are concerned, Ford agreed with its dealers to pay certain sums of money to dealers which achieved monthly and quarterly sales targets that Ford set based on the dealer’s size and past performance. Targets were based on the number of cars sold to eligible customers in the qualifying period, not the value of the cars sold. Once a car was sold and delivered to an eligible customer the details would be entered into the vehicle information system and, in about the middle of the following month, based on the information so entered Ford would issue the dealer with a tax invoice for the incentive payment plus 10% GST and shortly thereafter pay that amount to the dealer.
30. The Tribunal reached a different view about the Ford “retail target incentive” payments. It reasoned as follows at [I06]-[I08] :
I06. The last remaining payment type is Ford’s retail target incentive payment. It is clear from the “Drive for Success” program that the payment is triggered at the time, and by reason, of the Applicant’s recording of a level of new sales for a relevant period of eligible vehicles to eligible customers in excess of a specified target set by Ford. Significantly, though, and unlike the fleet rebates and the run-out model support payments, the target incentive payment has no nexus with any one particular supply. It is a payment made in connection with supplies generally, or perhaps more accurately, it is a payment made in connection with the making of supplies generally.
53. On analysis, the so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacture and the dealer to the mutual benefit of both. The relationship involves a whole raft of obligation from one to the other all, presumably, with the ultimate objective of maximizing their respective commercial positions. As the AP Group put it, the overall relationship contemplates a continuing dialogue between wholesaler and retailer in which promises are routinely exchanged, but to characterize this dialogue as involving supply after supply is unrealistic and impractical. To characterize the payment of the incentives intended to encourage the overall relationship to operate efficiently as involving supplies for consideration equally unpersuasive. A dealer will always wish to sell as many cars as practicable and to move old stock to make way for new stock. So too a dealer will always wish its ordering arrangements to be the most efficient and economically beneficial to it. The manufacture will have the same objectives. It is this context which underpins the Tribunal’s conclusion that the payments are not for the supply of anything by the dealer. As the Tribunal said at [86] the dealer (which must be inferred to act in an economically rational manner in the ordinary course) will always want to run the business in this way. The fact that the dealer receives a payment as an incentive when certain thresholds associated with running the business in this way does not mean that the dealer is supplying a service to the manufacturer for consideration. If the incentive payment were not available there is no basis to infer that the dealer would not behave in the same way for free. For these reasons there cannot be said to be any supply for consideration in these arrangements.”
(emphasis supplied)
79. Reference can also be made to the decision of this Tribunal in Rohan Motors Limited v. Commissioner of Central Excise, Dehradun [2020 (12) TMI 1014-CESTAT NEW DELHI]. The Tribunal held that incentives are not leviable to service tax. The relevant paragraph is reproduced below :-
9. The first issue that arises for consideration is whether service tax would be leviable on incentives prior to July, 2012.
10. As noticed above, the appellant purchases vehicles from MUL and sells the same to the buyers. It is clear from the agreement that the appellant works on a principal to principal basis and not as an agent of MUL. This is for the reason that the agreement itself provides that the appellant has to undertake certain sales promotion activities as well. The carrying out of such activities by the appellant is for the mutual benefit of the business of the appellant as well as the business of MUL. The amount of incentives received on such account cannot, therefore, be treated as consideration for any service. The incentives received by the appellant cannot, therefore, be leviable to service tax.
(emphasis supplied)
80. It, therefore, clearly transpires from the aforesaid decisions that incentives paid for achieving targets cannot termed as “consideration” and, therefore, are not leviable to service tax under Section 67 of the Finance Act.”
Further, in the case of Bombay Tyres International Pvt. Ltd. (supra), the Hon’ble Supreme Court had observed as under regarding ‘Trade discount’. The relevant paragraph of the judgment is extracted below:
“1. Trade Discounts – Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.”
Furthermore in the case of Reliance ADA Group Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai-IV – 2016 (43) S.T.R. 372 (Tri.-Mumbai), the Tribunal has held that cost sharing arrangement in common services/activity as per agreed arrangement among them cannot be subjected to service tax. The relevant paragraphs are extracted and given below:
“5.17 As has been discussed above, the Appellant has procured various services which have been used by the Participating Group Companies either individually or collectively. The expenditure incurred in procuring such services is then allocated to the concerned Group Company/Companies in a pre-determined ratio and are subsequently recovered by the Appellant. The amount so recovered by the Appellant are only towards the actual amounts payable by the Appellant to the third party vendors or Service providers. The Appellant has not recovered any amount over and above the actual expenses incurred by it in facilitating the provision of common services to its Participating Group Companies. The Appellant has made the payment to the third party vendors or service provider for procurement of specified services on behalf of the Participating Group Companies. The services so procured by the Appellant has been used or availed by the Participating Group Companies. Having used the services Participating Group Companies in law would be liable to make the payment directly for such services to third party vendors or service providers, however, for convenience such payment has been routed through the Appellant under the pass through mechanism. The Participating Group Companies have authorized the Appellant to procure the services. Such authorization has been executed in the form of contractual agreement between the Appellant and Participating Group Companies. Participating Group Companies are completely aware of the fact that the services are procured from the third party vendors or services providers and the Appellant is only facilitating the provision of such Services. The invoice issued by the Appellant categorically specifies that the Appellant recovers only the amount that is being paid to the third party on behalf of the Participating Group Companies. The amount recovered by the Appellant from the Participating Group Companies is precisely the same as has been paid by the Appellant to the third party vendors/service providers. The goods or services procured by the Appellant for the use of Participating Group Companies are not availed by the Appellant for its own use or consumption, and the Appellant has no function or existence other than as Trustee/Manager (agent) of the Participating Group Companies cost sharing arrangement. We therefore, find no bones in observing that the Appellant completely satisfies the conditions of a ‘Pure Agent’ as set out in Rule 5(2) of the Valuation Rules.
5.18 In Pharmalinks Agency (I) Pvt. Ltd. v. CCE, 2015 (37) S.T.R. 305, the Tribunal in the matter of a clearing and forwarding agent, who was receiving reimbursement towards freight charges under a separate agreement from the service recipient, held that the assessee is acting as a Pure Agent by making the payment of expenses subsequently taking the reimbursement of the same from the service recipient. Therefore, in the instant case the amount so recovered by the Appellant is in the capacity of a Pure Agent and thus the same cannot be subjected to the Service tax.”
7.8 CBIC has vide its circular No. 87/05/2006-ST dated 06.11.2006 has also clarified on the service tax issues relating to authorized motor vehicle dealers and service stations, which have also been discussed elaborately in the case of My Car (Pune) Pvt. Ltd. Vs. Principal Commissioner of Customs, Central Excise and Service Tax, Pune-I – (2023) 9 Centax 285 (Tri.- Bom.), wherein the Tribunal has observed that the discount/commission/incentives given for sale of cars, is no way comparable to services provided to customers at “free of charge” for which reimbursement charges are given by the car manufacturer. Such services have been distinguished from sales promotion which have been explained by stating that this is not the case where the appellant is advising the end customers to buy the cars supplied by the manufacturer amongst various choices available to the customer in the car market for earning the commission/incentives which could be treated as sales promotion. Accordingly, the Tribunal have held that the incentives/ commission is solely related to trade discounts for sale of cars in accordance with the regular practice as well as the agreement/schemes that were in vogue in the industry, and these cannot be treated as compensation received by the appellant for any services provided to the car manufacturer. The relevant paragraphs of the above Order is extracted and given below:
“6.2 We find that the relevant sub-clause invoked in the impugned order is relating to “(i) promotion or marketing or sale of goods produced or provided by or belonging to the client”. From the discussion in impugned order at para 22.05.05 with illustrated invoice, it is very clear that M/s MSIL is the manufacturer of car and they sell the car to the appellants under an invoice indicating the assessable value and various components of additions and deductions with Net invoice value for such sale. Subsequently, when the appellant is able to sell the car to the ultimate customer, then a separate invoice is being raised by the appellant and on which applicable VAT/Sales Tax is payable. Hence, the nature of transaction in the case is principal-to-principal basis. Further, in order to subject a particular activity of the appellant for the levy of service tax, it has to satisfy the various elements of taxable service i.e., (i) there shall be a service provider and a service receiver/client (ii) a service is required to be provided by the appellant to a client (iii) such service shall be in relation to business auxiliary services. In this transaction we find that firstly the sale of cars takes place from the manufacturer to the appellant-car dealer. Depending upon the various factors weighed upon by an individual end consumer, he purchases particular car/vehicle. In this process of sale of car, the appellant undertakes various activities to enable such sale of cars to ultimate end customer. The trade discount, incentives and commission offered by the car manufacturer M/s MSIL is in accordance with the agreement of the scheme announced by them. The Department does not dispute that there was such agreements, scheme between the appellant in the car manufacturers and the account of the appellant only reflect the actual discount allowed to them. The Department’s argument is that the said discount/commission is in view of services rendered by the appellant by way of popularisation of the sales and consumption of the products by the end customer. We find it difficult to accept the conclusion arrived at in the impugned order that all the discounts/commission/incentives given by the manufacturer for the various types of targets achieved in terms of the number of vehicles sold under a particular model/category, consistent achievement of targets by each quarter, exchange bonus etc., are to be treated as compensation for the services rendered by the appellants by way of popularization of sales and purchase of the cars of the manufacturer. The element of sales promotion or marketing services is involved only when the appellants provide some service to the end customer in sale of the cars. If the discounts/commission/incentives are given in terms of the specific schemes or an agreement entered by the manufacturer of car with the appellants, then such transaction cannot be overstretched to categorize it as service for the purpose of charging service tax. This aspect has been explained in the CBIC Circular No. 87/05/2006-ST dated 6-11-2006 as follows:
“Circular No. 87/05/2006-S.T.,
dated 6-11-2006
F.No. 137/128/2006-CX. 4
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi
***
Subject : Service tax issues relating to authorized motor vehicle dealers and service stations – Reg.
It has been brought to the notice of the Board that certain doubts have arisen in respect to activities undertaken by authorized motor vehicle dealers and service stations. The issues are as mentioned below:-
(a) Whether the mark-up (profit) on the spare parts sold by a service station during the servicing of vehicles is liable to payment of service tax?
(b) Whether exemption can be claimed on the cost of consumables that get consumed during the course of providing service?
(c) Whether ‘free services’ given by the authorized dealers (for which they are reimbursed by the vehicle manufacturers) are subjected to service tax?
(d) Whether the commission received by the automobile dealers from Banks/Non Banking Financial Companies (NBFC), for introducing the customers seeking finances/loans to such banks/NBFCs is to be subjected to service tax? Further, in case part of these incentives are passed on by the dealers to the customers, whether tax would be leviable
(b) only on that part of incentive, which is retained by the dealers or whether it would be on full amount?
(e) Whether service tax is chargeable on the amounts received for servicing/repair of the commercial vehicles?
2. The issues have been examined. As regards, the issue relating to sale of spare parts and consumables, Notification No. 12/2003-S.T., dated 20-62003, exempts service tax to the extent of value of the goods and materials sold by the service provider to the service recipient, if documentary proof of such sale exists and no credit of excise duty paid on such spares or consumables have been taken. It may, however be pertinent to note that for availing such exemption, the goods must be sold and consequently, they must be available (whether independently or as a part used for repair of a vehicle) for sale. In other words, the exemption would not be available to such consumables which have been consumed during the process of providing service and are not available for sale.
3. As regards ‘free servicing’ (where the customer does not pay any charges) of the motor vehicles, normally the service charges are reimbursement by the vehicle manufacturers, who promises such a facility to attract customer. As the law does not in any way restricts the levy of service tax only on the service charges received from the recipient of the service, therefore, such reimbursements are subject to service tax.
4. In some cases, the automobile dealers help the buyers of the vehicles for arranging the finances. For this, they have a tie-up with Banks/Non-banking Finance Companies. The customers are advised by the dealers to approach such financial companies for taking loans. The automobile dealers get commission from such financial companies for directing the customers to the latter. By this activity, the automobile dealers ‘promote or market the services provided by their customer (i.e., the financial institution), and are therefore covered under ‘taxable service’, namely, the “Business auxiliary service”. The tax is payable on the gross commission received by the automobile dealer. In some cases, the dealers share part of their commission with their customers to attract them. However, this is an independent transaction between the automobile dealer and the purchaser of the vehicle, and does not involve the service rendered by the automobile dealer to the finance company. Therefore, the tax payable by the dealer would be on the gross amount received from the financial company and not on the balance amount, i.e., after excluding the amount that he passes on to the customer.
5. As regards the applicability of service tax on the activity of servicing/repairing of the commercial vehicles, it is clarified that as regards ‘authorized service stations’, the taxable service, means any service provided or to be provided, to a customer, by an authorized service station, in relation to any service, repair, reconditioning or restoration of motor cars, light motor vehicles or two wheeled motor vehicles, in any manner. Further, a ‘light motor vehicle’ means any motor vehicle constructed or adapted to carry more than six messengers, but not more than twelve passengers, excluding driver. Similarly, as per the ‘Motor Vehicle Act’, a ‘motor car means any motor vehicle other than a transport vehicles, omnibus, road-roller, tractor, motor cycle or invalid carriage’. In other words, servicing, repair, reconditioning or restoration of specified types of vehicles (whether they are used for commercial purposes or not) fall under the category of taxable services. However, servicing of vehicles like trucks is not within the ambit of service tax.
6. Trade and filed formations may be advised accordingly.
7. Hindi version will follow.”
It can be seen from the above clarification issued by CBIC, that the discount/commission/incentives given for sale of cars in the case before us, is no way comparable to services provided to customers at “free of charge” for which reimbursement are given by the car manufacturer. Similarly, this is not the case where the appellant is advising the end customers to buy the cars supplied by the manufacturer amongst various choices available to the customer in the car market for earning the commission/incentives which could be treated as sales promotion. As the present case of incentives/commission is solely related to trade discounts for sale of cars in accordance with the regular practice as well as the agreement/schemes that were in vogue in the industry, we do not treat the same as compensation received by the appellant for any services provided to the car manufacturer M/s MSIL.
6.3 We also find that the dispute pertaining to the issue of service tax liability on discounts/commission offered to car dealers by manufacturer has attained finality in view of the decisions taken by this Tribunal and the Apex Court in a number of cases. In this connection, we refer to the decision of the Tribunal in the case of Commissioner of Service Tax, Mumbai-I v. Sai Service Station Limited 2014 (35) S.T.R. 625 (Tri.-Mumbai), the relevant portion of the order is extracted below:
“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.
…
18. In respect of sales/target incentive, the Revenue wants to tax this activity under the category of business auxiliary service. We have gone through the circular issued by MUL which provides certain incentives in respect of cars sold by the assessee-respondent. These incentives are in the form of trade discount. In these circumstances, we find no infirmity in the adjudication order whereby the adjudicating authority dropped the demand. Hence, the appeal filed by the Revenue has no merit.”
We further find that this case was appealed before the Hon’ble Supreme Court in Civil Appeal No(s). 690-691 of 2015 and the Apex Court had ordered for remand of the matter to the Tribunal for afresh consideration only of the issue of penalty on the appellant, as the same has not been considered in spite of rectification of mistake application having been filed.
6.4 Further, in the case of Commissioner of Service Tax, Mumbai v. Jaybharat Automobiles Limited 2016 (41) S.T.R. 311 (Tri.-Mumbai), the Tribunal has held as follows:
“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.”
6.5 Also, in the case of Toyota Lakozy Auto Private Limited v. Commissioner of Service Tax & Central Excise, Mumbai-II & V 2017 (52) S.T.R.299 (Tri.-Mumbai), the Tribunal has held as follows:
“However, in view of the settled position in the decisions of the Tribunal supra, we hold that the discounts received on procurement of vehicles from the manufacturer are not liable to tax as ‘business auxiliary services’ and set aside the demand on that head.”
6.6 We further find that in the case of Autobahn Enterprises Pvt. Limited v. Commissioner of Service Tax, Mumbai-I 2022 (56) G.S.T.L. 312 (Tri.-Mumbai) by referring to the decisions taken by the Tribunal in Re Toyota Lakozy Auto Private Limited and Re Jaybharat Automobiles Limited, the Tribunal has held as follows:
“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 Rs. 1,58,69,430/-and Rs. 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 Rs. 81,35,813/- and Rs. 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-CESTAT-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. …… 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. … These targets are as per the circular issued by MUL. Hence these cannot be treated as business auxiliary service”
7.9 In respect of the services in relation to providing vehicles to associates, in course of its business activities, the learned Commissioner had concluded that the nature of activity of supplying vehicle to the goods transport agency, by the appellants is squarely covered by the ambit of the exemption notification No.25/2012–ST dated 20.06.2012 and by agreeing to the points submitted by the appellants, learned Commissioner had held that the said service cannot be categorized/classified under the head ‘Business Support Services’. As there is no grievance expressed by the appellants in the appeals filed before us, on this issue as it is not against them and there is no appeal filed by the Revenue against the dropping of the demand on this issue, we find that there is no need for us to deal with the above issue.
8.1 On the issue of free services provided during the warranty period, we find that the issue had also been decided by the Tribunal in the case of Commissioner of Central Excise, Pune-I Vs. Sai Service Station Ltd. (supra), by setting aside the service tax demand. The relevant paragraph of the said Order is extracted and given below:
“4.1 We find that the issue is no more res integra as identical issue came up before the Tribunal in the case of CCE Vs. Automotive Manufacturers Ltd. – 2016 (42) S.T.R. 448 (Tri.-Mum.) wherein the Tribunal held that service tax liability cannot be on the part of margin given by the manufacturer to the dealers being inclusive of the charges of free sale service. Further, we find that this Principal Bench of the Tribunal in the Case of My Car Private Limited – 2015 (40) S.T.R. 1018 (Tri. – Del.) was considering the same issue and in respect of the same manufacturer of car i.e., Maruti Udyog Limited after analysing the entire provisions in the agreement, the Tribunal upheld the contentions of the appellant therein and set aside the demand raised on the similar issue. Same ratio has been held by this Tribunal in the case of in the Hindustan Auto House (P) Ltd. – 2009 (13) S.T.R. 190 (Tri. – Del.).”
8.2 On the issue of reversal of Cenvat credit in terms of Rule 6(3A) of Cenvat Credit Rules, 2004, we find from records of the case, in particular from the Final Audit Report No.236/2016-17 submitted by the Deputy Commissioner, Service Tax Audit-III, Mumbai, it has been specifically mentioned that the during the course of audit, the Audit wing had observed that the appellants had maintained CENVAT registers as per Service Tax registrations obtained for various premises. The Audit wing had also observed that the appellants had not availed Cenvat credit on inputs services which have been utilized only for exempted services; however, Cenvat credit has been availed common input services within each of the registered location. It is also explained by the appellants that they had not obtained service tax registration in respect of two premises, since no service is rendered in these places and they only undertake trading of vehicles for which they are discharging appropriate VAT before the jurisdictional Sales Tax Authorities. Further, the details submitted by the appellants indicate that they have already reversed the Cenvat credit on input services availed at locations from where both service of vehicles and sale of spare parts was carried out to the tune of Rs.17,68,172/- and the same has been disclosed to the Department. In this regard, we also find that the impugned order do not provide any basis or evidential documents, upon which the incorrect availment of Cenvat credit could be determined in terms of CCR, 2004. Further, learned Commissioner at page 60 of the impugned order has recorded that “the assessee have submitted statement giving details of ‘other income’ alongwith reason, ledge accounts copies of each head of account under the groupings and taxability thereof with sample supporting evidence/documents.” However, we find neither there is any cursory examination of the same nor any specific findings recorded by the learned Commissioner in the impugned order. In the absence of clear finding for demand of reversal of Cenvat credit and for demand of service tax on ‘other income’ without examination of documents, we find that the same cannot be legally sustainable.
9. In view of the foregoing discussions and analysis, we do not find any merits in the impugned order dated 13.10.2020, insofar as the adjudged demands were confirmed on the appellants, holding the activity as taxable services. Consequently, the demands of service tax and imposition of penalties confirmed in the impugned order dated 13.10.2020 is not legally sustainable.
10. In view of the above, we are of the considered view that the adjudged demands confirmed on the appellants along with imposition of penalty in the impugned order dated 13.10.2020 is liable to be set aside. Therefore, by setting aside the impugned order to the above extent, the appeals are allowed in favour of the appellants.
(Order pronounced in open court on 01.04.2024)
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