Service tax not payable on additional incentive received by dealer for meeting certain targets

Veer Prabhu Marketing Ltd. Vs Commissioner of Central Excise (CESTAT Delhi)

CESTAT Delhi held that additional incentive received by the dealer for meeting certain targets is in the form of trade discount and is not a payment for any service. Accordingly, service tax not leviable on the same.

Facts-

This appeal has been filed by M/s Veer Prabhu Marketing Ltd. to assail the order-in-original dated 19.08.2015 passed by the Commissioner of Central Excise, Jodhpur whereby the appellant‟s declaration under the Voluntary Compliance Encouragement Scheme, 2013 was found to be substantially false under section 111 of the Finance Act, 2013 and therefore immunity under section 108 of the Finance Act, 2013 was denied to the appellant. Service tax of Rs. 2,27,13,550/- was ordered to be recovered from the appellant and a demand of Rs. 22,51,975/- was dropped. Penalty was also imposed upon the appellant under section 78 of the Act. Aggrieved, this appeal has been filed by the appellant.

Main issue is as per assessee various incentives received from Tata for meeting certain targets is not for rendering any service, but were trade discounts, and hence the same is not leviable to service tax.

Conclusion-

It is undisputed that the agreement is titled dealership agreement and that it also clarifies that the appellant has to purchase vehicles from Tata Motors and then sell them. If it meets the targets it gets additional incentives. This in our considered view, is in the form of a trade discount. Trade discount can take many forms, such as, cash discount, quantity discount, year end discount, etc. These incentives are in the form of year end discount. This is an incentive given to encourage the dealer to buy and sell larger number of vehicles. It is not a payment for any service rendered to the manufacturer.

Considering all the above, we do not find that there is any mis-declaration in the VCES declaration made by the appellant.

FULL TEXT OF THE CESTAT DELHI ORDER

This appeal has been filed by M/s Veer Prabhu Marketing Ltd.¹ to assail the order-in-original dated 19.08.2015 passed by the Commissioner of Central Excise, Jodhpur whereby the appellant‟s declaration under the Voluntary Compliance Encouragement Scheme², 2013 was found to be substantially false under section 111 of the Finance Act, 2013 and therefore immunity under section 108 of the Finance Act, 2013 was denied to the appellant. Service tax of Rs. 2,27,13,550/- was ordered to be recovered from the appellant and a demand of Rs. 22,51,975/- was dropped. Penalty was also imposed upon the appellant under section 78 of the Act. Aggrieved, this appeal has been filed by the appellant.

2. The appellant was registered with the Service Tax Department under the categories of Business Auxiliary Services³, Authorized Service Station Services⁴ and Renting of Immovable Property Service⁵. It is the authorized dealer of Tata Motors Ltd.⁶ for sale, service and spare parts of medium and heavy commercial vehicles in 5 districts of Rajasthan. The appellant was purchasing such vehicles from Tata on its own account and thereafter selling them to the customers. On sales, the appellant was paying Value Added Tax⁷. According to the appellant, the dealings between Tata and itself were on principal to principal basis. However, if the appellant met specific sales targets various incentives were available to the appellant as per the policy of the Tata.

3. The appellant was also authorized to service vehicles and for servicing the appellant was collecting service charges and cost of spares from its customers. The appellant was also undertaking servicing during the warranty period and for such services, the service charges were paid by Tata along with the cost of spares used in servicing during such Warranty period.

4. The appellant filed a declaration under the VCES to settle tax dues and seek immunities from interest, penalties and other proceedings under the Finance Act, 1994 and declared taxable receipts of Rs. 2,53,92,806/- and paid service tax on this amount of Rs. 17,08,986/-. A show cause notice⁸ dated 18.11.2014 was issued to the appellant proposing to reject the declaration under section 111 of the Finance Act, 2013 on the ground that the declaration was substantially false as the actual taxable receipts were Rs. 22,41,50,211/- on which a tax of Rs. 2,49,65,525/-was to be paid. The SCN proposed to recover the unpaid tax along with interest and impose penalties. These proposals were confirmed by the impugned order.

5. Learned Consultant for the appellant submits that of the alleged receipt of Rs. 23,43,19,543/- taxable receipts were only Rs. 2,33,48,828/- on which service tax has already been paid, the breakup of which is as follows:-