Spare parts & lubricants used in provision of authorized service station service not includible in gross value

Infinium Motors Guj Pvt. Ltd. Vs C.S.T. Service Tax (CESTAT Ahmedabad)

CESTAT Ahmedabad held that where during the provision of Authorized Service Station Services, the spare parts and lubricants sold and VAT thereupon was paid the value of such spare parts and lubricants would not attract Service Tax.

Facts- This appeal is filed by the appellant against the order passed by the Principal Commissioner of Central CGST. By the said order, the Commissioner confirmed the demand of Service Tax, demand under Rule 6(3) and demand of Cenvat credit on cement and steel, total amounting to Rs. 54,61,35,679/- and consequent penalty and interest.

The appellant is a licensed/ approved dealer of M/s Toyota Kirloskar Motors Pvt. Ltd. who are manufacturer of Toyota brand vehicles and also spare-parts of such vehicles. Accordingly, M/s. Toyota Kirloskar have been selling vehicles as well as spare parts to the appellant under invoices issued on the appellant.

The case of the department is that spare parts and lubricants used while providing the authorized services station service should be included in the gross value of the service and the same is chargeable to service tax?

Conclusion- Held that it is seen that various Benches of this Tribunal have taken a consistent view in the identical facts of the present case that where during the provision of Authorized Service Station Services, the spare parts and lubricants sold and VAT thereupon was paid the value of such spare parts and lubricants would not attract Service Tax. In view of the said judgements, issue involved in the present case is squarely covered. Hence, the demand of Service Tax on the value of spare parts and lubricants is not sustainable in the present case.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

This appeal is directed against Order In Original No. AHM-EXCUS-001- COM-018-24-20-21 dated 11.01.2021 passed by the Principal Commissioner of Central CGST, Ahmedabad South, Ambavadi, Ahmedabad. By the said Order In Original, the learned Commissioner confirmed the demand of Service Tax, demand under Rule 6(3) and demand of Cenvat credit on cement and steel, total amounting to Rs. 54,61,35,679/- and consequent penalty and interest. The issue arising out of the order for our consideration are as under:

(1) Whether price of spare parts and lubricants is includible in value of “Authorized Service Station” services rendered by the appellant?

(2) When M/s Toyota Kirloskar allowed discount in price of vehicles depending upon the quantum of vehicles purchased by the appellant, whether such discount is in the nature of commission and chargeable to service tax under “Business Auxiliary Service” category?

(3) Whether the appellant is liable to pay amount @ 5% or 7% of the trading activity in view of availment of credit on common input services or proportionate reversal of Cenvat attributable to trading business was substantial compliance of Rule 6(3) of Cenvat credit Rules? Whether Rule 6 was applicable to “trading” prior to 04.2011?

(4) Whether Cenvat credit for steel and cement used for construction of showrooms was liable to be recovered from the appellant, though such Cenvat was reversed by the appellant and such reversal was recorded in journal vouchers and books of accounts?

2. The brief facts of the case are that the appellant is a licensed/ approved dealer of M/s Toyota Kirloskar Motors Pvt. Ltd. who are manufacturer of Toyota brand vehicles and also spare-parts of such vehicles. Accordingly, M/s. Toyota Kirloskar have been selling vehicles as well as spare parts to the appellant under invoices issued on the appellant. The appellant has been paying price of such goods to M/s Toyota Kirloskar, the appellant has been selling such vehicles to their customer as a dealer of M/s. Toyota Kirloskar under the appellant’s invoices for which the customers have been paying the price to the appellant. The appellant have also been operating and maintaining an Authorized Service Stations for servicing, repairing etc. of M/s Toyota vehicles and while providing service as the authorized service station, the appellant have also been utilizing certain parts purchased from M/s. Toyota Kirloskar and also lubricants purchased from one M/s Savita Oil Technology Pvt. Ltd. The appellant in turn have been selling such spare parts and lubricants to their customers/clients of their authorized services station on payment of VAT for authorized services station services. The appellant have been issuing one bill to the customers, but the value of services is separately shown in the bill and Service Tax was paid thereon under authorized services station category, and the value of spare parts as well as lubricants were separately shown in the same bill and VAT or sale tax was paid on this component because this part of the transaction was considered to be sale of goods liable for payment of VAT/sales tax. The appellant have not availed Cenvat credit of spare parts and lubricants which were sold during providing the authorized Services station services to their customers. The appellant availed Cenvat credit of input services like Advertising service, Telecommunication services, banking services, Housekeeping services etc., and such credit was utilized for paying Service Tax for Authorized Service Station services, Business Auxiliary services (i.e. commission received of finance and insurance provided to the appellant’s customers) and Rent a Cab Scheme Operator Service. The appellant also availed Cenvat credit for steel and cement used for construction of showrooms, but such credit has been reversed by the appellant. The case of the department is that (1) spare parts and lubricants used while providing the authorized services station service should be included in the gross value of the service and same is chargeable to Service Tax. (2) In the course of trading, vehicles purchased by the appellant from M/s Toyota Kirloskar are discount is provided by M/s Toyota Kirloskar to the appellant on the basis of quantum of vehicles purchased by the appellant. The department treated the said discount as commission and proposed the demand of Service Tax on such commission under business auxiliary services category. (3) Since, the appellant have availed the Cenvat credit on common input services demand was made @ 5%/6%/7% of the value of the trading business of the appellant interms of Rule 6(3) of Cenvat credit Rules for the period prior to 01.04.2011 and thereafter also. (4) The appellant is not entitled for Cenvat credit on the cement and steel used for construction of their showrooms.

On the above issues the Adjudicating Authority has adjudicated 7 show cause notices by one common impugned order dated 11.0 1.2021. The detail of the demand as per show cause notice is as under:

Sr. No.	SCN No.& Date	Service tax on spare parts and lubricants (Rs.)	Service Tax on“ Sales incentive” (Rs.)	Demand under Rule6(3) of the Cenvat Credit Rules. (Rs.)	Cenvat credit on cement and steel (Rs.)	Total of SCN (Rs.)
1.	STC/4 -1 7/O&A/ 12-13 dated 23.1 0.2012	5,20,39,274	1,07,507	2,09,34,919	78,41,493	8,09,23,193
2.	STC/4— I4/O&A/ 13-14 Dated 19.6.2013.	2,43,52,996	7,001	2,02,78,492	–	4,47,38,489
3 .	STC/4- 66/O&A/ 13-14 dated 13.5.2014	3,83,47,704	–	2,91,58,727	–	6,75,06,43 1
4 .	STC/4- 06/O&A/ 15—16 Dated 23.4.2015	4,83,87,295	17,64,8 62	2,70,71,342	–	7,72,23,499
5 .	STC/4- 57/O&A/ 15-16 Dated 28.1.2016	5,66,57,468	27,32,270	84,45,425	–	6,78,35,163
6	STCI4- 44/O&A/ 16-17 dated 7 11 .20J7	7,49,65,872	25,94,455	33,38,333	–	8,08,98,660
7	STC/4- 101/lnfi/ O&A/18- 1 9dated 7.11.201 7.	12,46,50,854	24,59,390		–	12,71,10,244
Total		41,94,01,463	96,65,485	10.93,27,238	78,41,493	54,62.35,679

The appellant being aggrieved by the impugned order dated 11.01.2021 filed the present appeal.

3. Shri Paresh Dave, Learned Counsel appearing on behalf of the appellant submits that as regard the demand on inclusion of value of speare parts and lubricant in the gross value of service of authorized services station of motor vehicle, and demand of service tax on such spare parts and lubricants. It is a settled legal position that the description, quantity and value of such parts having been shown separately in invoices and VAT having been paid thereon, it amounts to sale of good. Such transaction is not to be considered as a part of the taxable service. Even in case of servicing and repairing of other equipment and machinery, it was consistently held by this Hon’ble Tribunal that spare parts, components etc,.used while providing services and repairing, was a separate transaction of sale attracting liability of VAT and use of parts, Components etc,. during repairing and such services cannot be considered as a part of the overall service, but it was a separate transaction of sale of goods. In support he placed reliance on the following judgments:

• Star Motors 2017 (5) GSTL 306
• Tanya Automobiles (p) Ltd. -2016 (43) STR 155 (Tri.- Ahmd)
• Samtech Industries 2015 (38) STR 240 (Tri.-Del)
• Samtech Industries- 2015 (38) STR j434 (All.)
• Krishna Swaroop Agarwal- 2015 (37) STR 647
• Authomotive Manufactures Pvt. Ltd. 2015 (38) STR 1191
• Seva Automotive Manufacturers Pvt Ltd. 2015 (37) STR 747
• Ketan Motors Ltd.- 2014 (33) STR 165
• Sai Powers -2017 (5) GSTL 377

3.1 He further submits that the learned Commissioner has gravely erred in confirming the demand that “during course of personal hearing in respect of show cause notice dated 13.05.2014, the appellant was specifically asked to produce invoices to show VAT payment, but the appellant produced only 7 bills under a letter dated 06.07.20 11 and that the appellant has not produced VAT returns.” He submits that the said statement of the Commissioner is suffered from factual error as the personal hearing was conducted only in respect of one show cause notice on 14.07.2016 when the appellant was asked to submit specimen bills of the Authorized Service Station, and extract of ledger and some accounting details. The appellant under the covering letter dated 28.07.2016 submitted specimen bills and other accounting details. No further documents were ever called for thereafter, and the personal hearing for all 7 show cause notices was thereafter held after 4 years, on 23.09.2020, and during this hearing also the adjudicating Authority has not asked for all the bills of the Authorized Services Station for April, 2007 to June, 2017. He submits that if the Adjudicating Authority was not satisfied with the specimen bills submitted by the appellant. He could have asked for further details during the personal hearing, he submits that it is not a case where the adjudicating Authority called for such documents but the appellant deliberately did not submit the same. He further submits that all the details of spare parts and lubricants were submitted by the appellant during investigation, and the demand was worked out in each of the show cause notice on the basis of such bills only. It is also recorded in the impugned order that such details was submitted by the appellant.

As regard the demand of Service Tax on commission under business auxiliary service. He submits that it is a settled legal position that incentives received from the car manufacturers was not commission for promoting and marketing of goods, but it is was a discount for purchasing and selling higher quantity of vehicles. On such incentives which is in the nature of discount, Service Tax under business auxiliary service category was not chargeable. He placed reliance on the following judgments:

• Sai Service Station Ltd. 2014 (35) STR 625 (Tri.-Mumbai)
• Jaybharat Automobiles Ltd. 2016 (41) STR 311 (Tri.- Mumbai)
• Toyota Lakozy Auto Pvt. Ltd. 2017 (52) STR 299 (Tri.-Mumbai)
• Rohan Motors Ltd. 2021 (45) GSTL 315
• Prabhakar Marotrao Thaokar & Sons 2019 (20) GSTL 294
• OIA No. 428/2012/COMMR(A)/RBT/RAJ dated 16.07.2012 passed by the Commissioner (Appeals), Rajkot, in case of M/s. Navneet Motors Ltd.
• OIA No. RBT/183/2011 dated 26.04.2011 passed by the Commissioner (Appeals), Mumbai in case of M/s. Shreenath Motors Pvt. Ltd.

3.2 He further submits that for raising the demand on discount, the Learned Commissioner has made factual error in as much as he has held that the appellant have not produced a copy of the agreement between them and M/s Toyota Kirloskar, and it could not be established by mere statement (in absence of the agreement of that the relation between them was on principle to principle basis). He submits that it is an admitted position of fact that the appellant was an authorized dealer of M/s Toyota Kirloskar, and that the appellant was trading in Toyota vehicles. This fact was even otherwise clearfrom the statement of the appellant’s manager (Administration and Accounts) recorded during the investigation in none of the show cause notice, the appellant is referred to as a commission agent of M/s. Toyota Kirloskar, and there was no dispute that the appellant was purchasing vehicles from M/s Toyota Kirloskar, and thus transaction was on principle to principle basis.

3.3 As regard the demand of an amount 5% or 7% in terms of Rule 6(3) of Cenvat credit Rules. He submits that purchasing and selling of motor vehicles is a trading activity, but such trading was not in the nature of “exempted services” till 31.03.2011. By amending Rule 6(1) of Cenvat Credit Rules by Notification No. 3/2011-CE (NT) dated 01.03.2011, trading was deemed to be exempted service from 01.04.2011 only. Therefore, Cenvat credit of common input services was not to be reduced or denied even if such service were attributable to trading activity, upto 31.03.2011. In support of his this submission, he placed reliance on the following judgments:

• My Car (Bhopal) Pvt. Ltd. 2019 (22) GSTL 273 (Tri.-Del.)
• Marudhan Motors 2017 (47)STR 261 (Tri. Del.)
• Avon International Pvt. Ltd. 2017 (5) GSTL 376

3.4 He further submits that it is a settled law that even though an assessee has not strictly complied with the procedure of Rule 6(3A) of the Cenvat credit Rules by submitting an intimation for proportionate reversal of Cenvat Credit of common inputs and input services attributable to the exempted final transactions, it is permissible to reverse proportionate credit in respect of exempted transactions, and in case of delay in such reversal, interest may have to be paid by the assessee on the Cenvat of common input/ input services, but demand of an amount equal to 5% or 7% of value of the exempted transactions is impermissible. He placed reliance upon the following judgments:

• Bombay Minerals Ltd. V/s. CCE, Rajkot 2019 (29) GSTL 361 (Tri.- )
• Welspun Corp. Ltd. V/s. CCE, Kutch 2019 (368) ELT 179 (Tri.-Ahmd.)
• Final Order No. A/12475/2021 dated 29.10.2021 passed by the Hon’ble CESTAT, Ahmedabad in case of M/s. Sanstar Bio Polymers Ltd.

3.5 As regards demand of Cenvat credit in respect of cement and steel, he fairly concede that the said Cenvat credit was reversed by the appellant and not contesting the same. As regard penalty, he submits that firstly, the appellant had availed the Cenvat credit on cement and steel under bonafide belief. The issue is of interpretation of Cenvat provisions, therefore in the absence of any mala fide intention the penalty corresponding to the Cenvat credit reversed on cement and steel was wrongly imposed.

3.6 He submits that the Adjudicating Authority has violated the principals of natural justice in as much as, he has not considered various submissions and explanations were put forth in the replies and during the personal hearing despite this if the Adjudicating Authority wanted any documents in support of such submission the same would have been provided to the Adjudicating Authority but instead of doing so the Adjudicating Authority arbitrarily decided the case against the assesse. The Learned Counsel, post hearing as asked by the Bench, submitted some sample copies of invoices in respect of purchase and sell of vehicles from M/s. Toyota Kirloskar and to their customers, which is taken on record.

4. Shri Prabhat K. Rameswaram, Learned Joint Commissioner (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order.

5. We have carefully considered the submissions made by both the sides and perused the records.

5.1 The Adjudicating Authority has confirmed the demand on the following counts:

(1) Service tax demand on value of spare parts and lubricants by including the same in the Gross value of Service of Authorized Service station services.

(2) Service Tax demand on sales incentives provided by M/s. Toyota Kirloskar to the appellant in relation to sale of their vehicles.

(3) Demand of Cenvat under Rule 6(3) of Cenvat Credit Rules equal to 5/7% of the value of trading activity.

(4) Demand of Cenvat credit availed on cement and steel.

5.2 As regard demand on value of spare parts and lubricants, the Adjudicating Authority held that the value of spare parts and lubricants should be included in the Gross value of Authorized Service Station Services. In this regard to ascertain the actual nature of the transaction, we reproduce the relevant invoice for service of Authorized Service Station and spare parts and lubricant, the same is scanned below:

From the above invoice it is observed that though the appellant have raised one invoice for service and sale of spare parts and lubricants, but both were clearly indicated separately in the invoice, and wherever there is service component, the Service Tax was charged and wherever there was sale of spare parts and lubricants the VAT was charged. It is clearly shows that during the provision of service of Authorized Services Station there are two components, one is service portion and other is sale of spare parts and lubricants. Since, the appellant admittedly paid the VAT on sale of spare parts and lubricants. It is clearly a sale purchase transaction and same cannot be part of the Gross value of the service of Authorized Service Station. The Adjudicating Authority in principle has not denied that the sale of spare parts and lubricants has not to be included in the Gross value of service, but he rejected the claim of the appellant only on the ground that the appellant have not submitted all the documents. We are in utter surprise that despite the appellant have made a clear claim that they are engaged in sale of spare parts and lubricants and in support of that some sample invoices were submitted, the pattern of sale and service of the appellant is clearly disclosed to the Adjudicating Authority by the appellant. Therefore, in this position the adjudicating authority ought not to have rejected the claim of the appellant regarding sale of spare parts and lubricants. We find that the appellant have also produced Chartered Accountant certificate along with Annexure 1 which is reproduced below:

From the above Chartered Accountant certificate which is based on the various accounting document such as invoices, books of accounts of the appellant clearly shows that the spare parts and lubricants were sold by the appellant and on which the appropriate VAT tax was paid. This gets further established that the appellant have filed VAT return regularly, which is evident from form 304 submitted under VAT Act copy of the same was submitted along with the copy of paper book submitted on 6 july,2022. From all these documents which are not in dispute, the fact that the appellant have sold the spare parts and lubricants and VAT was paid thereupon is clearly established. Therefore, the sales portion of spare parts and lubricants will not attract Service Tax as held in various judgments, some of the judgments are cited below:

• Star Motors Vs. CCE, Nagpur- 2017(5) GSTL 306 (Tri.-Mumbai)

“4. We have carefully considered the submissions made by both the sides. On perusal of the sample invoice of the authorized service station, we find that the parts used for providing repair and maintenance service of the vehicle, the same is clearly sold to the client on which the VAT was paid. Therefore the parts used for providing repair and maintenance service is sale of goods and not part of service, therefore the same is not taxable under the Finance Act, 1994. Moreover, even if the part replaced during repair and maintenance of the vehicle is considered as part of the overall service of the authorized service station, since the description of parts of quantity and value was clearly shown separately in the invoice the same is covered under exemption Notification No. 12/2003- S. T. and for this reason also no service tax can be demanded on the sale of the parts. As per our above discussion, we are of the considered view, that service tax on the value of parts used for repair and maintenance of vehicle is clearly not sustainable. The impugned order is set aside. The appeal is allowed.”

• Tanya Automobiles (P) Ltd Vs. CCE & ST, Meerut ] -2016 (43) STR 155 (Tri.-All.)

“The appellant is an Authorized Service Station of Motor Vehicles. A. show cause notice dated 19-4-2012 was issued subsequent to audit during the December, 2010/January, 2011 wherein it appeared that the appellant was paying Service Tax on the labour charges only and not paying ST on value of spare parts and lubricants used in the course of servicing of the motor vehicles. It appeared to Revenue that the practice was not in tune under Rules 5 & 6 of Service Tax (Determination of Value) Rules, 2006 read with Section 67 of the FA read with C. B. E. & C. Circular No. 96/8/2007-Service Tax. Further it appeared to revenue that the C.B.E. & C. Circular No. 87/05/2006-Service Tax clarified that in respect of spare parts and consumables, which have been consumed during the process and are not available for sale, for availing such exemption in terms of Notification No. 12/2003- S. T.., the goods must be sold and consequently they must be available for sale. It further appeared to Revenue that whether spare parts or consumables are consumed during the servicing of the vehicles, the Service Tax is to be discharged on entire amount of invoice/bills including the value of spare parts raised by the party against the servicing of vehicles. It was further observed in the show cause notice that where the party is liable to pay Service Tax on the entire invoices/bills raised by them, then by virtue of Notification No. 12/2003- S. T. exemption is available to the extent of value of the goods and materials sold by the service provider to the service recipient, subject to the documentary proof of such sale exists and no credit of Central Excise duty paid on consumables and spares has been taken. It was further observed that the appellant is not entitled to benefit of Notification No. 12/03 as they are not issuing separate invoices for sale of spares. It further appeared to the Revenue that the spare parts and consumables utilized in the course of servicing of vehicles without which the service is not complete and hence an integral part of service. Accordingly, Service Tax was proposed to be levied on the amount relatable to spare parts and lubricants for the extended period October, 2006 to December, 2011 amounting to Rs. 5,81,935/- with interest and further proposal of penalty under Sections 76, 77 & 78 of the Finance Act.

2. The appellant contested the show cause notice by filing a written submission pointing out that they are showing the spare parts and lubricants separately in the invoice on which VAT/Sales Tax is being paid and on service components and labour charges, the Service Tax is being paid. Thus, no Service Tax can be levied on the sale of goods.

3. The show cause notice was adjudicated vide Order-in­Original dated 8-3-2013 and reduced amount of Rs. 4,74,146/- was confirmed considering that the appellant have already deposited an amount of Rs. 1,10,635/- for the period April, 2011 to December, 2011 which was confirmed by the Asstt. Commissioner along with interest and further penalty was imposed under Section 76 @ Rs. 200/- for every day during failure continue or at the rate of 2% of such tax, per month, whichever is higher up to the period 9-5-2008. Penalty of Rs.10,000/- was imposed under Section 77 and Rs. 4,74,146/- under Section 78 of the Finance Act.

4. Being aggrieved, the appellant preferred an appeal before the Commissioner (Appeals), who vide the impugned order has been pleased to reject the appeal and has upheld the Order-in­Original.

5. Being aggrieved, the appellant is in appeal before this Tribunal.

The learned Counsel for the appellant urges that the issue is no longer res integra as the same stands settled by order of another Division Bench of this Tribunal in the case of Samtech Industries v. Commissioner of Central Excise – 2015 (38) S.T.R. 240 (Tri. -Del.), wherein the assessee was providing the service of repairing transformer and was using consumables like transformer oil and also component parts being coil etc., this Tribunal held, in view of the fact that it is not disputed that in respect of the supply of goods, used for providing of service of repair, Sales Tax/VAT is paid, which fact is evident from the invoice on record. It was also observed that when the value of goods used is shown separately in the invoice and on the same Sales Tax/VAT has been paid, the supply of the goods would have to be treated as sale and the transaction which are sale cannot be a part of the service transaction. Accordingly, Service Tax is chargeable only on the services/labour charges and the value of the goods thereunder would not be includible in the assessable value. The Tribunal further observed that Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 has been struck down as ultra vires, the provisions of Sections 66 & 67 of the Finance Act by the Hon’ble Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India & Others – 2013 (29) S. T.R. 9 (Del.), it is categorically held that the value of goods used for providing the services which have been shown separately in the invoice, on which Sales Tax/VAT has been paid, cannot be included in assessable value and no Service Tax can be charged on the same.

6.1 The learned Counsel draws our attention to the finding of the Commissioner (Appeals), wherein it is observed as follows : –

‘I observe that the appellants are paying Service Tax on labour charges, i.e. servicing components of the bills and paying VAT on value of the spare parts and consumable and lubricants.”

“I have perused copies of two sample bills enclosed with the appeal and find that the consumables e.g. gasket, filter, components, busing etc. are shown sold along with the service, are in the nature of integral part of the service.”

Accordingly, he urges that in view of the categorical finding that the appellants have charged the spare and lubricants separately in their invoice and have paid Sales Tax on the same, no Service Tax can be demanded and the learned Commissioner (Appeals) has erred in holding that Service Tax is applicable on the goods and lubricants observing that the service is not complete without using of consumables and lubricants.

6.2 The learned Counsel further points out that ruling of the Tribunal in the case of Samtech Industries (supra) has been upheld by the Hon’ble High Court of Allahabad reported at 2015 (38) S.T.R. J434. The learned Counsel also brings to our notice that in similar facts and circumstances in the case of M/s. BalajiTirupati Enterprises, the C.B.E. & C. (Legal Cell) vide their letter dated 27-9-2013 addressed to the Commissioner of Central Excise, Meerut has observed as follows : –

“The matter has been examined. Upon examination, it has been observed that the party has specifically mentioned the cost of items supplied/sold and there is documentary proof specifically indicating value of the goods. In this situation in view of the Notification No. 12/2003-S.T., dated 20-6-2003 and Hon’ble Supreme Court decision in the case of Commissioner v. Jain Brothers – 2012 (28) S.T.R. 162 (S. C.) demand of Service Tax against the party for the cost of goods supplied during repair does not appear sustainable. Therefore, the Board is of the view that in the overall facts and circumstances of the case, no purpose would be served in pursuing SLP in the matter.”

6.3 He further urges that in view of the fact that Board have accepted the legal position and have not filed further appeal in the matter, the appeal is fit to be allowed.

7. Heard learned DR, who supports the impugned order. On query from the Bench, as regards the matter has been settled in view of the Board’s letter dated 27-9-2013, the learned DR submits that the Tribunal may pass appropriate order.

8. Having considered the rival contentions and in view of the settled legal position in the case of Samtech Industries (supra), upholding the order of this Tribunal by the Hon’ble High Court of Allahabad and also in view of the letter of the C.B.E. & C. accepted the legal position that the cost of items supplied/sold and there is documentary proof specifically indicating value of the goods, the demand of Service Tax against the assessee for the cost of the goods supplied during repair does not appear sustainable. In this view of the matter, we set aside the impugned order and allow the appeal with consequential benefits.

9. The stay application is also stand disposed of.”

• Samtech Industries Vs. CCE, Kanpur-2015 (38) STR 240(Tri.- Del.)

“5. We have considered the submissions from both the sides and perused the records. The appellants provided the services of repair of transformers to their customers and in course of repair, they used various parts and consumables like transformers oil, for which separate amounts were shown in the invoices. The invoices issued by them show the value of the goods used and the service charges separately. The amounts charged for various parts like HV/LV oils and transformer oil are as per the rates specified in the contracts. It is not disputed that in respect of the supply of the goods used for providing the service of repair, Sales Tax/VAT is paid. This fact is clear from the invoices placed on record. In view of this, the appellants’ contracts with their customers have to be treated as split contracts for supply of goods and rendering the service. When the value of the goods used has been shown separately in the invoices and Sales Tax/VAT has been paid on the same, the supply of the goods would have to be treated as sale and the transactions which are sale, cannot be the part of service transaction. In view of this, we hold that Service Tax would be chargeable only on the Service/Labour charges i.e. on service component and the value of goods used for repair would not be includible in the assessable value of the service. The ld. DR has cited Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 accordingly to which that “where any expenditure or costs are incurred by any service provider in the course of providing a taxable service, all such expenditures or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value of the services for the purpose of charging Service Tax on the said service, unless such costs or expenditure have been incurred by the service provider as “Pure Agents” of the service recipient. However, this Rule has been struck down as ultra vires the provisions of Section 66 & Section 67 of the Finance Act, 1994 by Hon ’ble Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India & Others Ltd. reported in 2012-TIOL-966-HC-Del. -ST = 2013 (29) S.T.R. 9 (Del.). In view of this judgment of Hon’ble Delhi High Court, the value of goods used for providing the service, which had been shown by the appellant separately in their invoices and on which Sales Tax/VAT had been paid, cannot be included for assessable value and no Service Tax can be charged on the same. The impugned orders, therefore, are not sustainable. The same are set aside. The appeals are allowed. Miscellaneous Application No. ST/Misc/60886/2013 for extension of stay in respect of Appeal No. ST/286/2012 also stands disposed of as the appeals itself has been allowed.”

The above decision has been upheld by dismissing the department’s appeal by the Hon’ble Allahabad High Court reported at Commissioner Vs. SamtechIndustries-2015 38 STR J 434 (Tri-All.)

• CCE & ST, Meerut-ll Vs. Krishana Swaroop Agarwal

“The Revenue has filed this appeal against Order-in-Appeal No. 194-ST/MRT-II, dated 31-7-2011 which set aside the Order-in­-Original No. 13/ADDL. COMM./M-II/2012, dated 19-4-2012.

2. The facts, briefly stated, are as under:

M/s. Ashish Automobiles (Proprietor Krishna Swaroop Agarwal) provided the ‘Authorized Service Station’ service. It was alleged that during the period January 2007 to March 2009 they discharged their Service Tax liability on the gross value of services but they did not take into account of the cost of spare parts or accessories or consumable such as lubricants and coolants provided/used during servicing of the vehicles. Adjudicating authority confirmed the demand amounting to Rs. 11,83,832/- along with interest and mandatory penalty. The Commissioner (Appeals) set aside the said Order-in-Original on the following grounds.

(i) Under Section 67 of the Finance Act, the taxable value is the gross amount charged for the taxable service.

(ii) Even in terms of Notification No. 12/2003- S. T.., the value of the goods and materials sold by the service provider to the recipient of service is exempt from the Service Tax.

(iii) As per the C.B.E. & C. Circular No. 699/15/2003-CX, dated 5-3 -2003 the price charged by authorised service station for engine oil, gear oil and coolants, etc., is towards the sale of these consumables to the customer. Therefore, the sale of consumables during course of providing service is akin to sale of parts/accessories and therefore value of such consumables is not includible in the value of taxable services provided value of such consumables is shown separately.

(iv) The respondents had provided to the Commissioner (Appeals) their assessment orders of the Trade Tax department, Moradabad, for the financial years 2006-07 & 2007-08 showing sale value of spare parts/accessories/consumables and it is this value which has been taken for computing the impugned demand.

3. The Revenue has filed the appeal on the following grounds :

(i) Board Circular No. 96/7/2007-S.T., dated 23-8-2007 (para 36.03) has specifically clarified that Service Tax is not leviable on a transaction treated as sale of goods and subjected to levy of Sales Tax/VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/Sales Tax on a transaction indicates that the said transaction is treated as sale of goods.

“Any goods used in the course of providing service are to be treated as inputs used for providing the service and accordingly, cost of such inputs form integral part of the value of the taxable service”.

Where Spare parts are used by a service station for servicing of vehicles, Service Tax should be levied on the spare parts, including the value of the spare parts, raised by service provider, namely, service station. However, the service provider is entitled to take input credit of Excise Duty paid on such parts or any goods used in providing the service wherein value of such goods has been included in the bill. The service provider is also entitled to take input credit of Service Tax paid on any taxable service used as inputs service for servicing of vehicles.

(ii) The respondent did not show proof of sale of spare parts to the service recipients.

(iii) The Notification No. 12/2003-S.T. is not applicable as the value of spare parts/accessories is includible in the assessable

4. We have considered the facts of the case. The Board Circular referred to above in effect actually states that Service Tax is not leviable on the transaction treated as sale of goods and subjected to levy of sales tax/VAT. It is seen that as recorded by the Commissioner (Appeals), respondents were able to establish that amount on which the impugned Service Tax has been demanded actually pertains to the sale of spare parts/accessories/consumables like lubricants etc. by showing copies of the VAT assessment orders for the financial years 2006- 07 & 2007-08. It would clearly entitle them to the benefit of Notification No. 12/2003-S. T. Indeed even the provisions of Section 67 lay down that the value for the purpose of levy of Service Tax is the gross amount charge for taxable service. Thus, we do not find any merit in the Revenue’s appeal which is hereby quashed.”

• Automotive Manufacturers Pvt. Ltd. Vs. CCE Nagpur-2015 (38) STR 1191 (Tri.-Mumbai)

“The appeal arises from Order-in-Revision No. 04/2009/ST/C, dated 31-7-2009 passed by the Commissioner of Central Excise & Customs, Nagpur.

2. Vide the impugned order, the learned Commissioner has confirmed a service tax demand of ` 4,86,299/- along with interest thereon apart from imposing penalties under Sections 76, 77 and 78 of the Finance Act, 1994 on the appellant, M/s. Automotive Manufacturers Private l.td., Nagpur, by setting aside the order of the adjudicating authority vide order No. 90/STC/2007-08 dated 13-3-2008. Aggrieved of the same, the appellant is before us.

3. The learned counsel for the appellant submits that the appellant is an authorised dealer of MarutiUdyog Ltd., and are registered with the department as an authorised service station for Maruti cars and they have been discharging/Service Tax liability on servicing/repairing of the vehicles undertaken by them. While repairing or servicing of the vehicles, they also sometimes used parts on which sales tax/VAT liability is discharged. The parts and components are procured from M/s. Maruti Udyog Ltd. and they have lifted these parts from the warehouse/depots of Maruti Udyog Ltd. For bringing these parts into their service station, they have to incur octroi and other local taxes, freight, loading and unloading charges, etc. Therefore, while selling these parts to the clients as part of servicing activity, they include the cost incurred by them towards freight, loading, unloading, etc., as ‘handling charges’ and pay sales tax on the goods on the value inclusive of handling charges. Sometime they sell the parts as such without undertaking any service/repair activity and in such cases also they collect handling charges and discharge the sales tax liability. The present demand is in respect of handling charges collected by the appellant as part of the value of the goods when a composite, activity of sale as well as services are involved on the ground that the handling charges are towards service charges and hence they are liable to Service Tax. The learned counsel submits that the handling charges form part of the value of the goods sold on which sales tax/VAT liability has been discharged and this is towards the freight/loading and unloading charges involved in handling of the automobile components procured from M/s. Maruti Udyog Ltd. and they have nothing to do with the service/repair of the motor vehicles of the Maruti Suzuki. As per the Board’s Circular No. 96/7/2007-ST dated 23-8-2007 it has been clarified that Service Tax is not leviable on a transaction treated as a sale of goods and subject to levy of sales tax/VAT when spare parts are sold by a service station during the servicing of vehicles. Even otherwise, what is liable to Service Tax is only the consideration received for servicing of the vehicles and not ihe consideration received for sale of goods. Therefore, the impugned demands are not sustainable.

3.1 Reliance is placed on the decisions of this Tribunal in the case of Dynamic Motors – 2011-TIOL-1876-CESTAT-DEL = 2012  (26) S.T.R. 145 (T), Ketan Motors Ltd. v. Commissioner of Customs, Central Excise & Service Tax, Nagpur – 2014 (33) S. T. R.  165 (Trib. -Mum.) and a few other decisions in support of the above contentions. Accordingly, it is prayed that the impugned demand be set aside.

3.2 The learned counsel also points out that the adjudicating authority had examined this matter at length in his order dated 13-3-2008 and had concluded that the handling charges are part of the sale value of the goods on which sales tax/VAT liability has been discharged and hence not leviable to sales tax. This also supports the proposition that the impugned demands are not sustainable.

4. The Dy. Commissioner (AR) appearing for the Revenue reiterates the findings of the Revisionary authority and submits that since the handling charges are service rendered, service tax is leviable and accordingly, seeks to sustain the demands.

5. We have carefully considered he submissions made by both the sides. We notice that the appellant are charging handling charges whenever automobile parts are sold either independently or part of the service and repair of automobiles. In both the situations, invoice are issued for the sale of the goods as well as for collection of service charges for the services rendered. Handling charges were incurred in connection with the procurement of the goods and are included in the value of the goods sold and sales tax/VAT liability is discharged on the value inclusive of the handling charges. Therefore, we do not understand how service tax levy would apply especially when the goods are subject to sales tax/VAT on a value inclusive of handling It is not in dispute that the handling charges are incurred in connection with the procurement of the parts. If that be so, they will obviously form part of the value of the goods when they are subsequently sold.

5.1 Section 67 of the Finance Act, 1994 mandate levy of service tax on a value or consideration received for rendering the services. Therefore, any consideration received for supply of goods is not covered within the scope of Section 67. The decisions of the Tribunal in the case of Ketan Motors Ltd. and Dynamic Motors, cited supra, also support this view.

6. Accordingly, the impugned order is clearly unsustainable in law and therefore, the same is set aside with consequential relief, if any, in accordance with law.”

• Ketan Motors Ltd. Vs. CCE & ST, Nagpur-2014 (33) STR 165 (Tri. – Mum ba i)

“5. We have carefully considered the rival submissions. As the issue lies in a narrow compass, after dispensing with the requirement of pre-deposit, we take up the appeal itself for consideration.

5.1 In para 3.2 of the impugned order it is stated that the appellant had furnished the following information and documents vide letter dated 21-9-2011:

(i) Year wise details of value of spare parts used during the course of servicing of motor vehicles for the period 2006-07 to 2010-11;

(ii) Copy of Balance Sheet, Profit & Loss Account for the year 2006-07 to 2009-10; and

(iii) Copy of ST-3 returns for the period 2006-07 to 2010-11.

5.2 However, while confirming the demand, the learned Commissioner has taken the value of sale of spare parts as reflected in the balance sheets. This is incorrect. If a transaction involves only sale of spare parts, the question of levying service tax would not arise at all and therefore, the Commissioner should have excluded those transactions involving pure sale of spare parts. As regards levy of service tax on transactions involving both sale of spare parts as also rendering of service in the Master Circular dated 23-8-2007, it is stated that “service tax is not leviable on a transaction treated as sale of goods and subjected to levy of sales tax/VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/sales tax on a transaction indicates that the said transaction is treated as sale of goods”.

5.3 From the reading of the above circular, it would appear that even in a case of composite transaction involving sale of goods and rendering of service, if the bill/invoices issued clearly shows payment of sales tax/VAT on the spare parts, then the value of such spare parts would not be includible in the gross consideration received for rendering of service. The Commissioner has not considered these submissions made by the appellant and also the clarifications issued on the matter. Therefore, we are of the considered view that the matter has to go back to the adjudicating authority for fresh consideration. First of all, all the transactions involving only sale of spare parts should be excluded for the purpose of computation of service tax demand. Secondly, even in a case where the transaction involves both sale of spare parts and also rendering of service, the value of sale of spare parts should be excluded if sales tax/VAT liability has been discharged on such sales as is evident from the invoices/bills issued in this regard. The appellant is directed to produce before the adjudicating authority all the evidences they would like to rely upon in support of their above contention.

6. Thus, the appeal is allowed by way of remand. The stay application is also disposed of.”

From the above judgments it is seen that various Benches of this Tribunal have taken a consistent view in the identical facts of the present case that where during the provision of Authorized Service Station Services, the spare parts and lubricants sold and VAT thereupon was paid the value of such spare parts and lubricants would not attract Service Tax. Moreover, in some of the judgments, even the fact that one common invoice was issued showing both service part and sale of spare parts with payment of VAT/sales tax, is absolutely same. In view of the above judgments, issue involved in the present case is squarely covered. Hence, the demand of Service Tax on the value of spare parts and lubricants is not sustainable in the present case.

5.3 The second issue is that the Adjudicating Authority confirmed the demand of Service Tax on sales incentives given by M/s. Toyota kirloskar Motors Pvt Ltd. to the appellant in connection with sale of their vehicles to the appellant which were subsequently sold by the appellant to their customers. In this regard to arrive at the conclusion whether the incentive given by the seller of vehicle M/s. Toyota Kirloskar Motors Pvt Ltd. to the appellant being a purchaser of the vehicle what it is necessary to know the nature of transaction. As per the facts available on record, it is clear that the appellant purchased the vehicles from M/s. Toyota Kirloskar Motors Pvt Ltd. on principal to principal basis and in turn the said vehicles were sold by the appellant to their customers on principle to principle basis, at both the stages from M/s Toyota Kirloskar Motors Pvt Ltd. to the appellant and from the appellant to the customers, the transaction is clearly of purchase and sell of the vehicles. To ascertain that the transactions are of purchase and sale, the sample invoice from M/s Toyota Kirloskar Motors Pvt Ltd. to appellant and corresponding invoice from appellant to the ultimate customer are scanned below:

• Purchased invoice in respect of vehicles sold by M/s. Toyota Kirloskar Motors Pvt. Ltd. to the appellant M/s. Infinium Motors Guj Pvt Ltd:

From the above invoices, it is clear that transaction between M/s. Toyota Kirloskar Motors Pvt Ltd., and the appellant is of purchase and sale of the vehicles on principal to principal basis and in turn the same vehicle purchased by the appellant was sold by the appellant to the customers on principal to principal basis and not on behalf of M/s Toyota Kirloskar Motors Pvt Ltd. Therefore, the appellant in this transactions is not an agent of M/s. Toyota Kirloskar Motors Pvt Ltd but a buyer of goods. In the course of this trading activities the seller M/s Toyota Kirloskar Motors Pvt Ltd. gives incentive to the appellant on the basis of quantum vehicles purchased by them from M/s Toyota Kirloskar Motors Pvt Ltd. This incentive is nothing but trade/ quantity discount against the purchase of the vehicle by the appellant from M/s Toyota Kirloskar Motors Pvt Ltd. This fact is not under dispute.

5.4 From the record, it is observed that this issue had been raised earlier also in the appellant’s own case by the department, wherein the Commissioner (Appeals) has passed an Order having Order-in-Appeal No. AHM-SVTAX 000-APP-66-16-16-17 dated 11.08.2016 and decided the issue of sales incentives in the favour of the appellant. This case was remanded by the CESTAT vide Order No. S/1063/WZB/AHD/2011 and M/1318/WZB/AHD/2011 dated 27.07.2011 wherein this Tribunal directed the Commissioner (Appeals) to set aside the demand of service tax on sales incentives if the appellant proves that incentive / discount was received for trading or buying and selling. The Commissioner (Appeals) held that the appellant had purchased the cars from M/s. Toyota Kirloskar Motor Pvt. Ltd. on their own account on payment of VAT and sold to the clients on payment of VAT. The Commissioner (Appeals) also held that the transaction was principal to principal basis and the service tax was not payable under the category of BAS.

From the above, it is not in dispute about the transaction even in the present case being identical and sales incentive given by M/s Toyota Kirloskar Motors Pvt Ltd to the appellant is nothing but in connection with purchase and sale of the vehicles. Hence, the same can not be considered as commission against any service by any stretch of imagination. This issue has been considered time and again and it was held as under:

• CST, Mumbai –  V/s. Sai Service Station Ltd.2014 (35)STR 625 (Tri.-Mum.)

“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.”

• CST, Mumbai V/s. Jaybharat Automobiles Ltd.- 2016 (41) STR 311 (Tri.-Mumbai)

“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.”

• Rohan Motors Ltd. V/s. CCE, Dehracun- 2021(45) GSTL 315 (Tri.- Del.)

“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.”

• Prabhakar Marotrao Thaokar & Sons V/s. CCE, Nagpur-2019 (20) G.S.T.L 294 (Tri.-Mum.)

“4.On careful consideration of the submissions made by both the sides and on perusal of records. We find that as per the agreement particularly the following clause:

“5. The Wholesale Distributor shall sale the goods at the price as determined by the Manufacturer. It shall not charge anything extra over and above the said price. The Manufacturers shall not be responsible for any loss of goods after it leaves the factory premises. Wholesale Distributor would be the owner of the goods once same are supplied to them by the manufacturer from the factory gate and the Wholesale Distributor shall take possession of the goods from the factory gate and shall transport the same to its godowns at its own expenses.”

It is observed from the above para that after supply of goods by the manufacturer the ownership of goods is transferred to the wholesale distributor who is the appellant here. The sales invoice raised by the manufacturer is scanned below:

From the agreement coupled with the above invoice it can be seen that the transaction between the manufacturer M/s. Gunaji and the appellant is clearly of sale. In the invoice the manufacturer has charged 20% VAT the transaction is clearly at arms length hence sale transaction on principal to principal basis. From the invoice, it is also observed that a trade discount was passed on by the manufacturer to the appellant. As per this undisputed fact once, the transaction is of sale there is no relationship of service provider and service recipient between the manufacturer and the buyer (the present appellant). Accordingly, the discount passed on by the manufacturer to the appellant cannot be construed as a commission and the same is not the subject matter of levy of service tax. It is further seen that the appellant also, after purchase of goods from the manufacturer further sold to various traders. A copy of the sale invoice issued by the appellant is scanned below:

From the above invoice it can be seen that it is clearly a sale invoice under which the appellant also paid the VAT. This shows that the transaction from the manufacturer to the appellant and subsequent from appellant to the individual traders are clearly sale transactions. Hence no service is involved. As per the above facts, we are of the clear view that a trading margin cannot be subject matter of levy of service tax. Accordingly, the impugned order is set aside and the appeal is allowed.”

From the above judgments, it is evident that the fact of the present case and that of the cases cited above as well as the nature of transactions i.e. purchase and sale of the goods are identical and it was consistently held that any incentive/discount given by the motor vehicle manufacturer as a seller of vehicle to the dealer as purchaser of the vehicle will not amount to Commission under Business Auxiliary Service. Therefore, the same being not consideration of any service shall not be liable to Service Tax. Following the above judgments and discussion made by us hereinabove, we are of the considered view that the incentive given by M/s Toyota Kirloskar Motors Pvt Ltd to the appellant is not an amount of commission but being a trade discount is not liable for Service Tax.

5.4 The Adjudicating Authority also confirmed demand of an amount equal to 5%/6%/7% of the value of trading activity in terms of Rule 6(3) of Cenvat Credit Rules, 2004, on the ground that the appellant have availed Cenvat credit in respect of common input service, which is used for their taxable services as well as exempted services namely ‘trading activity’ of the vehicles, spare parts etc,. Consequently, Rule 6(3) was invoked according to which when an assessee avails the Cenvat credit on common input service used in taxable and exempted services, he has to pay 5%/6%/7% as applicable from time to time. In this regard we find that the demand on this count was raised for the period from 2007-08 to 20 12-13. As per provision of Cenvat Credit Rule 6 it has application in case the assessee is providing taxable and exempted service. The trading activity in respect of which the demand was raised under Rule 6(3) under a fiction of law made exempted service only with effect from 01.04.2011 by insertion of explanation under Rule 2(e) by notification No. 3/2011-CE(NT) dated 01.03.2011. In view of this amendment it is clear that the trading activity was not defined as exempted service prior to 01.04.2011. Therefore, the trading activity not being an exempted service during period 2007 to 2011, Rule 6(3) cannot be made applicable during such period. It is a settled law that any statutory amendment cannot be made applicable retrospectively unless the effect of retrospective is enacted by the parliament. Therefore, trading being exempted service is effective only from 01.04.2011. Hence, the demand under Rule 6(3) on trading activity for the period 2007-08 to 2010-11 is wholly illegal and without any support of law. This very issue has been considered by this Tribunal in the following judgments:

• CCE, Bhopal V/s. My Car (Bhopal) P. Ltd.- 2019 (22) GSTL 273 (Tri.-Del.)

“The present appeal is filed by the Department against Order-in­Appeal No. 34/BPL/2013, dated 5-2 -2013.

2. The brief facts of the case are that the appellant during the period under consideration (2010-2011) was providing the services and availing the Cenvat credit on the various services like telephone, advertisement, renting, insurance, banking, maintenance and repair, courier, security and other financial services under the provision of Cenvat Credit Rules. They were availing the Cenvat credit on all these input services. From the premises, where they are providing the taxable service, they were also carrying out the sale of cars, which was liable for Service The Department was of the view that since the respondent did not maintain separate accounts for the input services used towards the taxable activity as well as exempted activity, the respondent will be required to pay an amount in terms of Rule 6(3A) of the Cenvat Credit Rules. In this connection, Department was of the view that the activity of trading, which was also carried out by the appellant from the same premises, in addition to carrying out the service of authorized service for four wheelers, is to be considered as an exempted service but both the authorities below dropped the demand and, hence, the Revenue is in appeal before us.

3. With the above background, we heard Shri Amresh Jain, Learned DR for Revenue and Shri Milind Sharma Learned C.A. for The Learned DR submitted that the activity of trading has been specifically included as an exempted activity w.e.f. 1-4- 2011 by way of amendment carried out in the Cenvat Credit Rules, 2004 vide Notification No. 13/2011-C.E. (N.T.), dated 31- 3-2011. He argued that the activity of trading has to be considered as an exempted service even for the disputed period i.e. 1-4-2010 to 31-3 -2011.

4. The Learned Consultant representing the respondent, however, argued that trading has been included as an exempted service specifically vide the notification referred above. The notification cannot be held to be having retrospective effect and consequently he prayed that the impugned order may be sustained. He also brought to our notice that the Department also had earlier taken the stand to this effect vide Commissioner (Appeals) order No. 34/2013, dated 5-2 -2013.

5. Heard both the sides and perused record. The respondent has carried out, during the disputed period, the taxable service of authorized service station. They also carried out, from the same premises, the activity of trading of four wheelers. They have availed Cenvat credit of various input services which the Department has claimed has been utilized both for the taxable service as well as trading. The stand taken by the Department is that the activity of trading is to be considered as exempted service even though such activity has been specifically inserted as an exempted service only w. e. f. 1-4-2011 vide Notification No. 13/2011-C.E. (N.T.), dated 31- 3-2011.

6. Both the authorities below have taken the clear stand that the activity of trading has come under the category of exempted service only w. e. f. 1-4-2011 and the said amendment carried out to Cenvat Credit Rules cannot be considered as having any retrospective effect. Therefore, we find no reason to interfere with the impugned order. The appeal is accordingly dismissed.”

• Marudhan Motors V/s. CCE, Jaipur-ll – 2017 (47) STR 261 (Tri.- Del.)

“The issue involved in this appeal for consideration by the Tribunal, is as to whether, during the period 2005-2006 to 2009-2010, trading should be considered as ‘exempted service’ under Rule 2(e) of the Cenvat Credit Rules, 2004 for the purpose of requirement of Rule 6(3) ibid.

2. The brief facts of the case are that the appellant is a service tax assessee and provides the taxable service namely, authorized services station, business auxiliary service and tour operator service. Apart from providing the taxable services, the appellant also engaged in the trading activities. Since Cenvat credit taken on common input services were used for providing both taxable service as well as for the services relating to the trading activity, the Department disallowed the Cenvat credit under Rule 14 of the Rules on the ground that trading activity should be considered as exempted service in terms of Rule 2(e) of the Rules, and as such, the appellant is required to maintain separate account or pay the amount towards provision of service on the trading activity [In terms of Rule 6(3)(A) of the Rules]. The adjudication order dated 15-3 -2012 passed in confirming the demand, culminated in the impugned order dated 16-4-2013. Hence this present appeal is before the Tribunal.

3. The term “exempted services” has been defined in Rule 2(e) of the Rules to mean taxable services which are exempted from the whole of the service tax leviable thereon, and include services on which no service tax is leviable under Section 66 of the Finance Act. The definition of exempted service was amended vide notification No. 3/2011-CE(NT) dated 01.03.2011. The effect of the amendment is that an explanation was added to the said Rule, clarifying that “exempted service includes trading”. On perusal of both unamended and amended provisions of exempted service, it reveals that the activity of trading was not included within the ambit of definition prior to 1-4-2011. In this case, since the dispute is up to the period of 2009-2010, the amended definition of exempted service would not be applicable. Thus, the embargo credit in Rule 6(3) of the Rules does not have any application for taking of Cenvat credit on the activities concerning provision of taxable service and trading activity. Hence, denial of Cenvat credit by the authorities below, in my opinion, is not in conformity with the statutory mandates. Therefore, I do not find any merits in the impugned order and allow the appeal in favour of the appellant.”

• CCE, Ghaziabad V/s. Avon International P. Ltd.-2017 (5) GSTL 376 (Tri.-All.)

“The present two appeals are arising out of same impugned Order-in-Appeal No. GZB -EXCUS-000-A PP-1 1-14-15, dated 28- 4-2014. Therefore, they are taken together for decision. Appeal No. E/54591/2014 is filed by M/s. Avon International Pvt. Ltd. and Appeal No. E/53649/2014 is filed by Commissioner of Central Excise, Ghaziabad. M/s. Avon International Pvt. Ltd. have submitted compliance to interim order No. 05/2016, dated 27-1-2016.

2. The brief facts of the case are that appellant-manufacturer was issued with show cause notice dated 28-3-2013 wherein there was allegation that during the period from April, 2010 to March, 2011 they have cleared raw materials such as plastic granules re-processed, Calcium/Mineral powder fabric and Glass on which they did not avail Cenvat credit and sold them and it appeared to Revenue that such activity was trading and therefore since Cenvat credit of Service Tax paid on inputs services had gone into activity of manufacturer as well as abovestated trading, there was demand of amount of Rs. 2,12,569/- under Rule 6(3) of Cenvat Credit Rules, 2004. The appellant-manufacturer contended that trading was treated as exempted service through notification No. 3/2011-CE(NT) dated 01.03.2011 w. e. f. 1-4-2011 and therefore the said provision was not applicable to said transactions. The Original Authority decided the issue through OIO dated 10-10-2013 through which the demand was confirmed and equal penalty was imposed. The appellant-manufacturer preferred appeal before Commissioner (Appeals). The appeal was decided through impugned Order-in­Appeal dated 28-4 -2014 wherein the learned Commissioner (Appeals) has held that the said Notification No. 3/2011 declaring trading as service was clarificatory in nature and that is why the learned Commissioner (Appeals) have directed to modify the Order-in-Original dated 10-10-2013 to the extent that demand confirmed shall be re-calculated as discussed in paras 5 & 7 of the impugned Order-in-Appeal. Aggrieved by the said order, manufacturer filed appeal before this Tribunal. Further, Revenue also filed appeal before this Tribunal.

3. Heard the learned counsel for appellant-manufacturer who submitted that before 1-4-2011, there was no provision in the law to treat trading as service.\

4. Heard the learned DR, who has supported the grounds of appeal filed by Revenue.

5. Having considered the rival contentions and on perusal of records, I find that statute did not have the definition of trading as service for the period before 1-4-2011. Therefore, the definition of trading as service was not applicable to the period upto 31-3-2011. The period covered in the said show cause notice is upto 31-3 -2011, therefore the demand is not sustainable. As a result, Appeal No. E/54591/2014 is allowed and Appeal No. E/53649/2014 is dismissed.”

In view of above judgments it is settled that demand under Rule 6(3) in respect of trading activity for the period upto 3 1.03.2011 is not sustainable.

5.5 The demand of the same count under Rule 6(3) was also raised for the period 2012-13 onwards. During this period, we find that the appellant admittedly paid back an amount equal to Cenvat Credit in respect of input services used for trading activity which is incompliance with the scheme of Rule 6(3) of the Cenvat Credit Rules. As per this Rules there is a clear option that appellant is required to reverse! pay back Cenvat Credit amount in accordance with formula laid down under Rule 6(3A) (c) (iii) of Cenvat Credit Rules, 2004, for such trading business and admittedly such amount has been worked out by the appellant in accordance with this formula and reversed paid back also. On the payment of such amount or reversal thereof demand of 6% of the value of trading activity is clearly not justified. This issue has been considered in various judgments some of the judgments are referred below:

5.6 Hello Minerals Water (P) Ltd. V/s UOI reported in 2004 (174) ELI 422 (All):

This is a judgement rendered by Hon’ble Allahabad High Court on this issue. In para 4 of the judgement, the Hon’ble High Court of Allahabad has observed that the issue was whether reversal of credit after availment could satisfy the condition of non-availment of credit under the exemption Notification No. 15/94-CE dated 1.3.1994 involved in the said case allowed exemption from Central Excise duty on condition that no Modvat credit was availed on the inputs used in manufacturing of the final products.

Considering various decisions of the Appellate Tribunal including the above referred decision of the Larger Bench in case of Franco Italian Co. Pvt. Ltd. and also the judgement of the Hon’ble Supreme Court in case of Chandrapur Magnet Wires (P) Ltd., the Hon’ble Allahabad High Court has held in para 13 of the judgement that since reversal of Modvat credit had been done by the petitioner, it had to be treated that no credit was taken by the petitioner on the inputs as contemplated under Notification No. 15/94-CE. This case had arisen before the Allahabad High Court as the Appellate Tribunal had disallowed the benefit of the Notification by holding that credit was not reversed by the petitioner prior to clearance/removal of the goods, but the Hon’ble High Court has held that the Tribunal was not justified in taking that view. The Hon’ble High Court has also held that the judgement of the Hon’ble Supreme Court in case of Chandrapur Magnet Wires (P) Ltd. as well as Circular No. 22/8/86 dated 10.4.1986 referred to by the Hon’ble Supreme Court did not lay down a condition that credit had to be reversed before clearance of the final products from the factory and only in that situation it could be considered that the manufacturer had not taken the Modvat credit.

5.7 Hi-Line Pens Pvt. Ltd. V/s Commissioner reported in 2003 (158) ELI 168 (Tri. –Del) :

In this case before the Appellate Tribunal, the appellant took Modvat credit on common inputs i.e. inputs which were common for exemption and dutiable pens, but did not keep separate accounts or pay 8% on the exempted pens or reverse credit. The appellant reversed the entire credit later on to give a quietus to the dispute, but the view of the Department was that reversal of credit was not done prior to clearance of pens in question and facility of reversal of credit could not be available to the appellant. However, the Appellate Tribunal has held in para 4 of the decision that the time of reversal was not material for reversal of credit taken in excess of what was due. The objection of the Department was overruled by the Appellate Tribunal.

5.8 Bharat Earth Movers Ltd. V/s Collector reported in 2001 (136) ELI 225 (Iri. – Bang.) :

In this case before the Appellate Tribunal, the appellant assessee had not reversed the credit even when the case was heard by the Appellate Tribunal, but still however, the Appellate Tribunal allowed the appeal of the assessee by directing the assessee to reverse Modvat credit availed for inputs utilized in manufacture of the exempted final products. Thus, in this landmark decision of the Appellate Tribunal, the exemption was allowed for coaches supplied to the Railways even though the appellant had taken credit of duties paid on the inputs on the condition that the appellant would reverse the credit pursuant to the direction of the Appellate Tribunal given while deciding the appeal finally.

5.9 A similar controversy came up before the Appellate Tribunal, Ahmedabad, in case of Maize Products and in the decision of the Appellate Tribunal, Ahmedabad, reported in 2007 (79) RLT 662, the Appellate Tribunal held that the demand on the basis of 8%/10% of the value of the exempted final products was not valid even if the assessee had taken Cenvat credit of duties paid on the inputs used in relation to manufacture of the exempted products because the assessee could reverse the amount of Cenvat credit even at a later stage. The assessee in that case was allowed to reverse amount of Cenvat credit within 4 weeks from the date of receiving communication from the Department as regards any short-fall in reversal.

5.10 The Revenue however, approached the Hon’ble Gujarat High Court by way of a Tax Appeal disputing the above view of the Appellate Tribunal, Ahmedabad, but the Hon’ble Gujarat High Court has also upheld the decision of the Appellate Tribunal as could be seen from the judgment of the Hon’ble High Court in case of Commissioner, Ahmedabad Vs. Maize Products, reported in 2008 (89) RLT 211 (Guj.). The Hon’ble High Court has held while upholding the decision of the Appellate Tribunal that re-determination of credit in accordance with law ordered by the Appellate Tribunal was in accordance with Rule 6 of the Cenvat Rules.

5.11 The Revenue still preferred a Special Leave Petition before the Hon’ble Supreme Court against the above judgment of the Hon’ble Gujarat High Court, but the SLP also came to be dismissed by the Hon’ble Supreme Court.

5.12 In a recent case of Mercedes Benz India Ltd. reported in 2015 (40) STR 381, the CESTAT has held that the main objective of Rule-6 is to ensure that the assessee should not avail the cenvat credit in respect of input or input services which are used in volition to the manufacture of exempted goods or services; but the legislature has not enacted the provision by which cenvat credit, which is other than the credit attributed to input services used in exempted goods or services can be recovered from the assessee. The CESTAT has also taken a view on the issue of delay in giving intimation about the option to be exercised by the assessee, and has held that delay in giving intimation was at the most a procedural lapse.

5.13 On the basis of the above, the legal position that emerges is that when an assessee reverses or pays back the amount of credit taken on the inputs/input services used in relation to the manufacture of particular final products or rendering services, such reversal or paying back of credit would result in a situation where the assessee was deemed to have not taken the credit at all. The further legal position that emerges from the above referred case law is that such reversal may be at the time of clearance of the goods from the factory, may be at a time subsequent to such removal of final products from the factory, or such reversal may also be after the Revenue initiated investigation and enquiries against the assessee in the matter.

5.14 In this view of the matter, the only obligation on the appellant had been to reverse/pay back amount equal to Cenvat credit attributable to input services used in respect of trading business. However, the appellant has paid back such proportionate Cenvat credit and therefore, the Adjudicating Authority has no authority in law to demand a substantially higher amount from the appellant by suggesting that payment was required to be made by the appellant at the rate of 6% of the trading business. The value of trading business is also incorrectly and erroneously arrived at by the Adjudicating Authority, and therefore also there is no justification in the demand of cenvat credit

5.15 The appellant has calculated the aggregate amount of cenvat credit in respect of input services used in relation to trading business for the entire period from April 2011 to March 2016. The value of trading is derived in accordance with the method prescribed under Clause-(c) of Explanation-I under Rule-6(3D) of the Cenvat Credit Rules. The term “value” is explained under this provision in case of trading as the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or 10% of the cost of goods sold, whichever is more. The appellant has derived the “value” of the trading business in accordance with this method and the appellant has also derived the proportionate cenvat credit attributable to the “value” of exempted service i.e. trading business.

5.16 The appellant has already reversed an amount of Rs. 2,20,68,697/- to the credit of the Central Government; and the details of such reversal have been recorded also on page 12 of the impugned order. However documents viz. Journal Voucher and also a certificate by the appellants statutory CA confirming and certifying reversal were submitted by the appellant before us.

5.17 In this view of the matter, the Commissioner had no authority in law to still demand of cenvat credit under Rule-6(3) of the Cenvat Credit Rules. The impugned order demanding cenvat credit under Rule 6 (3) of the Cenvat Credit Rules therefore, is not sustainable.

5.18 As regards the denial of Cenvat Credit of Rs. 78,41,493/- pertain to Cement and Steel used in construction of showrooms. The contention of the Adjudicating Authority in this regard is that the assessee in respect of this credit on Cement and Steel, have not disputed the demand on any legal ground. Therefore, the demand of Cenvat credit on Cement and Steel wa confirmed.

5.19 We find that the appellant have strongly contested the issue on the ground of limitation. The appellant’s submission is that since the Cement and Steel were used for construction of Showrooms and Showrooms were used for providing output service of Authorized Service Station on which Service Tax was paid, they had bonafide belief of eligibility to avail the Cenvat Credit on Cement and Steel. The appellant have strongly contested the demand on the ground of limitation as there is no suppression of fact and mala fide on the part of the appellant. In order to arrive at conclusion whether there is any mala fide intention on the part of the appellant, we analyse the legal position of the issue during the relevant period i.e. upto 31.03.2011, we find that during said period, the Cement and Steel used for construction of the premises of output service provider was clearly admissible in terms of definition of input under Rule 2(k) of Cenvat Credit Rules. The issue has been considered in the following judgments:

• Commissioner of C.EX., vs. Sai Sahmita Storages (P) Ltd.- 2011 (270) ELT 33 (A.P)
• Mundra Ports & Special Economic Zone Limited – 2015 (39) STR 726 (Guj.)

In the above decisions the credit on Cement and Steel was allowed which were used for construction of premises of output service provider. Considering the above settled legal position, we are of the view that the appellant are entitled for Cenvat credit availed on Cement and steel used for construction of their show rooms where from the output service of authorized service station has been provided

5.20 As regard the denial of credit of Rs. 16,85,532/-out of Rs. 78,41,493/- the reason for denial is that this credit pertains to other premises i.e. Naroda, Himatnagar, Gandhidham which were not registered. However, it is observed that even though these premises were not registered but the output service provided for these services were admittedly suffered Service Tax payment. Therefore, merely because the premises are not registered the Cenvat credit cannot be denied on this ground, when the output service was provided on payment of Service Tax. This issue has been considered in the case of Manipal Advertising Services Pvt. Limited vs. CCE, Mangalore – 2010 (19) STR 506 (Tri. Bang.), wherein the Tribunal has considered the case where credit was availed on invoices issued in the name of branch office of an assessee and such credit was denied by the department on the ground that the branch offices of the assesse were not registered under centralised registration and it was not possible to verify whether branch offices availed credit or not. However, the Tribunal has held that even though branch offices were not registered Cenvat credit could not be denied because Service Tax liability was discharged for the registered premises for branch operation/ activities.

5.21 It was also decided in Precedent cases, the Gujarat Heavy Chemicals Ltd. Vs. CCE Rajkot- 2005 (192) ELT 658 and Stadmed Pvt Ltd. Vs. C.CE Allahabad- 1998 (102) ELT 466. This issue has also been considered by CESTAT in case of M N Dastur Company Pvt. Ltd. Kolkata – 2010 (20) STR 230 (Tri. Kolkata), wherein it is prima facie held that concerned assessee could have taken Cenvat credit in respect of documents issued by the branch offices, even if centralized registration was not obtained at the relevant time. It was observed by the Tribunal that the Jurisdictional Officer had collected Service Tax paid by the assessee from the head office in respect of branch offices and therefore, demand was not sustainable.

5.22 In the present case also even though that said three premises were not registered but the service provided by the said premises was admittedly on payment of Service Tax. Therefore, the credit availed in respect of input/input services used in the said three premises is clearly admissible.

5.23 The appellant have strongly contested the demand raised in the show caused notice dated 23.10.2012 which was issued for the period 2007-2008 to 2010-2011 on the ground of limitation in respect of all the issues. On perusal of fact available on record we find that as regard the issue of demand on spare parts and lubricants the appellant have raised common invoice for service as well as for sale of spare and lubricants. The service tax was discharged on the service portion. The issue was also convered in favour of the appellant by various judgements as discussed above. As regard the demand on sales incentive received by the appellant from M/s Toyota Kirloskar Motor. We find that the issue was of interpretation of service tax provision and the same was covered by the various judgments as discussed hereinabove. As regard the demand under Rule 6 (3) we find that the appellant have been availing the Cenvat Credit on common input service used for taxable service as well as trading activity the detail of the cenvat was declared in their ST-3 return. They were also paying proportionate credit attributed to the trading activity during the applicable period. As regard, the Cenvat credit on cement and steel as discussed above, the appellant were of bonafied belief that the cenvat credit is available on cement and steel used for construction of show rooms which were in turn used for providing output service and admissibility of cenvat credit has been decided in their favour in the judgments cited above. In view of the above facts, it is clear that the demand raised in show caused notice dated 23.10.2012 by invoking extended period is also not sustainable on the ground of limitation, for the reason that it is not established in respect of the issues in hand that the appellant have ever suppressed any fact or involved in fraud, mis-statement Collusion, etc. with intent to evade payment of duty therefor, we hold that in respect of show cause notice dated 23.10.20 12 the demand for the extended period is clearly not tenable on the ground of limitation also.

As per our above discussion and findings, we are of the considered view that impugned order is not sustainable, hence the same is set aside.

6. The appeal is allowed in the above terms with consequential reliefs, if any, in accordance with law.

(Pronounced in the open Court on 30.09.2022)