Case Law Details
Jivan Jyot Motors Pvt Limited Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)
No service tax on ancillary services for sale of goods when included in the full invoice value
The CESTAT, Ahmedabad in M/s. Jivan Jyot Motors Pvt Ltd. [Service Tax Appeal No. 13811 of 2014-DB dated July 24, 2023] set aside the order passed by the Adjudicating Authority and held that no service tax can be demanded where Value Added Tax (VAT) was paid on sale of goods.
Facts:
M/s. Jivan Jyot Motors Pvt. Ltd. (“the Appellant”) is automobile dealer engaged in the business of purchase and sale of vehicles to the customers.
The Appellant while selling vehicle, charges handling and forwarding charges on invoice and charges VAT @ 12.5% on the total value of the invoice including charges of handling and forwarding.
The Revenue Department was of the view that handling and forwarding charges collected by the Appellant are liable to service tax under the head of Business Auxiliary Service (“BAS”). Thereafter, a Show Cause Notice (“the SCN”) was issued to the Appellant.
The Appellant submitted that SCN is confusing that could not conclude that whether the activity handling and forwarding charges is falling under the category of BAS and also submitted that handling and forwarding charges is part of the total sale value of the goods on which VAT was already paid, therefore any element which is part of the sale on which VAT is paid, service tax cannot be demanded.
Aggrieved by the Impugned order the Appellant filed an appeal before the CESTAT, Ahmedabad.
Issue:
Whether demand of service tax is sustainable on forwarding services, where the whole amount including the forwarding charges were subjected to VAT?
Held:
The CESTAT, Ahmedabad in Service Tax Appeal No. 13811 of 2014-DB held as under:
- Opined that, forwarding charges are nothing but part of the sale value of the vehicle sold by the Appellant to their customer, and sale value consists of various elements and the same cannot be bifurcated.
- Relied upon the judgement of the Hon’ble Supreme Court in the case of CST v. UFO Moviez India Limited [Civil Appeal No. 181 of 2022 dated January 06, 2022] wherein the court held that since VAT has been paid on the sale of goods, the question to demand service tax thereon does not arise.
- Clarified that, 12.5% VAT is to be calculated on the total value i.e., basic price plus forwarding charges and paid to the concerned State authorities.
- Held that, when there is sale of goods and VAT was paid no service tax can be demanded.
- Set aside the Impugned order.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the case are that appellant is automobile dealer who purchase vehicles and resale to the individual customer. While selling the vehicle to the customer, in their sale bill they charge some handling and forwarding charges. However, VAT was paid on the total value of the invoice including charges of handling and forwarding. The case of the department is that handling and forwarding charges collected by the appellant from their customers is liable to service tax under the head of Business Support Service/ Business Auxiliary Service.
2. Shri Jigar Shah, learned Counsel appearing on behalf of the appellant submits that firstly, the show cause notice is confusing inasmuch as that it could not conclude that whether the activity handling and forwarding charges is falling under the category of Business Auxiliary Service or Business Support Service, for this reason itself the show cause notice is ab-initio void and not legal hence, the demand is not sustainable. Without prejudice, he further submits that handling and forwarding charges is part of the total sale value of the goods on which VAT was paid by the appellant, therefore any element which is part of the sale on which VAT is paid, service tax cannot be charged on the said activity. He placed reliance on the following judgments:-
(a) CST vs. UFO Moviez India Limited – 2022-VIL-07-SC-ST
(b) CST vs. UFO Moviez India Limited – 2021-VIL-11-SC-ST
(c) UFO Moviez India Limited vs. CST 2017-VIL-774-CESTAT-ST
(d) Ketan Motors Limited vs. CCE – 2014 (33) STR 165 (Tri.)
(e) Automotive Manufacturers Pvt. Limited vs. CCE 2015 (38) STR 1191 (Tri.)
(f) CCE vs. Seva Automotive Pvt. Limited – 2016 (46) STR 428 (Tri.)
3. He further submits that in the case of Automotive Manufacturers Pvt. Limited (supra), the dealer provided various service centre service for maintenance of vehicles along with service. They also used parts during repairs and maintenance on which they paid VAT. The Tribunal held that even though the parts were used for providing authorised service of the vehicle, the same will not be chargeable to service tax since the parts were sold and suffered VAT.
4. Shri Kalpesh P Shah, learned Asst. Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order.
5. On careful consideration of the submissions made by both the sides and perusal of record, without going into issue of classification, we find that there is no dispute that handling and forwarding charges which was charged by the appellant from customers is undisputedly a part of sale price. For ease of reference, sample copy of the sale invoice is scanned below:-
6. From the above invoice it can be seen that VAT 12.5% was calculated on the total value i.e. basic price plus handling and forwarding charges and paid to the concerned State authorities. In this fact, as per the above invoice, handling and forwarding charges nothing but part of the sale value of the vehicle sold by the appellant to their customer. It is obvious that sale value consists of various elements and the same cannot be vivisected to contend that some part of the value represent to the sale of goods and some part towards service. Once on total value the VAT is paid then on any part of such value service tax cannot be demanded. This legal proposition affirmed by Hon’ble Supreme Court in the case of CST vs. UFO Moviez India Limited – 2022-VIL-07-SC-ST (in Civil Appeal No. 181 of 2022 dated 06.01.2022) wherein the Hon’ble Supreme Court has passed the following order:-
“In the facts of the present case as it is not disputed that the respondent had regularly paid amount towards VAT liability in respect of the subject goods during the relevant period, the question of claiming service tax thereon does not arise.
Accordingly, in the facts of the present case, the civil appeal is dismissed.”
From the principle laid-down by Hon’ble Supreme Court in the above decision, it is settled that when VAT has been paid on the sale of goods, the question to claim service tax thereon does not arise.
7. We further find that even in the worse situation in various cases where the parts and components were used in repair and maintenance of motor vehicle even then merely because the part so used in repairs and maintenance were separately billed and VAT was paid thereon, the Tribunal held that on value of such parts, though used for repair and maintenance service of the vehicle will not be liable to service tax as the same was suffered VAT. In this regard the following judgments are reproduced:-
(a) In Ketan Motors Limited the Tribunal held as under
“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.”
(b) In Automotive Manufacturers P. Limited the Tribunal passed the following order:-
“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 charges. 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.”
(c) in the case of CCE vs. Seva Automotive Pvt. Limited the Tribunal held as under:-
“2. The respondent, M/s. Seva Automotive Pvt. Ltd. Nagpur, is registered as an “authorised service station” and rendering services as such and discharging service tax liability on their activities. While rendering the said services, the recipient also sells spare parts of automobiles. The spare parts were received from the manufacturers and the respondent charges handling charges for handling of these spare parts at their service stations. The Revenue was of the view that the handling charges for the spare parts should form part of the taxable value of the service rendered by the appellants. Accordingly, a notice dated 16-2-2005 was issued demanding service tax of Rs. 2,52,543/- for the period July, 2001 to February, 2004. The said demand was confirmed vide order dated 18-5-2006. Against this, the respondent preferred an appeal before the lower appellate authority. The lower appellate authority noted that in the case of authorised service stations, the cost of the spare parts are not to be included in the value of the services rendered as per Section 67 of the Finance Act, 1994, as it stood at the relevant time, since the cost of spare parts itself is not includible; therefore, handling charges incurred in respect of such spare parts also will not form part of the taxable value of the service rendered. Accordingly, he dropped the demand. The Revenue is aggrieved of the same and is before us.
3. The Revenue reiterates the grounds urged in the show cause notice that handling charges incurred for the spare parts should form part of the taxable value of the services rendered.
4. The ld. Counsel for the respondent reiterates the conclusions drawn in the appellate authoritie’s order.
5. We have carefully considered the submissions made by both the sides.
5.1 Section 67 as stood in the relevant time provided for exclusion of cost of spare parts sold while rendering repair services of automobiles. If that be so, the cost of handling of such spare parts incurred by the respondent would also not form part of the taxable value of the service rendered. Therefore, we do not find any infirmity in the reasoning adopted by the lower appellate authority. Accordingly, we dismiss the appeal filed by the Revenue as devoid of merits.”
8. From the above decision, the conclusion drawn is that when there is sale of goods and VAT is paid no service tax can be demanded. In the present case, it is undisputed that the element i.e. amount towards Handling and Forwarding charges, the appellant have shown as part of the sale value of the goods and VAT was paid. Therefore, following the above principle of law laid-down by Hon’ble Supreme Court and by Tribunals, in the present case the demand is not sustainable. Hence the impugned order is set-aside and the appeal is allowed.
(Pronounced in the open court on 24.07.2023)
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