2016 (12) TMI 541 - AT - Service Tax

Tribunal overturns tax demand on vehicle discounts, remands for review of subvented amounts

Toyota Lakozy Auto Pvt. Ltd. Versus Commissioner of Service Tax/Central Excise Mumbai -II / Mumbai - V

The Tribunal set aside the tax demand on discounts received on vehicle procurement and facilitation charges for vehicle registration. The matter was ... Levy of tax - commission earned on sale of cars - facilitation charges collected from customers for registration of vehicles - commission foregone on loans marketed by appellant to customers - Held that: - One of the essential requirements in taxing of services is the existence of ‘service-provider’ and ‘recipient of service’ with the latter making over the agreed upon consideration to the former. Appellant, admittedly, markets products of financial institutions for which they are entitled to a commission. There is common ground here on the taxability of commission as received. However, the appellant claims to have waived a portion of the commission otherwise receivable which the bank then uses to reduce the consideration that it receives for such financing from customers. It would appear that consideration not received by the appellant from the financial institutions for one service is adjusted to compensate for the reduced consideration received by the financial institution for another service rendered to another recipient. The manner in which the financial institution treats these outflows of commission and inflow of interest would unlock the proper perspective of consideration in these transactions, particularly, the one between the appellant and the financial institution. This is an aspect that has not been attended to in the impugned order. Likewise the contention of the appellant that there are errors in computation among which are inclusion of the amounts not received during the period when tax was leviable only on receipts, the non-adjusted excess tax paid in the half-yearly returns in comparison with financial statements, inclusion of bad debts and reversals in the taxable value and the inclusion of credit entries without netting the debit entries. These are crucial to determination of taxable value and will have to be considered. To enable a re-visit of the taxability of subvented amounts as well as the above-mentioned accounting entries, we deem it appropriate that the matter be remanded to the original authority for deciding afresh on the last two issues. The other two issues are not the subject of this remand as they stand decided in favour of appellant - appeal allowed by way of remand. Issues:Tax liability on commission earned on sale of cars, facilitation charges for vehicle registration, commission foregone on loans marketed to customers.Analysis:The appellant, a dealer of vehicles, appealed against two orders-in-original for the periods July 2004 to March 2007 and April 2007 to March 2011. The demands confirmed were challenged by the appellant, arguing that the earnings were not subject to tax or were incorrectly computed. The disputes included tax liability on commission, facilitation charges for vehicle registration, and commission foregone on loans marketed to customers.The appellant contended that the agreement with the manufacturer was on a 'principal-to-principal' basis, passing title and risk upon excise clearance. Discounts received were termed as commission/incentive but were not liable to tax as 'business auxiliary services'. Citing precedents like Jaybharat Automobiles and Sai Service Station cases, the Tribunal held that discounts on vehicle procurement were not taxable as business auxiliary services.Regarding facilitation charges for vehicle registration, the appellant charged customers a fee, disputed as 'business auxiliary services'. Citing the Wonder Cars Pvt Ltd case, the Tribunal ruled that such charges were not covered under business auxiliary services, setting aside the tax liability on RTO registration fees.On commission foregone on loans marketed to customers, the appellant received a portion as upfront subvention of total interest payable. Disputing the tax on subvented component, the appellant relied on precedents like Joshi Auto Zone and HBL Global cases. The Tribunal noted the necessity of 'service-provider' and 'recipient of service' with agreed consideration. The matter was remanded to the original authority for reconsideration of taxability of subvented amounts and accounting entries.The Tribunal set aside the tax demand on discounts received on vehicle procurement and facilitation charges for vehicle registration. The matter was remanded for reconsideration of taxability of subvented amounts and accounting entries, while other issues were decided in favor of the appellant. The appeals were disposed of, along with cross-objections.