Service Tax Cannot Be Levied on Dealers' Margin for Free After-Sales Service

The Tribunal held that service tax cannot be levied on the dealers' margin representing expenses for free after sales service provided by authorized dealers of Tata Motors. The dealers sell cars at full price, pay sales tax, and offer free servicing without receiving any reimbursement. The Tribunal emphasized that the dealers' margin is part of the sale price already taxed under sales tax, and as such, should not be subject to service tax. The appeal was allowed, and the impugned order was set aside.

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Issues:
Whether service tax can be levied on the amount representing dealers' margin for free after sales service provided by authorized dealers of Tata Motors.

Analysis:
The appellants, authorized dealers of Tata Motors, sell cars at full price to customers, pay sales tax on the price, and provide free after sales service charging only material cost. The Ministry's Circular clarified that if the value of service provided free of charges is zero, tax will also be zero. Another Circular stated that reimbursements for free servicing are subject to service tax, but the appellants did not receive any reimbursement. The dealers' margin covers expenses for free servicing, and since the full price is recovered from customers, no service tax can be charged on the dealers' margin.

The consultant highlighted that other auto dealers follow the same sales pattern with free servicing, but only the appellants faced service tax demands. Referring to a Tribunal decision, it was argued that service tax is not leviable when sales tax has been paid. The Tribunal noted the exclusivity between sales tax, excise duty, and service tax. The dealers' margin recovered from customers was for selling cars, not providing free service. Thus, the entire amount, including the dealers' margin, already taxed under sales tax, should not be subjected to service tax. Consequently, the Tribunal set aside the impugned order and allowed the appeal.

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