2020 (1) TMI 96 - AT - Central Excise

Handling/Logistic Charges Subject to VAT, Not Service Tax: Tribunal Decision Emphasizes Precedent

The Tribunal ruled that handling/logistic charges collected by the Appellant should be subject to VAT, not service tax, as they form part of the sale ... Nature of transaction - service or not - liability of service tax or VAT - handling/ logistic charges recovered from the customers for providing service of safe handling and cleaning of cars till the delivery to the customers - allegation that Appellant had not paid service tax from 1 July 2010 to 31 July 2015, even though the handling/ logistic charges are covered under the taxable service - non-consideration of decision in the case of AUTOMOTIVE MANUFACTURERS PRIVATE LTD VERSUS COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, NAGPUR [2015 (2) TMI 972 - CESTAT MUMBAI] which is claimed by appellant to be squarely applicable to the present case - whether the Appellant is required to pay VAT under the provision of the VAT Act towards the collection handling/logistic charges or whether the Appellant is required to pay service tax under the Finance Act? HELD THAT:- Section 2 (36) of the VAT Act defines a sale price means the amount paid or payable to a dealer as consideration for the sale of any goods, less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade, but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof, except the tax imposed under this Act. A Division Bench of the Mumbai Tribunal in AUTOMOTIVE MANUFACTURERS PRIVATE LTD VERSUS COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, NAGPUR [2015 (2) TMI 972 - CESTAT MUMBAI] examined whether handling charges collected by the Appellant therein for bringing parts and components from the warehouse/ depot of Maruti Udyog Ltd to the service station could be subjected to service tax. It was observed that service tax could not be levied on such charges since they form part of the value of goods sold - The Tribunal also held that ‘handling charges’ were incurred in connection with the procurement of the goods and are included in the value of goods sold and VAT liability has to be discharged by including the cost of the handling charges. Thus, any consideration received for supply of goods would not be covered within the scope of section 66 of the Finance Act. On a consideration of the factual position before the Mumbai Tribunal in Automative Manufacturers and the present Appeal, it would be seen that they are basically the same. Thus, the decision of the Tribunal in Automative Manufacturers (P.) Ltd would conclude the controversy in favour of the Appellant. Automative Manufacturers (P) Ltd. were collecting handling for the parts procured from the warehouse, while the Appellant is charging handling cost for the charges incurred in bringing the vehicles from the warehouse to the showroom. The sale invoices in both the cases include in the said charges. What needs to be noted is that though the Appellant had specifically referred to the decision of the Tribunal in Automative Manufacturers Ltd, both before the Joint Commissioner as also before the Commissioner (Appeals), yet neither the Joint Commissioner nor the Commissioner (Appeals) have made any reference to this decision. This decision, which has a great bearing on the controversy, should have been noticed and in case, the Joint Commissioner or the Commissioner (Appeals) thought that it was not applicable, should have distinguished. However, these decisions have not even been considered by the Joint Commissioner or the Commissioner (Appeals). Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the Appellant is required to pay VAT on handling/logistic charges under the VAT Act or service tax under the Finance Act.2. Validity of the demand for service tax, interest, and penalties on handling/logistic charges.3. Applicability of previous tribunal decisions and Supreme Court rulings on the case.Detailed Analysis:1. VAT vs. Service Tax on Handling/Logistic Charges:The core issue is whether the handling/logistic charges collected by the Appellant should be subjected to VAT under the VAT Act or service tax under the Finance Act. The Appellant, a dealer of Maruti Udyog Ltd., collected handling/logistic charges from customers over and above the ex-showroom vehicle price, which was disclosed separately in the bills. The Appellant argues that these charges, ranging from Rs. 2500 to Rs. 5500, cover expenses like transportation, maintenance, and initial fuel supply, and hence VAT was paid on this amount as per the Rajasthan VAT Act, 2003.The Commissioner (Appeals) dismissed the Appellant's contention, stating that the logistic charges were collected separately for services provided, such as moving the vehicle from the stockyard to the showroom, maintenance, and upkeep, and hence should be subjected to service tax. The Commissioner (Appeals) noted that these activities fall under the definition of 'service' and cannot be included in the value of goods for VAT purposes if they are charged separately.2. Demand for Service Tax, Interest, and Penalties:A show cause notice was issued to the Appellant for not paying service tax on the handling/logistic charges from July 1, 2010, to July 31, 2015. The notice demanded service tax of Rs. 79,58,858, interest under Section 75 of the Finance Act, and penalties under Sections 77(2) and 78 of the Finance Act. The Appellant contended that VAT was paid on these charges as they were part of the sale price, relying on a decision by the Mumbai Tribunal in Automative Manufacturers (P.) Ltd. The Joint Commissioner, however, confirmed the demand with penalties and interest, which was upheld by the Commissioner (Appeals).3. Applicability of Previous Tribunal Decisions and Supreme Court Rulings:The Appellant relied on the Mumbai Tribunal's decision in Automative Manufacturers (P.) Ltd., which held that handling charges for bringing parts from the warehouse to the service station form part of the value of goods sold and are subject to VAT, not service tax. The Tribunal in that case noted that handling charges incurred in connection with the procurement of goods should be included in the value of goods sold, and hence VAT liability should be discharged on this amount.The learned Authorised Representative of the Department argued that the Appellant rendered a taxable service and hence should pay service tax, citing Supreme Court decisions in Bharat Sanchar Nigam Ltd., Idea Mobile Communication Ltd., and Larsen & Toubro Ltd. However, these cases were distinguished as they dealt with different contexts, such as the nature of mobile phone connections and indivisible works contracts.Judgment:The Tribunal concluded that the handling charges collected by the Appellant should be treated as part of the sale price and subject to VAT, not service tax. The Tribunal emphasized that the decision in Automative Manufacturers (P.) Ltd. was directly applicable and should have been considered by the lower authorities. The Tribunal set aside the order dated May 28, 2019, passed by the Commissioner (Appeals) and allowed the appeal, ruling that service tax could not be charged on the handling/logistic charges.Conclusion:The Tribunal's judgment clarifies that handling/logistic charges, when included in the sale price and subjected to VAT, should not attract service tax. The decision underscores the importance of adhering to previous tribunal rulings and the need for lower authorities to consider relevant case law when making determinations. The appeal was allowed, and the order of the Commissioner (Appeals) was set aside.