2023 (6) TMI 243 - AT - Service Tax

Service tax on incentives and advertisement expenses disallowed by Tribunal. Appeal allowed with consequential reliefs.

The Tribunal ruled in favor of the appellant, holding that the demands for service tax on both the incentives received from the manufacturer and the ... Business Auxiliary Services - principal-to-principal dealer relationship - incentives/discounts as trade discounts forming part of sale consideration not leviable to service tax - reimbursable expenses not subject to service tax - reliance on Apex Court precedent in IntercontinentalBusiness Auxiliary Services - principal-to-principal dealer relationship - incentives/discounts as trade discounts forming part of sale consideration not leviable to service tax - Whether incentives/discounts received by the dealer from the manufacturer for achieving sales targets are exigible to service tax under Business Auxiliary Services. - HELD THAT: - The Tribunal held that the appellant purchased vehicles from the manufacturer and resold them to customers on a principal-to-principal basis; the incentives received were discounts linked to the sale transaction and for mutual commercial benefit of dealer and manufacturer. Reliance was placed on prior Tribunal authorities which concluded that such trade discounts/incentives are not consideration for any service and therefore are not liable to service tax under the category of Business Auxiliary Services. Following those precedents, the Tribunal concluded that service tax could not be levied on the incentives received. [Paras 10]Demand of service tax on the incentives received by the appellant is unsustainable and is set aside.Business Auxiliary Services - reimbursable expenses not subject to service tax - reliance on Apex Court precedent in Intercontinental - Whether reimbursement of advertisement expenses received by the dealer from manufacturer and finance company is exigible to service tax under Business Auxiliary Services. - HELD THAT: - The Tribunal examined the annexure to the show cause notice and found that the amounts were reimbursements of actual advertisement expenses incurred by the appellant. It applied the principle affirmed by the Supreme Court in Intercontinental that reimbursable expenses are not subject to service tax (prior to the relevant amendment/period). The Tribunal observed that the departmental authority relied upon by the Revenue did not consider the Apex Court decision and therefore was inapplicable. On this basis the Tribunal held the demand unsustainable. [Paras 11, 12]Demand of service tax on reimbursement of advertisement expenses is unsustainable and is set aside.Final Conclusion: The impugned order confirming demand of service tax, interest and penalty on (i) incentives/discounts received by the dealer and (ii) reimbursement of advertisement expenses is set aside; the appeal is allowed with consequential reliefs as per law. Issues Involved:1. Demand of service tax on incentives received by the appellant from the manufacturer for sale of cars.2. Demand of service tax on reimbursable expenses received towards advertisement charges.Summary:1. Demand of Service Tax on Incentives:The first issue pertains to the demand of service tax on the incentives received by the appellant from the manufacturer for the sale of cars. The appellant argued that the relationship with the manufacturer, M/s. Maruti Udyog Ltd., is that of a buyer and seller on a principal-to-principal basis. The incentives or discounts received for reaching sales targets should not be subject to service tax under the category of Business Auxiliary Services (BAS). The Tribunal referenced the definition of BAS under Section 65 (19) of the Finance Act, 1994, and previous judgments, including M/s. Rohan Motors Ltd. Vs Commissioner of Central Excise, Deharadun 2021 (45) GSTL 315 (Tri. Delhi) and BM Autolink Vs CCE., Kutch 2022 (12) TMI 12 CESTAT Ahmedabad. These cases established that incentives or discounts related to sales transactions cannot be subject to service tax, as the transactions are on a principal-to-principal basis and not as an agent of the manufacturer. The Tribunal concluded that the incentives received by the appellant cannot be treated as consideration for any service and thus are not leviable to service tax.2. Demand of Service Tax on Reimbursable Advertisement Expenses:The second issue involves the demand of service tax on reimbursable expenses received towards advertisement charges. The appellant received reimbursements from M/s. Maruti Udyog Ltd. and M/s. Sundaram Finance Ltd. for joint advertisement expenses. The appellant argued that these expenses were merely reimbursements and not consideration for any service rendered. The Tribunal relied on the judgment of the Hon'ble Supreme Court in Union of India Vs M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (3) TMI 357 (SC), which held that reimbursable expenses are not subject to service tax prior to 2015. The Tribunal found that the reimbursable expenses for advertisement cannot be subject to service tax, as they do not constitute consideration for any service.Conclusion:The Tribunal held that the demands for service tax on both the incentives received from the manufacturer and the reimbursable advertisement expenses cannot be sustained. The impugned order was set aside, and the appeal was allowed with consequential reliefs as per law.