Trade discounts under principal-to-principal dealership are not service tax for separate promotional service.

Target-based incentives and discounts received by an authorised motor vehicle dealer under a principal-to-principal dealership arrangement were treated as trade discounts linked to the sale of goods, not as consideration for any separate promotional or auxiliary service. Because the dealer purchased vehicles from the manufacturer and resold them on its own account, the receipts were held to arise from trading activity rather than Business Auxiliary Service. The analysis also noted that onward sale of goods involves transfer of property in goods and falls outside service tax, so the demand for service tax could not be sustained.

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Issues: Whether the incentives and discounts received by an authorised motor vehicle dealer under a dealership agreement on a principal-to-principal basis are liable to service tax as Business Auxiliary Service.

Analysis: The dealership arrangement showed that the dealer purchased vehicles from the manufacturer on a principal-to-principal basis and resold them to customers. The incentives were found to be trade discounts arising from the sale transaction and not consideration for any separate promotional service. The Tribunal relied on settled precedent holding that such target-based incentives are linked to overall business performance and are not transaction-specific consideration for service. It also noted that trading of goods falls within the negative list and that onward sale of vehicles involves transfer of property in goods, which is outside the scope of service tax.

Conclusion: The incentives and discounts were not taxable as Business Auxiliary Service and the demand could not be sustained.

Ratio Decidendi: Target-based incentives received by a dealer under a principal-to-principal sale arrangement, when they function as trade discounts linked to the sale of goods and not as consideration for a separate service, are not exigible to service tax.

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