2024 (11) TMI 667 - AT - Service Tax

Vehicle dealers not liable for service tax on manufacturer discounts and booking cancellation charges

COMET CAR SALES AND SERVICE PRIVATE LIMITED, SHRI JIGNESH RAJKUMAR MEHTA, HITENDRA AMRUTLAL NANAVATI, NANAVATI PRIVATE LIMITED Versus COMMISSIONER OF C.E. & S.T. -SURAT-I And COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, VADODARA-II Versus RB CARS PVT LTD

CESTAT Ahmedabad ruled that service tax is not leviable on discounts/incentives received by vehicle dealers from manufacturers based on yearly sales ... Service tax on discount/ incentive from the vehicle manufacturer by the appellant being the dealer - appellant being a dealer, purchase the vehicles from M/s Maruti Suzuki India Private Limited/ M/s Renault India Private Limited and subsequently, sell the same to the various customers - HELD THAT:- The vehicle manufacturer M/s Maruti Suzuki India Private Limited/ M/s Renault India Private Limited on the basis of yearly performance of sale grants the discount to the dealer, this discount is nothing but a discount in the sale value of the vehicle sold throughout the year therefore, these sales discount in the course of transaction of sale and purchase of the vehicles, hence, the same cannot be considered as service for levy of service tax. This issue is no longer res-integra as the same has been decided in the various judgments cited by the appellant. See B M Autolink [2022 (12) TMI 12 - CESTAT AHMEDABAD] Booking cancellation charges - There is no provision of service made towards such cancellation. In the case of Divine Autotech Private Limited [2024 (6) TMI 1329 - CESTAT NEW DELHI] it was held that booking cancellation charges for motor vehicles received by Appellant is in the nature of compensation and not consideration for service. Further the CESTAT placed reliance on Circular No. 178/10/2022-GST dated August 3, 2022 wherein the issue of cancellation charges has been dealt with at length. Therefore, no service tax could be charged on them. The amount received as discount/ incentive from the vehicle manufacturer by the appellant being the dealer is not liable to service tax and service tax is also not leviable on the booking cancellation charges. Issues Involved:1. Whether the incentives and discounts received by the appellants from vehicle manufacturers are subject to service tax.2. Whether the booking cancellation charges received by the appellants are subject to service tax.3. Applicability of the extended period for demand and imposition of penalties.Detailed Analysis:1. Incentives and Discounts:The primary issue in this case was whether the incentives and discounts received by the appellants from vehicle manufacturers, namely Maruti Suzuki India Private Limited (MSIL) and Renault India Private Limited (RIPL), are subject to service tax. The appellants argued that these incentives are in the nature of trade discounts or volume-based discounts, forming an inherent part of the sale price and thus inseparable from the sale transaction itself. They contended that the transactions between them and the manufacturers are on a principal-to-principal basis, not involving any service provision.The tribunal agreed with the appellants, emphasizing that the relationship between the appellants and the manufacturers is purely commercial, based on principal-to-principal transactions. The incentives and discounts are granted based on the performance of sales and are essentially a reduction in the sale price of vehicles, not consideration for any service. The tribunal referred to several precedents, including the Larger Bench decision in Kafila Hospitality and Travels Pvt Ltd., which held that target-based incentives do not constitute a service. Thus, the tribunal concluded that these incentives and discounts are not liable to service tax.2. Booking Cancellation Charges:The second issue was whether booking cancellation charges received by the appellants are subject to service tax. The appellants argued that these charges are compensatory in nature, not consideration for any service rendered. They relied on the decision in Divine Autotech Private Limited v. CCT, where it was held that such charges are compensation, not consideration, and thus not subject to service tax.The tribunal agreed with this argument, citing Circular No. 178/10/2022-GST and various judicial precedents, including Lemon Tree Hotel v. CGST, which established that cancellation charges do not amount to consideration for a service. Consequently, the tribunal held that booking cancellation charges are not exigible to service tax.3. Extended Period and Penalties:The appellants also contested the invocation of the extended period for demand and the imposition of penalties, arguing that there was no fraud, suppression, or malafide intention to evade tax. They claimed that the issue involved interpretation of the scope of 'service' and 'declared service', which inherently involves legal interpretation and thus should not attract penalties.The tribunal found merit in the appellants' argument, noting the absence of any fraudulent intent or suppression of facts. Given the nature of the dispute, which revolved around the interpretation of complex legal provisions, the tribunal concluded that the extended period was not applicable and penalties were unwarranted.Conclusion:The tribunal set aside the impugned orders, allowing the appeals with consequential relief. It was determined that neither the incentives and discounts received from the manufacturers nor the booking cancellation charges were liable to service tax. Additionally, the extended period for demand and penalties were deemed inapplicable due to the absence of any fraudulent intent or suppression by the appellants.