2024 (11) TMI 921 - AT - Service Tax

Dealer's target-based incentives from manufacturer not taxable as business auxiliary service under Section 65(19)

Steel Bhandar Versus Commissioner of Central Goods & Service Tax, Faridabad

The CESTAT Chandigarh held that an authorized dealer's activities did not constitute business auxiliary service under Section 65(19) of the Finance Act. ... Demand of Service Tax and penalties - appellant and SAIL appellant has been appointed as the authorized dealer for sale of GP Coils/GP Sheets - whether the activity carried on by the appellant falls under the business auxiliary service as defined in Section 65 (19) of the Finance Act? - whether the appellant can be called Commission Agent rendering business auxiliary service? HELD THAT:- The goods are purchased from SAIL for which the appellant pays to SAIL on its own account as an owner of the said goods. The appellant is also registered with VAT/Sales Tax during the relevant period and has been paying VAT/Sales Tax. The Transaction between SAIL and the appellant dealer was on principal to principal basis and the discount of 1.5% was an incentive for lifting the specified quantity of 300 MTs per month. We also find that this issue has been examined by the Tribunal in various cases relied upon by the appellant cited (Supra). We also find that recently the Tribunal of Mumbai, in the case of My Car (Pune) Pvt. Ltd. [2023 (6) TMI 995 - CESTAT MUMBAI] held that Department does not dispute that there was such agreements, scheme between the appellant in the car manufacturers and the account of the appellant only reflect the actual discount allowed to them. Department's argument is that the said discount/commission is in view of services rendered by the appellant by way of popularisation of the sales and consumption of the products by the end customer. We find it difficult to accept the conclusion arrived at in the impugned order that all the discounts/commission/incentives given by the manufacturer for the various types of targets achieved in terms of the number of vehicles sold under a particular model/category, consistent achievement of targets by each quarter, exchange bonus etc., are to be treated as compensation for the services rendered by the appellants by way of popularization of sales and purchase of the cars of the manufacturer. The element of sales promotion or marketing services is involved only when the appellants provide some service to the end customer in sale of the cars. If the discounts/commission/incentives are given in terms of the specific schemes or an agreement entered by the manufacturer of car with the appellants, then such transaction cannot be overstretched to categorize it as service for the purpose of charging service tax. Also assessed respondent is the authorized dealer of car manufactured by MUL and are getting certain incentives in respect of sale target set out by the manufacturer. These targets are as per the circular issued by MUL. Hence these cannot be treated as business auxiliary service. In respect of sales/target incentive, the Revenue wants to tax this activity under the category of business auxiliary service. We have gone through the circular issued by MUL which provides certain incentives in respect of cars sold by the assessee-respondent. These incentives are in the form of trade discount. In these circumstances, we find no infirmity in the adjudication order whereby the adjudicating authority dropped the demand. Issues:Appeal against demand of Service Tax and penalties under Finance Act, 1994.Analysis:The case involved an appeal against an order confirming a demand of Service Tax and imposing penalties under the Finance Act, 1994. The appellant, engaged in trading of Iron and Steel Products as an authorized dealer of SAIL, was subjected to a demand of Service Tax based on a show cause notice issued by the Assistant Commissioner. The appellant contested the charges, arguing that they were not acting as a Commission Agent but as an authorized dealer of SAIL, purchasing goods on their own account and selling them as the owner. The appellant also highlighted their registration with VAT/Sales Tax and produced invoices as evidence. The appellant's counsel argued that the discounts received were a common trade practice and not subject to Service Tax, citing various judicial decisions in support of their position.The Tribunal examined the agreement between the appellant and SAIL, the nature of transactions, and the discounts received. The Tribunal noted that the appellant was appointed as an authorized dealer by SAIL and operated on a principal-to-principal basis. The discounts received were incentives for achieving specified quantity targets and were not subject to Service Tax. The Tribunal referred to previous decisions, including those by the Tribunal of Mumbai, to support their conclusion that discounts received by dealers are not liable to tax as business auxiliary services. The Tribunal emphasized that the discounts were part of normal trade practices and did not constitute services for the purpose of charging Service Tax.In a detailed analysis, the Tribunal scrutinized the nature of the appellant's activities, the relationship with SAIL, and the legal provisions regarding business auxiliary services. The Tribunal highlighted that the discounts received were in line with trade practices and did not amount to services subject to Service Tax. By relying on precedents and legal principles, the Tribunal concluded that the impugned order was not sustainable in law. Consequently, the Tribunal allowed the appeal of the appellant and set aside the order, providing for consequential relief as per the law.