2026 (2) TMI 1275 - AT - Service Tax

Trade discounts treated as sale consideration, not Business Auxiliary Service; target-based dealer incentives therefore fall outside service tax.

Incentives paid by a manufacturer to an authorised dealer for meeting sales targets are trade discounts forming part of the sale consideration and not ... Business Auxiliary Service - principal-to-principal basis - incentives as trade discounts forming part of sale price - transfer of property in goods excluded from definition of service - transaction specific consideration versus general performance based incentives - negative list of services - HELD THAT:- We find that the short issue involved in the present case is whether the incentives received by the appellant from the manufacturer MSIL in relation to sale of motor vehicles by reaching the sale target is leviable to service tax under the category of Business Auxiliary Service during the relevant periods. This issue is no more res integra which has been addressed by this Tribunal in the case of Bangalore Motors Pvt. Ltd. [2024 (7) TMI 1255 - CESTAT BANGALORE]. Thus, we are of the view that the impugned orders cannot be sustained. Consequently, the same are set aside and appeals are allowed with consequential relief, if any, as per law. Issues: Whether incentives/discounts paid by the manufacturer to an authorised dealer on achieving sales targets are leviable to service tax under the category of Business Auxiliary Service for the relevant periods.Analysis: The dispute concerns incentives granted by a manufacturer to an authorised dealer for meeting sales targets. The tribunal applied precedent holdings that dealers operate on a principal-to-principal basis under their dealership agreements and that such incentives constitute trade discounts forming part of the sale price of goods rather than payment for any service. The tribunal examined authorities which hold that target-based incentives are not attributable to any particular supply and thus do not amount to taxable consideration for service tax; it also relied on the exclusion of transfer of property in goods from the definition of service under Section 66D of the Finance Act, 1994. The factual matrix-purchase from manufacturer and onward sale to end customers by the dealer-was treated as sale transactions where incentives reduce the sale value and are reflected in statutory sales records, supporting classification as trading activity and not as provision of business auxiliary services.Conclusion: The incentives/discounts received by the dealer are not exigible to service tax under Business Auxiliary Service; the impugned service tax demands are set aside and the appeals are allowed.Ratio Decidendi: Incentives paid by a manufacturer to an authorised dealer for achieving overall sales targets are trade discounts forming part of the sale consideration and are not transaction-specific consideration for a service; such payments are not taxable as business auxiliary services and are covered by the exclusion of transfer of property in goods under Section 66D of the Finance Act, 1994.