SERVICE TAX ON INCENTIVES

[JOSHIL JAIN]

Dear Sir,

 

One of my clinent is getting  incentives on sales of Car such as Target incentives, Annual Incentives, Balance Score Card ( after annual evaluation) and Cash Back Scheme ( discount offered to customers and getting back from company) . Besides sales of car it also runs workshop and getting labour charges which is taxable service. Please advise whether all the incentives mentioned above are taxable or not after introudction of Negative List.

Thanks and best regards

[YAGAY andSUN]

Yes, these incentive are very well covered under 'BAS' and taxable under Negative list regime.

[CASeetharaman KC]

This is still a grey area and there are tribunal decisions where these target incentives have been excluded from service tax although the revenue has taken a stand that it is taxable under BAS. One such decision  is in the following case:

2006 (12) TMI 61 - CESTAT, BANGALORE

EURO RSCG ADVERTISING LTD. Versus COMMISSIONER OF C. S. T., BANGALORE

Other Citation: 2007 (7) S.T.R. 277 (Tri. - Bang.)

 

[JaysonJacob Mathew]

JOSHIL JAIN,

This is a highly disputable area. I had a similar case, by seeing the facts I presume your client is a dealer of maruthi vehicles.

 You need not pay any tax on incentive received from manufacturer, since the relationship between the dealer and manufacturer is of principal to principal relationship.

Incentives received by vehicle dealers is a discount, this  concept is not easily digested by ST people because they think discount is received directly on purchase .

You can refer these case laws

1) Tata motor insurance service ltd (2007 (8) TMI 638 - CESTAT BANGALORE)

2) Uttam Toyota  (2011 (1) TMI 728 - CESTAT, NEW DELHI )

3) Infinuim Motors (2011 (7) TMI 152 - CESTAT, AHMEDABAD)

AI Summary

Service tax on dealer incentives: contested classification as Business Auxiliary Services versus trade discount treatment. Whether incentives paid by a manufacturer to a vehicle dealer attract service tax under the Negative List regime is contested. Revenue treats such receipts as consideration for Business Auxiliary Services and taxable, while contrary arguments view them as trade discounts or principal-to-principal adjustments. Tribunal decisions excluding similar incentives are cited, and the issue is described as fact-sensitive and highly disputable.