credit notes and sales incentives received by automobile dealer

[satbir singhwahi]

Sir

Please guide the service tax liability on credit notes and sales incentives received by automobile dealer.

[Himansu Sekhar]

Sales incentives will attract service tax. Credit notes if are towards sale of goods, there will be no service tax.

[KASTURI SETHI]

Dear Sir,. I have no commerce background. What I understand credit notes are issued when you make payment by any reason. Hence, it being not consideration, no question of liability of Service Tax. Debit Notes are issued to receive any payment later on after the receipt of the amount against invoice. Such may be by virtue of escalation clause in agreement or increase in rate retrospectively. It is additional consideration and covered under Section 67 (3) of Finance Act for the purpose of payment of Service Tax on that amount. So debit notes are covered under Section 67 (3) and not credit notes.Regarding Sales incentive, such incentive is by virtue of 'sale' and not 'service'. Hence no question of Service Tax liability on sales incentive. If incentive is on account of taxable service directly or indirectly or hidden in any way or in lieu of exchanging something, then ST is required to be paid.

[satbir singhwahi]

Thanks Sir . The audit party has accepted what you said as to sale incentive and credit notes.

[KASTURI SETHI]

Welcome Sir.

[Ganeshan Kalyani]

Sri Kasturi Sir 's reply is to the point and nails the issue. The querist problem is solved in a day. Thanks Sir.

AI Summary

Service tax on sales incentives may apply; credit notes for goods sales generally not treated as taxable consideration. Sales incentives ordinarily arise from the sale of goods and are not service consideration and thus not subject to service tax unless they operate as consideration for a taxable service; credit notes reducing the price of goods do not attract service tax, while debit notes representing additional consideration are treated as taxable consideration under the finance law framework.