AI Drafter 
TaxTMI 
TaxTMI 
2024 (4) TMI 66
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....ngaged in providing servicing of aforesaid vehicles of Tata and Hyundai Brand from their various automobile service centers situated at different places under the tradename of 'Kamal Motors'. The appellants were also providing trucks on hire basis to various Goods Transport Agencies (GTA) for transportation of goods. Besides these activities, the appellants were also engaged in trading of 'tyers and cement' under the name and style of 'Bindhiya Trading Company (BTC)'. For the purpose of payment of service tax on taxable services the appellants had registered separately for various locations of their business with the jurisdictional Service Tax Commissionerate. 2.2 During the course of EA 2000 Audit conducted by the Department in September, 2015 covering the activities of the appellants for the financial years 2011-2012 to 2014-2015, it was noticed by the department that they were providing taxable services as well as exempted services; they had availed Cenvat credit on common input services within each of the registered locations, which in certain cases the credit was foregone and had also reversed certain amount of Cenvat credit taken on common inputs which the audit identified....
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....hicles to associates, in course of its business activities falls under the category of 'Business Support Services' (BSS) as defined under Section 65 (104c) read with Section 65(105) (zzzq) of the Finance Act, 1994; (ii) whether the services in relation to business promotion activities provided/rendered in the course of business activities falls under the 'Business Auxiliary Services' (BAS) services as defined under Section 65 (19) read with Section 65(105) (zzb) ibid; (iii) whether the services involved in 'servicing of vehicles' during the 'free warranty' period provided/rendered during the course of its business activities falls under the 'Authorised Service Station' services as defined under Section 65 (62) (72) & (73) read with Section 65(105) (zo) ibid; (iv) whether the method adopted by the appellants assessee by foregoing certain amount of Cenvat credit in respect of provision of exempted service is correct in terms of provisions of Rule 6(3A) of CCR, 2004; and (v) whether penalty is impossible on appearance under Section 77, 78/76 ibid. Upon examination of each of the above issues, the learned Commissioner had decided these issues by c....
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....et Dealer Price to customers in such case shall be the discounted price of the vehicles. Thus, learned Advocate had claimed that the discounts/ incentives offered by TATA and HYUNDAI are nothing but reduction in final purchase price of vehicles which is subjected to applicable VAT and there are no services involved in these sales of vehicles. 3.2 Learned Advocate also stated that the appellants also incur various expenses, jointly by dealers and manufacturers, for promotion of sales of vehicles and such expenses are shared among them in agreed ratio. Further, while arranging loan for purchase of vehicles by customers through banks / financial institutions certain amount was offered as interest subvention, by reimbursement from manufacturers to the appellants, to the benefit of ultimate customers. Further, every sale of new vehicles is provided with free services during the warrant period as a part of standard sale arrangement and the value of such services are embedded in the selling price of vehicles. Thus, these transactions are not in the nature of service but is a sale which is subject to State VAT. As regards reversal of Cenvat credit, he stated that the appellants render n....
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....llants is need not be entertained. 5. We have heard both sides and perused the case records and the written paper books submitted in this regard. 6.1. The main issues arising out of the Show Cause notice proceedings under three SCNs have been summarized by the learned Commissioner in the impugned order and the same is summarized at paragraph 2.3 above. The period of dispute in this case relates to 01.04.2011 to 30.06.2017. In order to examine in detail, the facts and legal position on each of the above issues, we would firstly like to refer to the relevant legal provisions under the Finance Act, 1994 as follows: "Finance Act, 1994 65. (105) "taxable service" means any service provided or to be provided,- (a) .... xx xx xx xx xx (zo) to any person, by any other person, in relation to any service for repair, reconditioning, restoration or decoration or any other similar services, of any motor vehicle other than three wheeler scooter auto-rickshaw and motor vehicle meant for goods carriage; xx xx xx xx  ....
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.... (b) "excisable goods" has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944 (1 of 1944); (c) "manufacture" has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944);" 65. (104c) "support services of business or commerce" means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, 1[operational or administrative assistance in any manner], formulation of customer service and pricing policies, infrastructural support services and other transaction processing" 65. (62) "light motor vehicle" means any motor vehicle constructed or adapted to carry more than six passengers, but not more than twelve passengers, excluding the driver;" 65. (72) "motor car" has the meaning assigned to it in clause (26) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988); ^1 Substituted for "....
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....r actionable claim" shall not include- (i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; (ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out- (a) by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998); (b) by a foreman of chit fund for conducting or organising a chit in any manner. ^2Omitted by the Finance Act, 2011, w.e.f. 1-5-2011. Explanation 3.- For the purposes of this Chapter,- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territor....
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....above issue. "In view of the above, I hold that the said service/business promotion rendered to Tata Motors falls under the category of Business Actually Services and is subject to payment of service tax. Held accordingly." (B)(i) Reimbursement of joint promotion expenses recovered from the principal: (page 59 of impugned order) "In view of the decision of the Hon'ble CESTAT, WZB, Mumbai in the case of M/s Tata Motors Ltd. in Appeal Nos. E/1362 to 1365/2012 vide Order dated 25.03.2014 and the case of M/s HDFC Bank Ltd. in Service Tax Appeal No.85741 of 2014 vide Order dated 13.09.2019, as discussed above, I hold that the said service/business promotion rendered to Tata Motors falls under the category of Business Auxiliary Services and is subject to payment of service tax. Held accordingly." (B)(ii) Amount of sale consideration received from the principal for the sale price of vehicle whether amounts to subvention: (page 60 of impugned order) "In view of the decision of the Hon'ble CESTAT, WZB, Mumbai in the case of M/s Tata Motors Ltd. in Appeal Nos. E/1362 to 1365/2012 vide Order dated 25.03.2014 and the case of M/s HDFC Bank Ltd.....
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....'other income'. This shows the mens rea that they intended to make illegal gains at the cost of the government exchequer. ... In view of the above, I hold that mandatory penalty is impossible on the assessee under Section 78 of the Finance Act, 1994. I do not propose to impose penalty under Section 76. The penalty under Section 77 is also impossible since the assessee have failed to self-assess service tax & file correct ST-3 returns." 7.2 As regards the issue relating to levy of service tax in respect of services provided in relation to business promotion activities in course of appellant's business activities, the facts of the case need to be examined along with the legal position in respect of levy on payment of service tax. From the facts of the case, we find that the various schemes under which the discount/incentives were received by the appellants from the manufacturer of motor vehicles by way of credit notes, were essentially in the nature of schemes conceptualized by such manufacturer wherein the discount given to the ultimate consumer is borne by both the manufacturer and the appellants dealer. As per such schemes, the appellants had forwa....
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.... indicate that the effective 'Net Dealer price' by which the vehicles are sold to the ultimate consumers have taken into account the various benefits/incentives and the net sale price of the vehicles to the ultimate customer have passed on such benefits/ incentives offered under various schemes of the manufacturer. 7.4. We find from the impugned order, that the learned Commissioner had heavily relied upon the Order of the Tribunal in the case of Tata Motors Ltd. Vs. Commissioner of Central Excise, Pune vide Final Order Nos. A/200-203/2014-WZB/C-II(EB), dated 25-3-2014 passed in Appeal Nos. E/1362-1365/2012 reported in 2015 (328) E.L.T. 321 (Tri. - Mumbai). On perusal of the facts of the above referred case, we find that the said order is clearly distinguishable from the present set of facts in the case before us, as evident from paragraph 5.14 of the said Order, which is extracted below: "5.14 Dealership Agreement M/s. TML has submitted on record one Representative Dealership Agreement dated 15-11-2007 with M/s. Concorde Motors India Limited. On a perusal of this agreement, it is seen that it does not provide for any kind of discount to the dealer(s) on s....
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....with respect to the facts of the case laws relied upon by the learned Commissioner, we are of the considered view that the confirmation of the demand on the services provided in relation to business promotion activities by the appellants in the course of their business activities in the impugned order is not legally sustainable. 7.7 We further find that the issue of incentives offered by a manufacturer to their dealer, whether taxable for payment of service tax, have been decided in a number of Orders passed by the Tribunal. In the case of Commissioner of Service Tax, Mumbai Vs. Sai Service Station Ltd. (supra), the Tribunal has held that the incentives on account of achievement of sales target cannot be treated as Business Auxiliary Service. The relevant paragraph is extracted and given below: "14. In respect of the incentive on account of sales/target incentive, incentive on sale of vehicles and incentive on sale of spare parts for promoting and marketing the products of MUL, the contention is that these incentives are in the form of trade discount. The assessee respondent is the authorized dealer of car manufactured by MUL and are getting certain incentives in ....
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.... incentives offered for achieving targets are not leviable to service tax. The relevant paragraphs are extracted and given below: "Whether incentives paid for achieving targets are taxable? 72. The contention advanced by Learned Counsel of the interveners is that incentives cannot be construed as "consideration" and if it is so, no service tax can be levied on this amount because under Section 67 of the Finance Act, service tax is leviable on "consideration", which is the gross amount charged by the service provider for rendering a particular taxable service. 73. It would, therefore, be appropriate to examine the scope of the term "incentives". Incentives are generally given to encourage performance of a party. The factual position described above, reveals that incentives have been paid by the airlines or CRS Companies to travel agents when they achieve a pre-determined target of sales. 74. The relevant portion of Section 67 of the Finance Act, on which reliance has been placed by Learned Counsel for the appellant, is reproduced below :- "67. (1) Subject to the provisions of this Chapter, where service tax is chargeable on any....
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....nsideration, which is taxable under Section 67 of the Finance Act, should be transaction specific. Incentives, on the other hand, are based on general performance of the service provider and are not to be related to any particular transaction of service. It needs to be noted that commission, on the other hand, is dependent on each booking and not on the target. If the air travel agent does not achieve the predetermined target, incentives will not be paid to the travel agents. 78. In this connection it will be appropriate to take note of the decision of the Federal Court of Australia AP Group. The Federal Court of Australia held that in order to levy tax, the payment must be attributable to a particular supply and not to supplies in general and so the target incentives paid by a motor vehicle manufacturer to a dealer would not qualify as consideration as the incentives would be in relation to all supplies and not in relation to a particular supply. The relevant portion of the decision of the Federal Court is reproduced below :- "17. Insofar as the Ford "retail target incentive" payments are concerned, Ford agreed with its dealers to pay certain sums of money to dea....
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....ealer will always wish its ordering arrangements to be the most efficient and economically beneficial to it. The manufacture will have the same objectives. It is this context which underpins the Tribunal's conclusion that the payments are not for the supply of anything by the dealer. As the Tribunal said at [86] the dealer (which must be inferred to act in an economically rational manner in the ordinary course) will always want to run the business in this way. The fact that the dealer receives a payment as an incentive when certain thresholds associated with running the business in this way does not mean that the dealer is supplying a service to the manufacturer for consideration. If the incentive payment were not available there is no basis to infer that the dealer would not behave in the same way for free. For these reasons there cannot be said to be any supply for consideration in these arrangements." (emphasis supplied) 79. Reference can also be made to the decision of this Tribunal in Rohan Motors Limited v. Commissioner of Central Excise, Dehradun [2020 (12) TMI 1014-CESTAT NEW DELHI]. The Tribunal held that incentives are not leviable to service tax. The re....
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....individually or collectively. The expenditure incurred in procuring such services is then allocated to the concerned Group Company/Companies in a pre-determined ratio and are subsequently recovered by the Appellant. The amount so recovered by the Appellant are only towards the actual amounts payable by the Appellant to the third party vendors or Service providers. The Appellant has not recovered any amount over and above the actual expenses incurred by it in facilitating the provision of common services to its Participating Group Companies. The Appellant has made the payment to the third party vendors or service provider for procurement of specified services on behalf of the Participating Group Companies. The services so procured by the Appellant has been used or availed by the Participating Group Companies. Having used the services Participating Group Companies in law would be liable to make the payment directly for such services to third party vendors or service providers, however, for convenience such payment has been routed through the Appellant under the pass through mechanism. The Participating Group Companies have authorized the Appellant to procure the services. Such author....
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....nguished from sales promotion which have been explained by stating that this is not the case where the appellant is advising the end customers to buy the cars supplied by the manufacturer amongst various choices available to the customer in the car market for earning the commission/incentives which could be treated as sales promotion. Accordingly, the Tribunal have held that the incentives/ commission is solely related to trade discounts for sale of cars in accordance with the regular practice as well as the agreement/schemes that were in vogue in the industry, and these cannot be treated as compensation received by the appellant for any services provided to the car manufacturer. The relevant paragraphs of the above Order is extracted and given below: "6.2 We find that the relevant sub-clause invoked in the impugned order is relating to "(i) promotion or marketing or sale of goods produced or provided by or belonging to the client". From the discussion in impugned order at para 22.05.05 with illustrated invoice, it is very clear that M/s MSIL is the manufacturer of car and they sell the car to the appellants under an invoice indicating the assessable value and various comp....
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....y 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. This aspect has been explained in the CBIC Circular No. 87/05/2006-ST dated 6-11-2006 as follows: "Circular No. 87/05/2006-S.T., dated 6-11-2006 F. No. 137/128/2006-CX. 4 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise & Customs, New Delhi *** Subject : Service tax issues relating to authorized motor vehicle dealers and service stations - Reg. It has been brought to the notice of the Board that certain doubts have arisen in respect to activities undertaken by authorized motor vehicle dealers and service stations. The issues are as mentioned below:- (a) Whether the mark-up (profit) on the spare parts sold by a service station during the servicing of vehicles is liable to payment of service tax? (b) Whether exemption can be claimed on the cost of consumables that get consumed during the course of providing service? (c) Whether 'free services' given by the authorized deale....
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.... (i.e., the financial institution), and are therefore covered under 'taxable service', namely, the "Business auxiliary service". The tax is payable on the gross commission received by the automobile dealer. In some cases, the dealers share part of their commission with their customers to attract them. However, this is an independent transaction between the automobile dealer and the purchaser of the vehicle, and does not involve the service rendered by the automobile dealer to the finance company. Therefore, the tax payable by the dealer would be on the gross amount received from the financial company and not on the balance amount, i.e., after excluding the amount that he passes on to the customer. 5. As regards the applicability of service tax on the activity of servicing/repairing of the commercial vehicles, it is clarified that as regards 'authorized service stations', the taxable service, means any service provided or to be provided, to a customer, by an authorized service station, in relation to any service, repair, reconditioning or restoration of motor cars, light motor vehicles or two wheeled motor vehicles, in any manner. Further, a 'light motor....
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..... The assessee 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. ... 18. 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. Hence, the appeal filed by the Revenue has no merit." We further find that this case was appealed before the Hon'ble Supreme Court in Civil Appeal No(s). 690-691 of 2015 and the Apex Court had ordered for remand of the matter to the Tribunal for afresh consideration only of the issue of penalty on the appellant, as the same has not been considered in spite of rectification of mistake application having been filed. 6.4 Further, ....
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.... two appeals are Rs. 1,58,69,430/-and Rs. 1,57,12,236/-; the impugned order holds appellant liable to tax on commission earned on sale of cars, on facilitation charges collected from customers for registration of vehicles and commission foregone on loans marketed by appellant to customers. It is the contention of the appellant that these are not consideration leviable to tax and that, even if these are, the adjudicating authority has erred in computing the tax liability. As the issues in the two appeals are common, we dispose both by a common order. 3. Appellant contends that Rs. 81,35,813/- and Rs. 1,21,47,133/- for the two periods has been wrongly subjected to tax because the agreement between the appellant and M/s. Toyota Kirloskar Motor Limited is one of supply of vehicles by the latter on 'principal-to-principal' basis on which title and risk, as per Agreement, are passed on to appellant when the vehicles are excise cleared and placed on common carrier. Depending on order quantity, the manufacturer raises invoices after according discounts which are designated as commission/incentive merely as a management terminology. Learned Chartered Accountant for appellan....
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....al Excise, Pune-I Vs. Sai Service Station Ltd. (supra), by setting aside the service tax demand. The relevant paragraph of the said Order is extracted and given below: "4.1 We find that the issue is no more res integra as identical issue came up before the Tribunal in the case of CCE Vs. Automotive Manufacturers Ltd. - 2016 (42) S.T.R. 448 (Tri.-Mum.) wherein the Tribunal held that service tax liability cannot be on the part of margin given by the manufacturer to the dealers being inclusive of the charges of free sale service. Further, we find that this Principal Bench of the Tribunal in the Case of My Car Private Limited - 2015 (40) S.T.R. 1018 (Tri. - Del.) was considering the same issue and in respect of the same manufacturer of car i.e., Maruti Udyog Limited after analysing the entire provisions in the agreement, the Tribunal upheld the contentions of the appellant therein and set aside the demand raised on the similar issue. Same ratio has been held by this Tribunal in the case of in the Hindustan Auto House (P) Ltd. - 2009 (13) S.T.R. 190 (Tri. - Del.)." 8.2 On the issue of reversal of Cenvat credit in terms of Rule 6(3A) of Cenvat Credit Rules, 2004, we fin....