TaxTMI 
TaxTMI 
2026 (3) TMI 25
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....ling the same to its customers. Additionally, they were also providing certain aftersales services and value added services in respect of said services. The terms and conditions of these purchases and sales as well as after-sales services were in terms of Dealership Agreement dt.10.02.2017. The department felt that the respondents were receiving certain consideration from Tata Motors towards target based incentives and other incentives, viz., exchange bonus, loyalty bonus, scheme/additional discounts etc., which appeared to be consideration towards services rendered by the respondents to Tata Motors and on which no service tax was discharged. Based on perusal of certain financial statements and relevant documents including dealership agreement dt.10.02.2017, as also, the statements of certain persons of respondent, the department felt that, inter alia, certain activities were being performed by the respondents contractually and for which certain considerations were being received from Tata Motors in the nature of target based incentives/discounts as well as non-target based incentives/discounts or other discounts etc. It was also felt that the amounts credited by Tata Motors were n....
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....incipal basis. Similarly, in certain other cases, the leviability of service tax on target based incentives was not held tenable. He has relied on the following judgments. a) Satnam Auto Vs CCE & ST-I, Meerut [2017-VIL-109-CESTAT-Del-ST] b) Khadi & Village Industries Commission Vs CST [2014-TIOL-1703-CESTAT-Mum] c) AMR India Ltd Vs CCE & ST, Hyderabad-II [2015-TIOL-2834-CESTAT-Bang] d) Tradex Polymers Pvt Ltd Vs CST, Ahmedabad [2014 (34) STR 416 (Tri-Ahmd)] e) Garrisson Polysacks Pvt Ltd Vs CST, Vadodara [2015 (39) STR 487 (Tri-Ahmd)] f) CCE, Chandigarh Vs Facinate Advertising & Marketing [2013 (31) STR 77 (Tri-Del)] g) Kerala Publicity Bureau Vs Commissioner [2008 (9) STR 101 (Tri-Bang)] h) Euro RSCG Advertising Ltd Vs CST, Bangalore [2007 (7) STR 277 (Tri-Bang)] i) Commercial Auto Dehradun Vs CCE & ST, Meerut [2018 (6) TMI 807 - CESTAT New Delhi] j) P Gautam & Co Vs CST [2011 (24) STR 447 (Tri-Ahmd)] 5. They also relied on the Larger Bench decision in the case of Kafila Hospitality and Travels Pvt Ltd Vs CST, Delhi [2018-VIL-760-CESTAT-DelST] and also the fact that the SCN issued on simil....
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....he impugned order and, inter alia, felt that the said order is not legal and proper and therefore, filed the present appeal. They have essentially taken the grounds that the dealership agreement contractually binds respondent to perform certain activities and certain obligations to be undertaken by the respondents towards Tata Motors, which, inter alia, included effective promotion and sale of the products and to professionally do after sales service and therefore, for such activities and performances, Tata Motors were paying certain amounts by calling them as target based and non-target based/ other incentives, bonus, etc., which were administered through various circulars issued from time to time. It has also been submitted that the contractually obligated activities being performed by the respondents bear the distinct identity and character of being an entirely different and subsequent transaction, for which Tata Motors is paying the consideration by way of aforesaid discounts and incentives, etc. It has been submitted that incentives being paid by Tata Motors for achieving specified targets and therefore, the adjudicating authority by disregarding that these set of transactions....
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....espondent pointed out that they have filed Cross Objections, vide Application No. ST/CROSS/30204/2020, which has not been listed on the date of hearing this appeal. However, it was pointed out by the Bench that since in the impugned order, the entire relief has been given to the respondent and hence, they cannot be considered as an aggrieved party and therefore, there is no scope for filing any appeal or cross objections. However, learned Advocate for the respondent has submitted that in the event of non-maintainability of the cross objections filed by them, the grounds taken in the said memorandum may be considered as counter arguments to the grounds taken by the Revenue (Appellant) in this appeal. Therefore, cross objections application is disposed of as withdrawn, however, learned Advocate will be at liberty to take grounds taken in memorandum of cross objections to counter the arguments of the Revenue. The said memorandum of cross objection is disposed off accordingly. 11. Learned Advocate for the respondent has explained various types of schemes. It was also highlighted that in this case there is no express or implied contract between Tata Motors and the respondent to provi....
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....eting, advertisement, sales promotion, etc., would be effectively promotion of respondent's own goods and business and therefore, the alleged services would be in the nature of services to self and it would not meet the criteria of service as the said activity is not being carried out by a person for another person. He has relied on the following judgments in this regard. a) Philips India Ltd Vs CCE [1997 (91) ELT 540 (SC)] b) Kafila Hospitality & Travels Pvt Ltd Vs CST [2021 (47) GSTL 140 (Tri-LB)] c) CCE Vs Nahar Industrial Enterprises Ltd [2010 (19) STR 166 (P&H)] 13. Learned Advocate for the respondent has justified the impugned order passed by the adjudicating authority on the grounds that the said order is well reasoned and based not only on factual appreciation of the facts and documents but also in view of the settled law through catena of judgments in this regard. He has highlighted that there is no dispute that the sale of vehicle from Tata Motors to the respondent is on principal-to-principal basis and the respondents are not an agent of Tata Motors. It is also an admitted position that certain schemes and incentives were being announced fro....
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....rvices have not been identified or explained at any prior stage of litigation. While in SCN it has been alleged that respondents were rendering service by way of achieving target set by Tata Motors and also by extending notified trade discounts announced by Tata Motors, whereas, in their grounds of appeal, they have taken a stand that respondents were contractually obligated to perform certain activities and incentives are in lieu of performing said activities. Further, on the issue of limitation also, extended period is not invokable as the matter would be revenue neutral. Similarly, penalty imposed under section 76 and 78 are also not invokable. 17. Learned Advocate for the respondent has further explained that the respondents are receiving various trade discounts and other discounts in terms of various scheme circulars at the time of purchase of vehicles and in such cases, the net dealer price is always discounted price of the product sold. However, their discounts are also regulated in terms of various schemes floated from time to time. During the period April, 2013 to June, 2017, certain target based discounts/other discounts were offered, which were meant both for customer....
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....t respondent is an appointed dealer for Tata Motors for resale of vehicles, which is manifested by clause 3(b) of the agreement. Therefore, it is obvious that the purchase of vehicle is not for self-consumption of respondent but for resale to actual customers. It is also explicitly agreed upon in the agreement that the transaction is on principal-to-principal basis, which has also not been disputed by the department or the adjudicating authority. There are certain terms and conditions, as pointed out by the department in their grounds of appeal, suggesting that the respondents are under obligation to carry out certain activities or follow certain instructions, etc., or make certain best efforts to meet the policy guidelines, as is evident from various clauses, especially clause 4(a) & 4(b), which are cited below for ease of reference. "4. (a) The Dealer shall work diligently and faithfully (i) With a view to fostering and promoting sales of the Products within the Territory and for providing of services (ii) To safeguard the interests of the Company and its brand image, and (iii) To discharge its obligations under this Agreement to the best of hi....
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....ll Products and Services." 22. It is also provided in terms of clause 21(a) to 21(e) of the agreement that the respondent will carry out certain advertisement, display and demonstrate at his own expense in order to promote its (dealer's) business in its territory, which should be consistent with sales policy, procedures and practices as advised by the Company (Tata Motors). Thus, these activities are explicitly for promoting the respondent's business itself and not for promoting the vehicles of Tata Motors. Agreement also provides for various schemes and discounts to be announced from time to time by Tata Motors. 23. Therefore, we find force in the submission of the respondent that a contract cannot be vivisected into different set of activities in order to make a part of it relatable to service and part of it relatable to sale. The entire contract has to be read together to understand the essence of the contract. It is obvious from the holistic reading of entire contract that the dealer is not buying vehicle for its own consumption as buyer and it is only meant for resale. It is also obvious from various terms and conditions that certain obligations/conditions have been cast....
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.... discount cannot be given post sale by the main manufacturer to their dealer. 24. We further find that the adjudicating authority has relied on catena of judgments in support that said amount of incentives/discounts are relatable to sale and not to service, for which department has submitted that these judgments were in the context of Finance Act, as it existed prior to 01.07.2012. While it may be true that most of the judgments were in the context where the issue was whether the discounts/incentives can be subjected to service tax under the category of BAS or otherwise, but the factual matrix remains the same i.e., leviability of service tax on incentives/ discounts given by vehicles manufacturers to dealers. In all these judgments, it was held that the said activities would not be chargeable to service tax though under BAS, as it was changed. In these judgments, it was clearly held that such incentives/concessions, etc., were in the nature of trade discounts given by principal manufacturer to dealer in relation to vehicles and hence not falling under BAS. Obviously, if such payments or credit have been allowed in terms of certain schemes or circulars and it was treated as trad....
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....unts are received by the appellant under various schemes of the manufacturer cannot lead to the conclusion that the incentive is received for promotion and marketing of goods. It is not material under what head the incentives are shown in the Ledgers, what is relevant is the nature of the transaction which is of sale. All manufacturers provide discount schemes to dealers. Such transactions cannot fall under the service category of Business Auxiliary Service when it is a normal market practice to offer discounts/institutions to the dealers. The issue is settled in the case of Sai Service Station (supra). Therefore, we reject the appeal of the department." and in re Sai Service Station Limited it was held that "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 respect of sale target set out by the manufacturer. These targets are as per the circular issued ....
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....nt was to receive some amount as an incentive. It is the case of the Revenue that such amount is taxable under Business Auxiliary Services, we find no substance in the arguments raised by the learned AR as well as the reasoning given by the adjudicating authority. The said amounts are incentive received for achieving the target of sales cannot be treated as Business Auxiliary Services, as incentive are only as trade discount which are extended to the appellant for achieving the targets. We find that this view has been taken by the Tribunal in the case of Sai Service Station (supra). With respect, we reproduce the relevant paragraphs:- "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 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. ....
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....eration for providing services by the department. The Tribunal relied on various judgments of the Coordinate Benches to hold that the issue was no longer res integra. They have also relied on the judgment of the Larger Bench in the case of Kafila Hospitality and Travels Pvt Ltd Vs CST, Delhi (supra), to hold that incentives are generally given to encourage performance of the party and thereafter, held that the activity undertaken by M/s Prem Motors Pvt Ltd was for sale and purchase of vehicle and incentives were in the nature of trade discounts. As submitted by respondent and not disputed by the department, this judgment has not been challenged by the department on merit. The relevant paras of the judgment are cited below for ease of reference. "10. That all the above cases relates to dealership agreement between the manufacturer of motor vehicles (MUL, MSIL,TML) with their dealers for sale purchase of vehicles. In terms of the agreement it has been noticed that the dealer works on principal to principal basis and not as an agent of the manufacturer. The agreement itself provides for certain sales promotion activities which are for the mutual benefit of the business of the....
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.... 78. In this connection it will be appropriate to take note of the decision of the Federal Court of Australia A.P. 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:- 53. On analysis, the so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacturer and the dealer to the mutual benefit of both. The relationship involves a whole raft of obligation from one to the other all, presumably, with the ultimate objective of maximizing their respective commercial positions. As the A.P. Group put it, the overall relationship contemplates a continuing dialogue between wholesaler and retailer in which promises are routinely exchanged, but to characterize this dialogue as involving s....
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....faction on the terms and conditions mutually agreed to between the parties and contained in this agreement." 13. We also find that the activity undertaken by the appellant is for the sale and purchase of the vehicle and the incentives are in the nature of trade discounts. The incentives, therefore form part of the sale price of the vehicles and have no correlation with the services to be rendered by the appellant. That in terms of the dealership agreement, the appellant purchases the vehicles from MSIL and sells the same to its end customers. The activity of promoting the sale is with respect to the vehicles owned by the appellant which incidentally is in interest of both the parties. Reliance is placed on the observations referred above in the case of Kafila Hospitality and Travels Pvt. Ltd. (supra). 14. We also find that the appellant is engaged in the onward sale of vehicles which involves merely transfer of property in goods which is excluded from the definition of 'service'. That Section 66D of the Finance Act, 1994 contains the negative list of services under various clauses and clause (e) provides for 'trading of goods'. On this ground also we find that inc....
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.... the target based incentives are aimed at selling more vehicles, which is not only benefitting the manufacturer/supplier i.e., Tata Motors but also the respondents. These incentives/discounts are based on the actual number of vehicles the respondents buy (offtake) from Tata Motors, as also, their sale (retail target). Thus, these incentives are nothing but discounts linked to sale either at the stage of purchase by respondent or at the time of resale by them. Incentives paid for achieving target cannot be termed as consideration and therefore, not leviable to service tax under section 67 of the Finance Act. It is also obvious that Tata Motors is prescribing MRP for each of the vehicle sold for resale to the ultimate customer and initially the sales invoice is based on the list price circulated by Tata Motors, thereafter, various schemes are offered by Tata offering discounts on said listed price. Therefore, there is a clear relatability of such discounts and incentives towards the sale of goods and accordingly, it would not be liable to service tax. Further, in the present appeal, conditional discounts and incentives cannot be termed as 'consideration' for any service and the said ....