MARKETING OF VEHICLE LOAN BY AUTO DELAER COVERED UNDER BUSINESS AUXILIARY SERVICES

[Mr. M. GOVINDARAJAN]

Vehicles can be purchased by customers from the dealers either by cash or arranging finance independently through another person. If the finance is arranged by the third party then it will be covered under the Business Auxiliary Service. Some dealers entered into agreements with financial companies for the purpose of arranging finance for the buyers of vehicles sold by them.   Whether such service amounts to business auxiliary service and liable to pay tax? The case law in 'Roshan Motors Ltd., V. Commissioner of Central Excise, Meerut' - [2008 -TMI - 31834 - CESTAT, NEW DELHI] gives the answer for the same.

The appellant in this case is an authorized dealer of Maruti Udyog Limited and sell vehicles to various customers. The appellant has entered into agreements with financial companies like Kotak Mahendra Primus Ltd., ICICI Banks and HDFC banks for the purpose of arranging finance for the buyers of vehicles sold by them.

The representatives of these financial institutions are accommodated in the dealer's premises itself. The prospective buyers are introduced by the appellant to the finance companies and help rendered in processing the documents and obtaining loan and then vehicles sold to them. For this role, the appellant is receiving service fees from the finance companies. 

The original authority held that the service charges received by the appellant represents charges for business auxiliary service rendered by the appellant to the said finance companies and confirmed the service tax along with interest and imposed penalties under Sec. 76, 77 and 78 of the Finance Act,1994. The Commissioner (Appeals), on the appeal filed by the appellant confirmed the order of the original authority.  Thus the present appeal is before the tribunal.

The appellant submitted the following before the tribunal:

The appellant is not rendering services to the finance companies which can be treated as business auxiliary services;

Arranging of finance was to enable their customers to buy vehicles from them which is basically a service, if any, rendered in promotion of sale of vehicle by the appellant themselves;

The appellant is not selling or promoting all the services rendered by the finance companies;

The mere mention in the agreements that they are direct marketing agencies of the finance companies should not be mis-understood and conclusion arrived at that they are rendering business auxiliary services;

Every case where money/consideration is received need no necessarily involve rendering of services;

When a service is rendered which benefit self and a third party, it cannot be treated as service to the third party;

This is a case of interpretation of the taxing entry and no mala fide or element of suppression or mis-statement is involved and, therefore, imposition of penalties under Sec. 76, 77and 78  is not warranted.

The Department submitted the following before the tribunal:

Ø      The business auxiliary services inter alia include promotion of services rendered by the client;

Ø      There is no warrant to say that the service rendered should benefit exclusively the client and no benefit should accrue to the service provider;

Ø      The terms of agreement clearly provide that the appellant is to work as direct marketing agent for promoting auto finance scheme;

Ø      They are required to hand documentation both pre and post disbursements;

Ø      They are required to assist in recovering outstanding dues from the customers and even in reprocessing the vehicles in the event of failure by the customers.

The tribunal observed that the appellant has taken additional responsibility/functions and entered into agreements with the finance companies. The terms of agreement clearly indicate that the appellant is definitely promoting the finance scheme of the finance companies but the fact that the said promotion is limited to vehicles sold by them is not significantly relevant to consider their status. 

The tribunal held that in any sale of goods, it can be said that both the buyer and seller are beneficiaries. Similarly in relation to any service both the provider and recipient are beneficiaries. In this case it has been stressed that the appellant is not rendering services exclusively for the finance companies as their objective is to promote their own business. Is it a case, where the appellant is rendering services to the finance companies?  Is it a case, the finance company is rendering services to the appellant? Or is it a case the appellant is rendering services to the buyer of the vehicles. The customer is interested in buying the vehicles. The appellant's main business is selling the vehicles to their customers by positioning themselves between the manufacturer and the customer and they get a margin. The customer is also interested in getting the finance. The appellant has arranged finance to their customers by positioning themselves between the financiers and the customers. This tie up with the finance companies definitely benefits the appellant and at the same time it benefits the finance companies more. If it was only to the benefit of the appellant, the finance companies should have charged services charges from the appellant. That is why the finance companies have paid service charges to the appellant. The terms of the agreement together with the fact that the appellant has been paid for the services leads to the conclusion that the appellant is rendering services in marketing rendering the services rendered by the finance companies.

The tribunal held that the decision of the authorities in holding that the applicant render business auxiliary services to the finance companies and the service charges received by them are subject to service tax is legal and proper and does not call for any interference. The demand of service tax along with interest is confirmed by the tribunal. However it set aside the penalty on the contention that this is a case of interpretation of the taxing entry and no mala fide or element or suppression or mis statement is involved.