2024 (7) TMI 1255 - AT - Service Tax

Levy of service tax - incentives / discounts received by the appellant from the manufacturer of cars and lubricants viz. Volkswagen - requirement to pay an amount collected @ 5% / 6% / 7% of the value of trading activity under Rule 6 of CENVAT Credit Rules 2004 when the appellant had paid the entire credit attributable to input services utilized for trading activity - CENVAT Credit on various input services - levy of penalty. Levy of service tax - incentives / discounts received by the appellant from the manufacturer of cars and lubricants viz. Volkswagen - HELD THAT - The facts not in dispute are that the appellant are authorized dealers of Volkswagen brand cars and also providing services of cars of the said brand. On purchase of the cars from the manufacturer Volkswagen Limited they received various discounts / incentives on achieving the sales target during the relevant period. Applicability of service tax on trade discount / incentives received by an authorized automobile dealer from the manufacturer is no more res integra and covered by a recent judgment of this Tribunal in the case of M/S PREM MOTORS PRIVATE LIMITED VERSUS COMMISSIONER CENTRAL EXCISE CGST-JAIPUR 2023 (2) TMI 990 - CESTAT NEW DELHI wherein the Tribunal scrutinizing the case laws on the subject observed 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. Applicability of 5% / 6%/7% of the value of the trading activity under Rule 6(3)(i) of Cenvat Credit Rules 2004 - HELD THAT - The appellant has reversed the total credit attributable to input services that had been used in providing trading activity; therefore considering the Notification No.13/2016-CE(NT) dated 01.03.2016 issued subsequently wherein it is prescribed that in the event an assessee pays the amount of cenvat credit attributable to exempted products calculated as per Rule 3A of the CENVAT Credit Rules the appropriate officer competent to adjudicate the case may allow the manufacture or provider of output services to follow the procedure and pay the amount referred to in clause (ii) of sub-rule (3) calculated for each of the month with interest. Therefore to ascertain the amount of cenvat credit attributable to input services used in trading activity be determined along with interest - Taking note of the argument of the appellant that they have already paid/reversed Rs.42, 30, 802/- against Challan No.00244 dated 08.01.2018which is in excess of Rs.10, 42, 813/- the matter needs to be remanded to the adjudicating authority to ascertain the said fact and recompute the liability with interest. Imposition of penalty - HELD THAT - The major part of the demand has been set aside and on the issue of applicability of Rule 6 it is observed that the appellant had already reversed the attributable cenvat credit which is in excess of Rs.10, 42, 813/- than the amount payable by them as claimed by them; therefore imposition of penalty under Section 78 of the Finance Act or Rule 15(3) of the CENVAT Credit Rules is unwarranted and accordingly set aside. The confirmation of demand of Rs.3, 03, 50, 663/- on various incentives / discounts with interest and penalty and the amount of Rs.3, 84, 28, 721/- confirmed under Rule 6(3) of Cenvat Credit Rules 2004 being 5%/6%/7% of the value of the exempted services are set aside - the penalties imposed on the appellant are set aside - the matter is remanded to the adjudicating authority for the purpose of verification/scrutinization. Appeal disposed off by way of remand.

Summary

Issues Involved:
1. Service tax liability on incentives/discounts received from the manufacturer.
2. Applicability of Rule 6 of CENVAT Credit Rules, 2004 concerning the trading activity.
3. Admissibility of CENVAT credit on various input services.

Detailed Analysis:

1. Service Tax on Incentives/Discounts:
The primary issue was whether the appellant was liable to pay service tax amounting to Rs.3,03,50,663/- on incentives/discounts received from Volkswagen. The appellant argued that the relationship with Volkswagen was on a principal-to-principal basis and that the incentives/discounts were trade discounts, not service-related payments. The Tribunal referenced several judgments, including Prem Motors Pvt. Ltd. Vs. CCE&CGST, Jaipur, which established that such incentives/discounts are part of the sale price and not subject to service tax. The Tribunal concluded that the incentives/discounts received by the appellant were not liable for service tax, as they were in the nature of trade discounts and not related to any service provided.

2. Rule 6 of CENVAT Credit Rules, 2004:
The second issue involved the applicability of Rule 6(3)(i) of the CENVAT Credit Rules, 2004, which required the appellant to pay 5%/6%/7% of the value of the trading activity. The appellant admitted to a bona fide mistake in not reversing the CENVAT credit on common input services used for trading activities. They reversed Rs.42,30,802/- against the required Rs.31,87,989/-. The Tribunal noted that the appellant had reversed the excess amount and directed the adjudicating authority to verify the reversal and compute the applicable interest, considering the excess payment.

3. Admissibility of CENVAT Credit:
The third issue was the admissibility of CENVAT credit amounting to Rs.52,199/- on various input services. The appellant did not contest this amount, considering it insignificant. The Tribunal did not delve further into this issue due to the appellant's acceptance.

Conclusion:
The Tribunal set aside the demand for service tax on incentives/discounts, as these were deemed trade discounts. The demand under Rule 6(3) of the CENVAT Credit Rules was also set aside, subject to verification of the excess reversal of CENVAT credit by the adjudicating authority. Penalties imposed were deemed unwarranted and were set aside. The case was remanded for verification of the reversed credit and computation of applicable interest.

Order:
The appeal was disposed of with the impugned order being modified. The adjudicating authority was instructed to verify the reversed credit and compute interest, giving the appellant a reasonable opportunity to present their case. The Tribunal pronounced the order in open court on 18.07.2024.