TMI Blog2024 (4) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... vided in relation to business promotion activities in course of appellant s business activities - HELD THAT:- 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, it is found 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 forwarded to the manufacturer the proposal of discount to be given to the ultimate consumer, for their consideration and approval - The discounts offered in the above manner by issue of credit note also amount to reduction in purchase price of the individual vehicles which are covered during the aforesaid volume/value of sales. In respect of reimbursements scheme, various discounts offered depending on the specific model of the vehicles being sold during a particular specified period, the appellants dealer extends such benefits to all eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RAL EXCISE, PUNE-I VERSUS SAI SERVICE STATION LTD [ 2017 (5) TMI 1144 - CESTAT MUMBAI] , by setting aside the service tax demand it was held that the issue is no more res integra as identical issue came up before the Tribunal in the case of COMMISSIONER OF CENTRAL EXCISE CUSTOMS, NASHIK VERSUS M/S AUTOMOTIVE MANUFACTURES LTD [ 2015 (12) TMI 549 - CESTAT MUMBAI ] 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. Reversal of Cenvat credit in terms of Rule 6(3A) of Cenvat Credit Rules, 2004 - HELD THAT:- It is found from records of the case, in particular from the Final Audit Report No.236/2016-17 submitted by the Deputy Commissioner, Service Tax Audit-III, Mumbai, it has been specifically mentioned that the during the course of audit, the Audit wing had observed that the appellants had maintained CENVAT registers as per Service Tax registrations obtained for various premises. The Audit wing had also observed that the appellants had not availed Cenvat credit on inputs services which have been utilized only for exempted services; however, Cenvat credit has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices 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 to be as violative of Rule 6 (3A) of Cenvat Credit Rules, 2004 resulting in short payment of service tax. Accordingly, the audit wing of the Department by letter dated 21.12.2015, informed the appellants to clarify various observations made by them, which are in gist as follows: S. No. Gist of the audit observations Service Tax payable (in Rs. Lakhs) 1 Reconciliation differences short payments 1397.32 2 Incorrect reversal of Cenvat credit in terms of Rule 6(3A) of Cenvat Credit Rules, 2004 37.25 3 Short payment in September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempted 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 confirmation of the service tax demands along with imposition of penalty, with the exception of dropping the demand raised in respect of the issue of taxability of services in relation to vehicles provided to its associates in the SCN dated 13.10.2016 by holding that the same cannot be made liable for service tax under the category of Business Support Services . Feeling aggrieved with the impugned order in confirmation of service tax demands on other issues, the appellants have preferred these appeals before the Tribunal. 3.1 Learned Advocate for the appellants contends that the service tax is not applicable in respect of various sales promotion activities involved in sale of vehicles and explained that the appellants are engaged in the sale of heavy commercial vehicles and passenger vehicles for which they have entered into separate agreements with the manufacturers of automobile vehicles viz., Tata Motors Ltd., (TATA) and Hyu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue 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 no services in the premises dealing with sale of vehicles and hence there is no common inputs or input services requiring reversal of Cenvat credit; the appellants had taken Cenvat credit only at workshops where the activity of maintenance and repair services have been carried out; however, in certain premises where the service of motor vehicles and sale of spare parts is carried on, they had reversed the Cenvat credit attributable to input services on non-taxable activity. 3.3 Further, as regards other income during the adjudication stage, the appellants had explained the same with supporting documents as to how these are not covered under the taxable category; however, the learned Commissioner in the impugned order dated 13.10.2020, did not deal with the same properly. Thus, they claimed that the service tax demands confirmed in the impugned order is not sustainable. 3.4 In support of their stand, the learned Advocate had relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service; xx xx xx xx xx (zzzq) to any person, by any other person, in relation to support services of business or commerce, in any manner; xx xx xx xx xx 65 . (19) business auxiliary service means any service in relation to (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or Explanation. For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, inputs means all goods or services intended for use by the client; (v) production or processing of goods for, or on behalf of, the client; (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. 65B . In this Chapter, unless the context otherwise requires, xx xx xx xx xx (44) service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include (a) an activity which constitutes merely, (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. Explanation 1. For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to, (A) the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or (B) the duties performed by any per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined under Section 65B(44) ibid, which was brought into effect from 01.07.2012. As the disputed period relate to pre-negative list regime as well as post-negative list regime, we are governed by the relevant provisions of Section 65(105) and Section 65B(44) ibid, as applicable to the relevant period. 7.1 In the impugned order dated 13.10.2020, learned Commissioner had dealt with the five issues under dispute summarized in para 2.3 above, by categorizing these as (A) to (E) and arrived at the conclusion, as follows: (A) Services in relation to providing vehicles to associates, in course of its business activities: (page 56 of impugned order) From the discussion in the show cause notice and the reply tendered by the assessee, I find that the nature of activity of supplying vehicle to the goods transport agency, as is done by the assessee in the instant case, is squarely covered by the ambit of the notification No.25/2012 ST dated 20.06.2012 and thus the argument tendered by the assessee is maintainable and the said service cannot be categorized/classified under the head Business Support Services . Held accordingly. (B ) Services in relation to business promotion activities provided/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration flowing to the assessee on this behalf which is appropriately chargeable to service tax. I therefore hold that the service tax is currently leviable thereon. Held accordingly. (D) The method adopted for foregoing certain amount of Cenvat credit in respect of provision of exempted salaries, in terms of the provisions of Rule 6(3A) of the CCR, 2004: (page 63 64 of impugned order) In the absence of any such evidence, I am inclined to hold that the procedure as set out in Rule 6 (3) 6(3A) of the Cenvat Credit Rules, 2004 have not been followed scrupulously and thus the Cenvat credit wrongly availed, is required to be reversed on recovered from them. Since, the said aspect has not been declared by them to the Department, the same appears to be with magnified intention of making illegal gains at the cost of revenue. Thus, the proviso to section 73 (1) of the Finance Act, 1994 is invocable. Held accordingly. (E) whether penalty is impossible on them under Section 77, Section 78/76 of the Finance Act, 1994: (page 64 65 of impugned order) Even after issue of the show cause notice, on some points, they have just contested the issue citing the decision of the Apex Court without even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said benefit of discount for incentives/ reimbursable amounts also results in reduction of net sale price of vehicles to the ultimate consumer. 7.3. Further, we also find that on perusal of the dealership agreement dated 15.09.2017 entered into by the appellants with Tata Motors Limited, submitted along with the paper book, has specifically provided about the Net Dealer Price under which the appellants are required to sell the product under such an contractual arrangement. The extract of the said clause is given below: 12 (a) The dealer shall buy the products and value added services at the Net Dealer prices as notified by the company from time to time and as ruling on the day of delivery. The prices will be for delivery from the company s works, regional sales offices, regional spare parts warehouses, Spare parts centres or any of the specified locations of the company. The dealer shall also be eligible for getting discounts on the net dealer price on the basis of the schemes which may be communicated by the company from time to time subject to the dealer fulfilling the terms and conditions thereof. In such a case the net dealer price shall be the discounted price of the products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Central Excise, Thane-II vide Final Order Nos. A/86593/2019 dated 13.09.2019 passed in Appeal No. ST/85741 of 2014 for conforming the service tax demand under the category of Business Auxiliary Services. In this regard we find that the Tribunal in the above relied upon case had referred to the services provided by HDFC bank, who had entered into agreement with various vehicle manufacturers/dealers, for providing loan to customers/clients of vehicle manufacturers/dealers at a rate lower than the rate at which they grant loan for purchase of motor vehicles to their clients in general, and by holding that the Bank is liable to pay service tax on the amount paid by the vehicle manufacturer/ dealer and accounted by the Bank as subvention income as the consideration for the provision of such service. On the other hand, we find that the facts of the present case are different to the extent that the appellants dealer are not providing such services as is done in the case of HDFC bank, and hence the ratio of above referred case is not applicable to the case in hand before us. 7.6 In view of the above detailed examination of the facts of the present case as distinguishable with respect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Subvention of MUL, part reimbursement of advertisement and incentive for arranging camps/sales mela and Free Mega Checkup Camps. It is the case of the appellant that all these amounts received from MUL, are either compensatory payments or in the nature of performance based trade discounts on achieving certain performance targets or is an activity which is mutually beneficial to both the appellant and MUL. It is not the case of the Revenue that MUL continues to remain the owner of the goods dealt by the appellant. All the vehicles/spares are purchased by the appellant and then sold. The incentives given by MUL has to be considered performance based trade discounts and will not be in the nature of BAS commissions. On perusal of the case records and the factual matrix we agree with the arguments of the appellant that payments received on these accounts cannot be held to be classifiable as provision of taxable services of BAS under Section 65(19) of the Finance Act, 1994. Further in the case of Kafila Hospitality Travels Pvt. Ltd. Vs. Commissioner of Service Tax, Delhi (supra), the Larger Bench of the Tribunal has held that incentives offered for achieving targets are not leviable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In this connection, it would be appropriate to refer to the decision of the Supreme Court in Union of India v. Intercontinental Consultancy and Technocrats [2018 (10) G.S.T.L. 401 (S.C.)]. The Supreme Court observed that service tax is on the value of taxable services and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the service tax. It is for this reason that the expression such occurring in Section 67 of the Act assumes importance. The Supreme Court, therefore, observed that the authority has to find what is the gross amount charged for providing such taxable services and so any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as the amount is not calculated for providing such taxable service. This, according to the Supreme Court, is the plain meaning attached to Section 67, either prior to its amendment on 1 May, 2006 or after this amendment. 77 . Consideration, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analysis, the so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacture 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 AP 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 supply after supply is unrealistic and impractical. To characterize the payment of the incentives intended to encourage the overall relationship to operate efficiently as involving supplies for consideration equally unpersuasive. A dealer will always wish to sell as many cars as practicable and to move old stock to make way for new stock. So too a dealer 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price. Furthermore in the case of Reliance ADA Group Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai-IV - 2016 (43) S.T.R. 372 (Tri.- Mumbai), the Tribunal has held that cost sharing arrangement in common services/activity as per agreed arrangement among them cannot be subjected to service tax. The relevant paragraphs are extracted and given below: 5.17 As has been discussed above, the Appellant has procured various services which have been used by the Participating Group Companies either 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 ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same from the service recipient. Therefore, in the instant case the amount so recovered by the Appellant is in the capacity of a Pure Agent and thus the same cannot be subjected to the Service tax. 7.8 CBIC has vide its circular No. 87/05/2006-ST dated 06.11.2006 has also clarified on the service tax issues relating to authorized motor vehicle dealers and service stations, which have also been discussed elaborately in the case of My Car (Pune) Pvt. Ltd. Vs. Principal Commissioner of Customs, Central Excise and Service Tax, Pune-I (2023) 9 Centax 285 (Tri.- Bom.), wherein the Tribunal has observed that the discount/commission/incentives given for sale of cars, is no way comparable to services provided to customers at free of charge for which reimbursement charges are given by the car manufacturer. Such services have been distinguished 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 Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risation of the sales and consumption of the products by the end customer. We find it difficult to accept the conclusion arrived at in the impugned order that all the discounts/commission/incentives given by the manufacturer for the various types of targets achieved in terms of the number of vehicles sold under a particular model/category, consistent achievement of targets by each quarter, exchange bonus etc., are to be treated as compensation for the services rendered by the appellants by way of popularization of sales and purchase of the cars of the manufacturer. The element of sales promotion or marketing services is involved only when the appellants provide some service to the end customer in sale of the cars. If the discounts/commission/incentives are given in terms of the specific schemes or an agreement entered by 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 Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not in any way restricts the levy of service tax only on the service charges received from the recipient of the service, therefore, such reimbursements are subject to service tax. 4. In some cases, the automobile dealers help the buyers of the vehicles for arranging the finances. For this, they have a tie-up with Banks/Non-banking Finance Companies. The customers are advised by the dealers to approach such financial companies for taking loans. The automobile dealers get commission from such financial companies for directing the customers to the latter. By this activity, the automobile dealers 'promote or market the services provided by their customer (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 payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has attained finality in view of the decisions taken by this Tribunal and the Apex Court in a number of cases. In this connection, we refer to the decision of the Tribunal in the case of Commissioner of Service Tax, Mumbai-I v. Sai Service Station Limited 2014 (35) S.T.R. 625 (Tri.-Mumbai), the relevant portion of the order is extracted 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 promotin g 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. 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . From the decisions cited by Learned Chartered Accountant, we find that the dispute pertaining to discount offered to corporate customers has attained finality. In this connection, the decision of the Tribunal in re Toyota Lakozy Auto Pvt Ltd, which has referred to the other two decisions, observing that '2. Separate appeals have been preferred against two orders-in-original pertaining to the period from July, 2004 to March, 2007 and from April, 2007 to March, 2011. The demands confirmed in the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expressed by the appellants in the appeals filed before us, on this issue as it is not against them and there is no appeal filed by the Revenue against the dropping of the demand on this issue, we find that there is no need for us to deal with the above issue. 8.1 On the issue of free services provided during the warranty period, we find that the issue had also been decided by the Tribunal in the case of Commissioner of Central 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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