2022 (11) TMI 948 - AT - Service Tax

Valuation of services - Authorized Service Station - inclusion of price of spare parts and lubricants in the assessable value - discount allowed in price of vehicles depending upon the quantum of vehicles purchased by the appellant - such discount is in the nature of commission and chargeable to service tax under Business Auxiliary Service category or not - trading activity - credit on common input services or proportionate reversal of Cenvat attributable to trading business was substantial compliance of Rule 6(3) of Cenvat credit Rules - recovery of Cenvat credit for steel and cement used for construction of showrooms. Demand on value of spare parts and lubricants - HELD THAT - Though the appellant have raised one invoice for service and sale of spare parts and lubricants, but both were clearly indicated separately in the invoice, and wherever there is service component, the Service Tax was charged and wherever there was sale of spare parts and lubricants the VAT was charged. It is clearly shows that during the provision of service of Authorized Services Station there are two components, one is service portion and other is sale of spare parts and lubricants. Since, the appellant admittedly paid the VAT on sale of spare parts and lubricants. It is clearly a sale purchase transaction and same cannot be part of the Gross value of the service of Authorized Service Station - the adjudicating authority ought not to have rejected the claim of the appellant regarding sale of spare parts and lubricants. From the judgments in CCE ST, MEERUT-II VERSUS SHRI KRISHNA SWAROOP AGARWAL 2014 (10) TMI 569 - CESTAT NEW DELHI and AUTOMOTIVE MANUFACTURERS PRIVATE LTD VERSUS COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, NAGPUR 2015 (2) TMI 972 - CESTAT MUMBAI , it is seen that various Benches of this Tribunal have taken a consistent view in the identical facts of the present case that where during the provision of Authorized Service Station Services, the spare parts and lubricants sold and VAT thereupon was paid the value of such spare parts and lubricants would not attract Service Tax. Demand of Service Tax on sales incentives given by M/s. Toyota Kirloskar Motors Pvt Ltd. to the appellant in connection with sale of their vehicles to the appellant which were subsequently sold by the appellant to their customers - HELD THAT - As per the facts available on record, it is clear that the appellant purchased the vehicles from M/s. Toyota Kirloskar Motors Pvt Ltd. on principal to principal basis and in turn the said vehicles were sold by the appellant to their customers on principle to principle basis, at both the stages from M/s Toyota Kirloskar Motors Pvt Ltd. to the appellant and from the appellant to the customers, the transaction is clearly of purchase and sell of the vehicles - the appellant in this transactions is not an agent of M/s. Toyota Kirloskar Motors Pvt Ltd but a buyer of goods. In the course of this trading activities the seller M/s Toyota Kirloskar Motors Pvt Ltd. gives incentive to the appellant on the basis of quantum vehicles purchased by them from M/s Toyota Kirloskar Motors Pvt Ltd. This incentive is nothing but trade/ quantity discount against the purchase of the vehicle by the appellant from M/s Toyota Kirloskar Motors Pvt Ltd. This fact is not under dispute. Thus, it is not in dispute about the transaction even in the present case being identical and sales incentive given by M/s Toyota Kirloskar Motors Pvt Ltd to the appellant is nothing but in connection with purchase and sale of the vehicles. Hence, the same can not be considered as commission against any service by any stretch of imagination - the incentive given by M/s Toyota Kirloskar Motors Pvt Ltd to the appellant is not an amount of commission but being a trade discount is not liable for Service Tax. Demand of an amount equal to 5%/6%/7% of the value of trading activity in terms of Rule 6(3) of Cenvat Credit Rules, 2004 - HELD THAT - The trading activity in respect of which the demand was raised under Rule 6(3) under a fiction of law made exempted service only with effect from 01.04.2011 by insertion of explanation under Rule 2(e) by notification No. 3/2011-CE(NT) dated 01.03.2011. In view of this amendment it is clear that the trading activity was not defined as exempted service prior to 01.04.2011. Therefore, the trading activity not being an exempted service during period 2007 to 2011, Rule 6(3) cannot be made applicable during such period. It is a settled law that any statutory amendment cannot be made applicable retrospectively unless the effect of retrospective is enacted by the parliament. Therefore, trading being exempted service is effective only from 01.04.2011. Hence, the demand under Rule 6(3) on trading activity for the period 2007-08 to 2010-11 is wholly illegal and without any support of law - it is settled that demand under Rule 6(3) in respect of trading activity for the period upto 31.03.2011 is not sustainable. The legal position that emerges is that when an assessee reverses or pays back the amount of credit taken on the inputs/input services used in relation to the manufacture of particular final products or rendering services, such reversal or paying back of credit would result in a situation where the assessee was deemed to have not taken the credit at all. The further legal position that emerges from the above referred case law is that such reversal may be at the time of clearance of the goods from the factory, may be at a time subsequent to such removal of final products from the factory, or such reversal may also be after the Revenue initiated investigation and enquiries against the assessee in the matter. The appellant has calculated the aggregate amount of cenvat credit in respect of input services used in relation to trading business for the entire period from April 2011 to March 2016. The value of trading is derived in accordance with the method prescribed under Clause-(c) of Explanation-I under Rule-6(3D) of the Cenvat Credit Rules - the appellant has already reversed an amount of Rs. 2,20,68,697/- to the credit of the Central Government; and the details of such reversal have been recorded also on page 12 of the impugned order. However documents viz. Journal Voucher and also a certificate by the appellants statutory CA confirming and certifying reversal were submitted by the appellant. Denial of Cenvat Credit of Rs. 78,41,493/- pertain to Cement and Steel used in construction of showrooms - HELD THAT - The contention of the Adjudicating Authority in this regard is that the assessee in respect of this credit on Cement and Steel, have not disputed the demand on any legal ground. Therefore, the demand of Cenvat credit on Cement and Steel was confirmed. Time Limitation - HELD THAT - In the decisions of COMMR. OF C. EX., VISAKHAPATNAM-II VERSUS SAI SAHMITA STORAGES (P) LTD. 2011 (2) TMI 400 - ANDHRA PRADESH HIGH COURT and MUNDRA PORTS AND SPECIAL ECONOMIC ZONE LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE CUSTOMS 2015 (5) TMI 663 - GUJARAT HIGH COURT the credit on Cement and Steel was allowed which were used for construction of premises of output service provider. Considering the above settled legal position, we are of the view that the appellant are entitled for Cenvat credit availed on Cement and steel used for construction of their show rooms where from the output service of authorized service station has been provided. Denial of credit of Rs. 16,85,532/-out of Rs. 78,41,493/- the reason for denial is that this credit pertains to other premises i.e. Naroda, Himatnagar, Gandhidham which were not registered - HELD THAT - It is observed that even though these premises were not registered but the output service provided for these services were admittedly suffered Service Tax payment. Therefore, merely because the premises are not registered the Cenvat credit cannot be denied on this ground, when the output service was provided on payment of Service Tax - In the present case also even though that said three premises were not registered but the service provided by the said premises was admittedly on payment of Service Tax. Therefore, the credit availed in respect of input/input services used in the said three premises is clearly admissible. Demand raised in the show caused notice dated 23.10.2012 which was issued for the period 2007-2008 to 2010-2011 on the ground of limitation in respect of all the issues - HELD THAT - The demand raised in show caused notice dated 23.10.2012 by invoking extended period is also not sustainable on the ground of limitation, for the reason that it is not established in respect of the issues in hand that the appellant have ever suppressed any fact or involved in fraud, mis-statement Collusion, etc. with intent to evade payment of duty therefore, in respect of show cause notice dated 23.10.2012 the demand for the extended period is clearly not tenable on the ground of limitation also. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Inclusion of the price of spare parts and lubricants in the value of "Authorized Service Station" services.
2. Taxability of discounts allowed by M/s Toyota Kirloskar as commission under "Business Auxiliary Service."
3. Applicability of Rule 6(3) of Cenvat Credit Rules to trading activity and proportionate reversal of Cenvat credit.
4. Recovery of Cenvat credit for steel and cement used for construction of showrooms.

Issue-Wise Analysis:

1. Inclusion of Price of Spare Parts and Lubricants in Service Value:
The Adjudicating Authority confirmed the demand for including the value of spare parts and lubricants in the gross value of "Authorized Service Station" services. The appellant contended that the value of spare parts and lubricants, shown separately in invoices and subjected to VAT, should not be included in the service value. The Tribunal noted that the appellant issued invoices showing separate charges for services and spare parts, with VAT paid on spare parts. Thus, the sale of spare parts and lubricants should not be included in the gross value of the service. The Tribunal relied on precedents such as Star Motors, Tanya Automobiles (P) Ltd., and Samtech Industries, which held that parts used during service, shown separately in invoices and subjected to VAT, are not part of the service value and are exempt from service tax.

2. Taxability of Discounts as Commission:
The Adjudicating Authority treated discounts provided by M/s Toyota Kirloskar to the appellant based on vehicle purchases as commission, subject to service tax under "Business Auxiliary Service." The appellant argued that these discounts were trade incentives for purchasing higher quantities of vehicles, not commission for promoting sales. The Tribunal found that the transactions between M/s Toyota Kirloskar and the appellant were on a principal-to-principal basis, with the appellant purchasing vehicles and selling them to customers. The Tribunal cited precedents such as Sai Service Station Ltd., Jaybharat Automobiles Ltd., and Rohan Motors Ltd., which held that trade incentives or discounts are not commissions and are not taxable under Business Auxiliary Service. Therefore, the Tribunal concluded that the incentives were trade discounts and not liable for service tax.

3. Applicability of Rule 6(3) of Cenvat Credit Rules to Trading Activity:
The Adjudicating Authority demanded amounts under Rule 6(3) of Cenvat Credit Rules, asserting that the appellant availed Cenvat credit on common input services used for both taxable services and trading activities. The Tribunal noted that trading was deemed an exempted service only from 01.04.2011. For the period before this date, Rule 6(3) was not applicable to trading activities. The Tribunal cited judgments such as My Car (Bhopal) P. Ltd., Marudhan Motors, and Avon International P. Ltd., which held that Rule 6(3) does not apply to trading activities for periods before 01.04.2011. For the period after 01.04.2011, the appellant had reversed the proportionate Cenvat credit attributable to trading activities, complying with Rule 6(3A). The Tribunal concluded that the demand under Rule 6(3) was not justified.

4. Recovery of Cenvat Credit for Steel and Cement:
The Adjudicating Authority confirmed the demand for Cenvat credit availed on steel and cement used for constructing showrooms. The appellant conceded the reversal of this credit but contested the imposition of penalties, arguing that the credit was availed under a bona fide belief. The Tribunal noted that the issue of Cenvat credit on construction materials had been contentious and subject to varying interpretations. Citing judgments like Sai Sahmita Storages (P) Ltd. and Mundra Ports & Special Economic Zone Limited, the Tribunal acknowledged that the appellant had a bona fide belief in availing the credit. The Tribunal found no mala fide intention and held that the imposition of penalties was unwarranted.

Conclusion:
The Tribunal set aside the demand for including the value of spare parts and lubricants in the service value, the demand for service tax on trade discounts as commission, and the demand under Rule 6(3) for periods before 01.04.2011. The Tribunal upheld the appellant's compliance with Rule 6(3A) for periods after 01.04.2011 and found no justification for penalties on the reversed Cenvat credit for steel and cement. The appeal was allowed with consequential reliefs.