2023 (2) TMI 990 - AT - Service Tax

Levy of service tax - payments received as incentive / discounts reimbursements which were in the nature of consideration for service (extended by MSIL to the appellant) - appellant argued that incentives are attributable to the activity of sale and not for rendering any services by the appellant and therefore are not chargeable to service tax - time limitation. HELD THAT - The issue is no longer res integra and as referred to by the Learned Counsel for the appellant the same has been considered and decided in favour of the assessee in the various cases - reliance can be placed in the case of M/S. T.V. SUNDRAM IYENGAR SONS PVT. LTD. VERSUS THE COMMISSIONER OF CGST CENTRAL EXCISE, MADURAI 2021 (5) TMI 159 - MADRAS HIGH COURT where it was held that where the sale transaction is on principal to principal basis, merely because a discount was passed by the manufacturer to the assessee, that may not be construed as commission and therefore, it cannot be the subject matter of levy of service tax. The Larger Bench of this Tribunal in the case of KAFILA HOSPITALITY TRAVELS PVT. LTD. VERSUS COMMISSIONER, SERVICE TAX, DELHI 2021 (3) TMI 773 - CESTAT NEW DELHI dealt with the issue whether service tax can be levied under the category of 'Business Auxiliary Service' on target based incentives paid to the travel agents by the Airlines as they were promoting and marketing the business of the Airlines. The Tribunal took the view that it is not a case where the air travel agent is promoting the service of the Airlines rather by sale of airlines ticket he was ensuring the promotion of its own business even though this may lead to incidental promotion of the business of the Airlines. Thus, 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 - 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, it is found that incentives which are part of sale activity are not exigible to service tax. Thus, the amount of incentives and discounts cannot be treated as consideration for any service and therefore no Service Tax is leviable thereon. Having decided the issue on merits in favour of the assessee, it is no longer required to go into the question of limitation raised by the appellant. Appeal allowed.

Summary

Issues:
Levy of service tax on incentives granted by the manufacturer to the appellant/dealer.

Analysis:
The appellant challenged the levy of service tax on incentives received from the manufacturer. The appellant, a dealer of motor vehicles, contended that the incentives were related to sales activities and not for services, hence not subject to service tax. They argued that the dealership agreement was for sale-purchase activities, falling under the negative list of service tax. The issue of limitation was also raised regarding the time period covered by the Show Cause Notice.

The revenue representative supported the lower authorities' findings. The main issue for consideration was whether service tax was applicable on the incentives/discounts provided by the manufacturer to the dealer. Previous judgments, including Rohan Motors and TV Sundram Iyengar cases, were cited in favor of the appellant's position, emphasizing that incentives were part of sales activities and not services subject to tax.

The Tribunal analyzed the dealership agreement and found that the dealer operated on a principal-to-principal basis with the manufacturer, engaging in sales and purchases of vehicles. The incentives were considered trade discounts forming part of the sale price, not linked to services rendered by the dealer. The Tribunal relied on the Kafila Hospitality case, stating that incentives were not transaction-specific for service tax purposes.

Referring to Section 66D of the Finance Act, which excludes trading of goods from service tax, the Tribunal concluded that incentives related to sales activities were not liable for service tax. Therefore, the incentives and discounts were not considered as consideration for services, leading to the decision that no service tax was applicable. The impugned order was set aside, and the appeal was allowed in favor of the assessee.