2023 (6) TMI 243 - AT - Service Tax

Levy of Service Tax - Business Auxiliary Services - reimbursement of advertisement charges from M/s. Maruti Udyog Ltd, and M/s. Sundaram Finance Ltd, for various promotional activities - HELD THAT - The very same issue was analysed by the Tribunal in the case of M/S. ROHAN MOTORS LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, DEHRADUN 2020 (12) TMI 1014 - CESTAT NEW DELHI where it was held that the appellant purchases vehicles form MUL and sells the same to the buyers. It is clear from the agreement that the appellant works on a principal to principal basis and not as an agent of MUL. This is for the reason that the agreement itself provides that the appellant has to undertake certain sales promotion activities as well. The carrying out of such activities by the appellant is for the mutual benefit of the business of the appellant as well as the business of MUL. The amount of incentives received on such account cannot, therefore, be treated as consideration for any service. The incentives received by the appellant cannot, therefore, leviable to service tax. Following the above decision which is squarely applicable to the facts of the case, it is held that the incentives received by the appellant cannot be subject to levy of service tax under the category of Business Auxiliary Services. Business Auxiliary Services - reimbursable expenses received by the appellant from M/s. Maruti Udyog Ltd. and M/s. Sundaram Finance Ltd. - HELD THAT - As per the annexure to the Show Cause Notice is seen that these are nothing but reimbursement of expense for advertisement. The Honourable Supreme Court in the case of Intercontinental Technocrats Ltd. 2018 (3) TMI 357 - SUPREME COURT has held that the reimbursable expenses cannot be subject to levy of service tax. The decision relied by the Ld. AR for the Department has not considered the decision of the Hon ble Apex Court and hence not applicable. The demand cannot sustain and requires to be set aside - Appeal allowed.

Summary

Issues Involved:
1. Demand of service tax on incentives received by the appellant from the manufacturer for sale of cars.
2. Demand of service tax on reimbursable expenses received towards advertisement charges.

Summary:

1. Demand of Service Tax on Incentives:
The first issue pertains to the demand of service tax on the incentives received by the appellant from the manufacturer for the sale of cars. The appellant argued that the relationship with the manufacturer, M/s. Maruti Udyog Ltd., is that of a buyer and seller on a principal-to-principal basis. The incentives or discounts received for reaching sales targets should not be subject to service tax under the category of Business Auxiliary Services (BAS). The Tribunal referenced the definition of BAS under Section 65 (19) of the Finance Act, 1994, and previous judgments, including M/s. Rohan Motors Ltd. Vs Commissioner of Central Excise, Deharadun 2021 (45) GSTL 315 (Tri. Delhi) and BM Autolink Vs CCE., Kutch 2022 (12) TMI 12 CESTAT Ahmedabad. These cases established that incentives or discounts related to sales transactions cannot be subject to service tax, as the transactions are on a principal-to-principal basis and not as an agent of the manufacturer. The Tribunal concluded that the incentives received by the appellant cannot be treated as consideration for any service and thus are not leviable to service tax.

2. Demand of Service Tax on Reimbursable Advertisement Expenses:
The second issue involves the demand of service tax on reimbursable expenses received towards advertisement charges. The appellant received reimbursements from M/s. Maruti Udyog Ltd. and M/s. Sundaram Finance Ltd. for joint advertisement expenses. The appellant argued that these expenses were merely reimbursements and not consideration for any service rendered. The Tribunal relied on the judgment of the Hon'ble Supreme Court in Union of India Vs M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (3) TMI 357 (SC), which held that reimbursable expenses are not subject to service tax prior to 2015. The Tribunal found that the reimbursable expenses for advertisement cannot be subject to service tax, as they do not constitute consideration for any service.

Conclusion:
The Tribunal held that the demands for service tax on both the incentives received from the manufacturer and the reimbursable advertisement expenses cannot be sustained. The impugned order was set aside, and the appeal was allowed with consequential reliefs as per law.