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2024 (2) TMI 819 - AT - Service TaxLiability of discharge the service tax prior to 12/2015 as they have taken over the business of M/s. JMWPL only with effect from 12/2015 - levy of service tax - Business Auxiliary services - incentives received from M/s. Volkswagen and M/s. Castrol India - reverse charge mechanism - amount of advance forfeited due to cancellations - CENVAT Credit - liability under Rules 6 (3A) (i) to pay an amount of 5%, / 6% / 7% of value of exempted services (trading) when the appellant has already reversed proportionate credit as under Rule 6 (3 A) (ii) which is attributable to trading. Levy of Service Tax - amount of advance forfeited due to cancellations - case of the department is that the appellant is providing services of sales promotion and marketing to M/s. Volkswagen and M/s. Castrol and incentives and discounts received are nothing but consideration for such services and would fall under BAS - HELD THAT - The incentives offered for achieving targets of sale cannot be said to be incentives for promoting the sale of M/s. Volkswagen as the appellant is interested to do more sales for their own benefit of making more profit. It cannot be said that they promote the sales of M/s. Volkswagen or M/s. Castrol India Ltd. The incentives depend on the targets achieved which the appellant is interested to achieve as they would earn more profit. Even if there was no such incentive the appellant would be attentive and focused to sell cars to their maximum possible. The incentive is not in the nature of any consideration for providing services to M/s. Volkswagen and M/s. Castrol India Ltd. The Tribunal in the case of M/s. S.K. Cars India (P) Ltd. Vs. Commission of GST and CE, Sale, 2023 (6) TMI 243 - CESTAT CHENNAI had occasion to consider a similar issue. It was held that the incentive / discount are in regard to sales transaction and cannot be subject to service tax. For the period after 01/07/2012, the demand has been made under the definition of service under Section 65 (44) B. It is already concluded that there is no element of service. The incentives are purely on the basis of sales and not for providing service of promoting the business of M/s. Volkswagen / Castrol India. The demand made after 01/07/2012 also is not sustainable. From the above discussions and following the decision, there are no hesitation to hold that the demand of service tax raised on incentives / discounts from M/s. Volkswagen and M/s. Castrol cannot sustain and requires to be set aside. Demand confirmed on amount of advance forfeited at the time of cancellation of booking of car - HELD THAT - In the case of Lemon Tree Hotel Vs. Commissioner, GST CE Customs, Indore 2019 (7) TMI 767 - CESTAT NEW DELHI a similar question was considered wherein the demand of service tax was raised by department on the amount retained on cancellation of advance booking made for accommodation in hotel. It was held that such amount is not liable to levy of service tax under Section 66 E (C) of Finance Act 1994 or under Section 65 (105) (zzz-w) of Finance Act 1994. Similarly, in the case of M/s. Bharat Heavy Electricals Ltd. Vs. Commission of GST and CE Thiruchirappalli 2023 (9) TMI 654 - CESTAT CHENNAI the question arose as to whether appellant is liable to pay service tax on the liquidated damages recovered for delay in supply and service. The Tribunal answered in the negative and in favour of the assessee. The above decisions are squarely applicable to the facts and the issue as to whether appellant is liable to pay service tax on advance amount forfeited on cancellation of booking. The demand of service tax cannot be sustained. This issue is answered in favour of the appellant and against the department. Whether the appellant is liable to pay 5% / 6% / 7% of the value of exempted services (trading) as they failed to maintain separate accounts of common inputs availed for taxable services and exempted services? - HELD THAT - The issue as to whether the assessee is required to follow only Rule 6 (3) (i) on failure to intimate the department as to the option to reverse proportionate credit is no longer res-integra. It has been held in various decisions that the requirement for giving an intimation is only procedural in nature and the department cannot deny to an assessee the option available under Rule 6 (3) (ii) only because they did not comply with the procedure of prior intimation - reliance can be placed in the case of Mercedes Benz India Pvt. Ltd. Vs CCE, Pune 2015 (8) TMI 24 - CESTAT MUMBAI - the demand raised alleging that appellant has to pay 5% / 6% / 7% of the value of exempted services even though they have reversed proportionate credit cannot sustain. This issue is found in favour of appellant and against the department. Whether the appellant is liable to pay service tax for the period prior to 12/2015? - HELD THAT - The appellant company has come into existence only in 2015 and therefore cannot be called upon to pay service tax prior to 2015. As the issue is already found on merits for the demands for the period prior to 2015 and after 2015 to be not sustainable, any further discussion on this issue would be of no consequence - it is thus not necessary to delve into this issue which is of technical nature. The confirmation of demand of service tax, interest and penalties cannot be sustained. In the result, the impugned order is set aside - Appeal allowed.
Issues Involved:
1. Liability for service tax prior to December 2015. 2. Service tax on incentives received from Volkswagen and Castrol. 3. Service tax on car advance forfeiture from customers. 4. Reversal of CENVAT credit under Rule 6(3)(i) of the CENVAT Credit Rules. Summary: Issue 1: Liability for service tax prior to December 2015 The appellant argued that the liability to pay service tax as per Section 68 is on the person who has rendered the services. Since the appellant company was incorporated only in December 2015, it cannot be held liable for service tax prior to this period. The court found that further discussion on this issue was unnecessary as the demands for the period prior to 2015 and after 2015 were found to be unsustainable on merits. Issue 2: Service tax on incentives received from Volkswagen and Castrol The department alleged that the incentives received from Volkswagen and Castrol were for providing services of sales promotion and marketing, falling under Business Auxiliary Services (BAS). The appellant countered that these were target incentives related to the sale of cars and Castrol oil. The court noted that the Show Cause Notice did not specify the sub-clause of Section 65(19) under which the alleged service would fall. The agreements indicated a principal-to-principal relationship, not a client-service provider relationship. The court concluded that the incentives were not consideration for promoting the sales of Volkswagen or Castrol but were related to sales transactions. Hence, the demand for service tax on these incentives was set aside. Issue 3: Service tax on car advance forfeiture from customers The department claimed that the amount forfeited on cancellation of car bookings was liable to service tax. The court referred to the case of Lemon Tree Hotel and Bharat Heavy Electricals Ltd., which held that such amounts are not liable for service tax as they are not consideration for any service but are in the nature of liquidated damages. The court concluded that the demand for service tax on the forfeited advance amount could not be sustained and was set aside. Issue 4: Reversal of CENVAT credit under Rule 6(3)(i) of the CENVAT Credit Rules The appellant reversed proportionate credit attributable to trading but did not give prior intimation to the department as required under Rule 6(3A)(ii). The court held that the requirement for prior intimation is procedural and cannot deny the appellant the option available under Rule 6(3)(ii). The court referred to several decisions, including Mercedes Benz India Pvt. Ltd. and Cranes and Structural Engineers, which supported this view. The demand for 5%/6%/7% of the value of exempted services was found unsustainable and was set aside. Conclusion: The court set aside the confirmation of demand for service tax, interest, and penalties, allowing the appeal with consequential reliefs.
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