2024 (6) TMI 1329 - AT - Service Tax

Demand of differential service tax - non-payment of service tax - Booking Cancellation Charges - Price difference Corporate Discount - Balance Written Back - Interest on Income tax refund - Warranty Claims (Parts) - Procurement charges (Volume Discount-Paint) - denial of CENVAT Credit without considering copies of invoices and documents to the Commissioner during personal hearing - interest and penalties. CENVAT Credit - HELD THAT - If SCN is issued and Revenue seeks to deny CENVAT credit taken on the strength of any invoice, it is for the Revenue to specify as to why CENVAT credit against each of the invoices is being denied and the legal basis for such denial. Sadly, none of the details are available and, therefore, the matter insofar as the denial of CENVAT credit is concerned, has to remanded to the Commissioner to re-examine the invoices and indicate the invoices on which she decides to deny CENVAT credit giving specific reasons - thus, no ground for denial of credit is established on any invoice, CENVAT credit cannot be denied. Booking Cancellation Charges - HELD THAT - The booking cancellation charges being in the nature of damages are not a consideration for the contract. Section 66E(e) of the Act covers such cases where an agreement is entered into to refrain from an act or to tolerate an act, i.e. where the consideration is to refrain from an act. Here, there is no agreement to cancel the booking. The agreement is to book the car and subsequently buy it. By cancellation, the buyer goes back on his promise to buy the car and the cancellation charges are in the form of compensation - the demand of service on the amounts received on this account needs to be set aside. Price difference Corporate Discount - HELD THAT - It is a well settled legal principle that any amount received by an automobile dealer from the manufacturer as trade discount including quantity discount (which is a trade discount given on the basis of volume of purchase) are not amounts received for providing any taxable service but purely discounts received on account of the trade and meeting certain sales targets. Such amounts cannot be charged to service tax and, therefore, the demand on this account needs to be set aside. Balance Written Back - HELD THAT - What is important is to see as to why these amounts were received back. If these amounts were due from the debtors for providing taxable services and if no tax was paid on those amounts and, service tax has to be paid. On the other hand the service tax was already paid before these debts were written off no service tax needs to be paid. If any amount is received towards the sale of goods or for any purpose other than providing a taxable service no service tax can be charged on that amount - this issue needs to be remanded to the Commissioner to give full opportunity to the appellant to provide details of the amounts received in each year and the purposes for which they were due in the first place and if any taxable service was rendered. Interest on Income tax refund - HELD THAT - Clearly, no service tax can be charged on this interest as no taxable service was provided. The demand on this account needs to be set aside. Warranty Claims (Parts) - HELD THAT - It is found that no service tax could have been demanded on the value of spare parts received by the appellant from manufacturer as it was only a sort of reimbursement of the cost incurred by the appellant while servicing the cars during warranty service. The demand on this account needs to be set aside. Procurement charges (Volume Discount-Paint) - HELD THAT - The manufacturers of paints offer the appellant volume discount if it purchases large quantity of paints in a year. The amounts so received have been credited by the appellant as procurement charges (volume discount-paints). Clearly, no service tax could have been charged on this volume discount which the appellant had received from the paint manufacturers. The demand on this account needs to be dropped. The matter needs to be remanded to the Commissioner to re-determine the service tax demand - Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Differential service tax demand on other operating revenue.
2. Denial of CENVAT credit.
3. Service tax on specific income heads: booking cancellation charges, price difference & corporate discount, balance written back, interest on income tax refund, warranty claims (parts), and procurement charges (volume discount-paint).

Issue-wise Detailed Analysis:

1. Differential Service Tax Demand on Other Operating Revenue:
The department issued a show cause notice (SCN) demanding a differential service tax of Rs. 43,78,435/- under Section 73 (1) of the Finance Act, 1994, based on discrepancies between the appellant's ST-3 returns and its balance sheets. The SCN assumed that the entire other operating revenue was for taxable services, which the appellant contested. The tribunal found no basis for this presumption and discussed the classification of various income heads under other operating revenue.

2. Denial of CENVAT Credit:
The SCN proposed to deny CENVAT credit of Rs. 1,28,80,013/- due to the appellant's inability to provide invoices during the audit. The tribunal noted that the Commissioner did not consider the invoices submitted during the personal hearing, making general observations instead. The tribunal remanded the issue to the Commissioner to re-examine the invoices and specify reasons for any denial of CENVAT credit.

3. Service Tax on Specific Income Heads:

Booking Cancellation Charges:
The Commissioner classified these charges as a declared service under Section 66E(e) of the Finance Act. However, the tribunal ruled that these charges are in the nature of damages for breaking a contract and not consideration for a service. Therefore, the demand was set aside.

Price Difference & Corporate Discount:
The amounts received from the manufacturer as trade discounts were contested. The tribunal upheld the appellant's position, referencing case law that such discounts are not exigible to service tax. The demand was set aside.

Balance Written Back:
The tribunal found that this issue needed further examination. It remanded the matter to the Commissioner to determine if the amounts were for taxable services and if service tax was already paid on them.

Interest on Income Tax Refund:
The tribunal ruled that no service tax could be charged on interest received for delayed income tax refunds. The demand was set aside.

Warranty Claims (Parts):
The tribunal found that the amounts received for parts replaced under warranty were reimbursements and not taxable services. The demand was set aside.

Procurement Charges (Volume Discount-Paint):
The tribunal ruled that volume discounts received from paint manufacturers were not for taxable services. The demand was set aside.

Conclusion:
The tribunal partly allowed the appeal and remanded it for re-examination of specific issues. The demand for service tax on booking cancellation charges, price difference & corporate discount, interest on income tax refunds, warranty claims (parts), and procurement charges (volume discount-paint) was set aside. The issue of denial of CENVAT credit and the demand on balance written back were remanded for further examination. All penalties were set aside, and interest was to be paid on any confirmed amounts.