2024 (12) TMI 676 - AT - Service Tax

Liability of service tax - discounts and incentives received by the appellant from the manufacturer - applicability of negative list under section 66D of the Finance Act, 1994 - HELD THAT - It is noted that the appellate authority, while confirming the demand, has not rendered any express findings on the pleas as made out by the appellant, despite noting that the reimbursements made by the manufacturer to the appellant were with regard to sale and purchase of goods . The fact that the appellants are engaged in sales of cars and spares is largely a trading activity pertaining to the sales of goods - it is failed to appreciate the logic to hold that when it was categorically held supra, that there was no liability to Service Tax on activity relating to sale of spare parts for the car, how per se the activity relating to car sales could be taken as one leviable to Service Tax. It is not disputed that the amount reimbursed by virtue of credit notes actually relates to target incentives and discounts offered by HCIL passed on to the customers through the appellant related to its business of sale of cars, spare parts and accessories and not on account of rendition of any service. It therefore belies logic to include the said activity relating to sale of goods within the ambit of section 66B of the act ibid. - the provisions of the Finance Act cannot be made applicable to such transactions between the appellant and the HCIL and between the appellant and/or its customers. The discounts and incentives are offered by the manufacturer in relation to sale and purchase of the goods passed on to the ultimate consumers while transferring the possession and ownership of the goods. The appellant in support of their contention, drew our attention to this Tribunal s decision in the case of M/S JM FINANCIAL SERVICES PVT LTD VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI-I 2013 (7) TMI 151 - CESTAT MUMBAI , wherein the amount received by way of reimbursement of electricity and office expenses was held as not liable to Service Tax, as no service was rendered therein. The order impugned herein is not in accordance with law and requires to be set aside - Accordingly, the impugned order is set aside, and the appeals are allowed.

Summary

Issues Involved:

1. Liability of service tax on discounts and incentives received by the appellant from the manufacturer.
2. Classification of the appellant's activities as either sales or services.
3. Applicability of the negative list under Section 66D of the Finance Act, 1994.
4. Relevance of prior tribunal decisions and legal precedents.

Issue-wise Detailed Analysis:

1. Liability of Service Tax on Discounts and Incentives:

The primary issue revolves around whether the discounts and incentives received by the appellant from the manufacturer, M/s. Honda Cars (I) Ltd. (HCIL), are subject to service tax. The appellant argued that these discounts were related to the sale of goods and not the provision of services. They contended that the reimbursements received via credit notes were for discounts passed on to customers and should not be subjected to service tax. The department, however, maintained that these activities were taxable under the post-negative list regime, as there was no specific exemption provided for such incentives and credits received.

2. Classification of Activities as Sales or Services:

The appellant's activities included selling cars and providing after-sales services, which they argued were primarily trading activities. They claimed that the discounts and incentives were part of the sales transactions and not auxiliary services. The tribunal noted that the adjudicating authority had failed to adequately consider the appellant's argument that these transactions were related to the sale of goods, thus falling outside the scope of service tax under Chapter V of the Finance Act, 1994.

3. Applicability of the Negative List:

The department argued that the appellant's activities were not covered under the negative list of services as per Section 66D of the Finance Act, 1994, and thus were liable to service tax. However, the tribunal observed that the reimbursements related to the sale and purchase of goods and not the provision of services. It was noted that the department itself admitted in various parts of the order that the reimbursements were related to sales activities.

4. Relevance of Prior Tribunal Decisions and Legal Precedents:

The tribunal referred to prior decisions, including those in the appellant's own case, where it was held that similar activities related to the sale of goods were not liable to service tax. The tribunal emphasized the consistent position that incentives related to sales do not constitute business auxiliary services. Citing cases such as Sharyu Motors vs. Commissioner of Service Tax, Satnam Auto vs. Commr. of C.Ex., and others, the tribunal reinforced that incentives on sales should not be treated as taxable services.

Conclusion:

The tribunal concluded that the impugned order was not in accordance with the law and required setting aside. The activities in question were related to the sale of goods and not the provision of services, thus falling outside the purview of service tax. The appeals were allowed, providing consequential relief to the appellant as per law.