2007 (11) TMI 73 - AT - Service Tax

When the appellants sold the cars and recovered the amount including the dealers margin the intention was to sale the car not to provide free after sales service Free sale service is only to promote sale No service tax can be levied on impugned amount, on which sales tax has been already paid

Summary

Issues:
Whether service tax can be levied on the amount representing dealers' margin for free after sales service provided by authorized dealers of Tata Motors.

Analysis:
The appellants, authorized dealers of Tata Motors, sell cars at full price to customers, pay sales tax on the price, and provide free after sales service charging only material cost. The Ministry's Circular clarified that if the value of service provided free of charges is zero, tax will also be zero. Another Circular stated that reimbursements for free servicing are subject to service tax, but the appellants did not receive any reimbursement. The dealers' margin covers expenses for free servicing, and since the full price is recovered from customers, no service tax can be charged on the dealers' margin.

The consultant highlighted that other auto dealers follow the same sales pattern with free servicing, but only the appellants faced service tax demands. Referring to a Tribunal decision, it was argued that service tax is not leviable when sales tax has been paid. The Tribunal noted the exclusivity between sales tax, excise duty, and service tax. The dealers' margin recovered from customers was for selling cars, not providing free service. Thus, the entire amount, including the dealers' margin, already taxed under sales tax, should not be subjected to service tax. Consequently, the Tribunal set aside the impugned order and allowed the appeal.