2018 (3) TMI 416 - AT - Service Tax

Liability of service tax - agreements with various financial institutes including banks and general insurance companies to expand sale of their cars - Business auxiliary services or not? - the Department s case is that appellants, for arranging vehicle loans and vehicle insurance from Maruti Finance and Maruti Insurance to their customers, are getting commission amounts from the said companies and hence they are promoting or marketing the business of those companies and receiving in lieu commission - appellants contend that as dealers of MUL, they are only providing services on behalf of the clients i.e. MUL and that they have not entered any agreement with the financial institutions/banks and hence there can be no service tax liability. Held that - MUL receive 3.5% commission from the financial institutions out of which 3% is passed on to the dealer. Adjudicating authority has concluded that the fact of commission routed through MUL is of no consequence in view of Section 67 of the Act as value for any taxable service shall be the gross amount charged by the service provider for taxable service rendered by him to his client and that it is nowhere provided that money should flow directly from the service recipient. In the case of CCE, Jaipur vs. Ajmer Automobiles Pvt. LTd. 2012 (8) TMI 535 - CESTAT, NEW DELHI , on similar issue, the Tribunal has held that since MUL had paid the service tax on the entire commission, in such cases, tax is not payable again for the same amount. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of business auxiliary service under the Finance Act, 1994 in the context of activities undertaken by an authorized dealer of a vehicle manufacturer.

Analysis:

Issue 1: Scope of Business Auxiliary Service
The case involved determining whether the activities of an authorized dealer, facilitating vehicle loans and insurance on behalf of the manufacturer, fall under the taxable service of business auxiliary service as per section 65(19) of the Finance Act, 1994. The department contended that the dealer's actions amounted to promoting or marketing the services of financial institutions, thus falling within the definition of business auxiliary service. On the other hand, the dealer argued that they were merely providing services on behalf of the manufacturer and had not entered into agreements with the financial institutions. The Tribunal analyzed the nature of the services provided and the flow of commission to ascertain the applicability of the business auxiliary service definition.

Issue 2: Commission Structure and Tax Liability
The Tribunal examined the commission structure between the manufacturer, financial institutions, and the dealer. It was noted that the manufacturer received a commission from financial institutions, a portion of which was passed on to the dealer. The adjudicating authority emphasized that the flow of commission through the manufacturer did not absolve the dealer from service tax liability. However, the Tribunal referred to previous cases, including Popular Vehicles & Services Ltd. Vs. CCE, Kochi, where it was determined that if the manufacturer had discharged the service tax liability on the commission received, the dealer should not be held liable for further tax. This principle was reiterated in the case of CCE, Jaipur vs. Ajmer Automobiles Pvt. Ltd.

Issue 3: Precedent and Legal Interpretation
The Tribunal relied on previous judgments to support its decision, emphasizing that once the service tax was paid by the manufacturer on the commission received, no additional liability should be imposed on the dealer. The case of Popular Vehicles & Services Ltd. highlighted the concept of revenue neutrality and the applicability of tax credits in such scenarios. The Tribunal also referenced the case of JR Communications & Power Controls to draw parallels in tax liabilities based on commission payments.

Conclusion:
Based on the analysis of the activities, commission structure, and legal precedents, the Tribunal ruled in favor of the dealer, stating that if the manufacturer had correctly discharged the service tax liability on the commission received, the dealer should not be subjected to additional tax burdens. The impugned order was set aside, and the appeal was allowed with consequential benefits, if any.