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TMI Blog2024 (4) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... es provided in relation to business promotion activities in course of appellant s business activities - HELD THAT:- The facts of the case need to be examined along with the legal position in respect of levy on payment of service tax. From the facts of the case, it is found that the various schemes under which the discount/incentives were received by the appellants from the manufacturer of motor vehicles by way of credit notes, were essentially in the nature of schemes conceptualized by such manufacturer wherein the discount given to the ultimate consumer is borne by both the manufacturer and the appellants dealer. As per such schemes, the appellants had forwarded to the manufacturer the proposal of discount to be given to the ultimate consumer, for their consideration and approval - The discounts offered in the above manner by issue of credit note also amount to reduction in purchase price of the individual vehicles which are covered during the aforesaid volume/value of sales. In respect of reimbursements scheme, various discounts offered depending on the specific model of the vehicles being sold during a particular specified period, the appellants dealer extends such benefits to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F CENTRAL EXCISE, PUNE-I VERSUS SAI SERVICE STATION LTD [ 2017 (5) TMI 1144 - CESTAT MUMBAI] , by setting aside the service tax demand it was held that the issue is no more res integra as identical issue came up before the Tribunal in the case of COMMISSIONER OF CENTRAL EXCISE CUSTOMS, NASHIK VERSUS M/S AUTOMOTIVE MANUFACTURES LTD [ 2015 (12) TMI 549 - CESTAT MUMBAI ] wherein the Tribunal held that service tax liability cannot be on the part of margin given by the manufacturer to the dealers being inclusive of the charges of free sale service. Reversal of Cenvat credit in terms of Rule 6(3A) of Cenvat Credit Rules, 2004 - HELD THAT:- It is found from records of the case, in particular from the Final Audit Report No.236/2016-17 submitted by the Deputy Commissioner, Service Tax Audit-III, Mumbai, it has been specifically mentioned that the during the course of audit, the Audit wing had observed that the appellants had maintained CENVAT registers as per Service Tax registrations obtained for various premises. The Audit wing had also observed that the appellants had not availed Cenvat credit on inputs services which have been utilized only for exempted services; however, Cenvat credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax on taxable services the appellants had registered separately for various locations of their business with the jurisdictional Service Tax Commissionerate. 2.2 During the course of EA 2000 Audit conducted by the Department in September, 2015 covering the activities of the appellants for the financial years 2011-2012 to 2014-2015, it was noticed by the department that they were providing taxable services as well as exempted services; they had availed Cenvat credit on common input services within each of the registered locations, which in certain cases the credit was foregone and had also reversed certain amount of Cenvat credit taken on common inputs which the audit identified to be as violative of Rule 6 (3A) of Cenvat Credit Rules, 2004 resulting in short payment of service tax. Accordingly, the audit wing of the Department by letter dated 21.12.2015, informed the appellants to clarify various observations made by them, which are in gist as follows: S. No. Gist of the audit observations Service Tax payable (in Rs. Lakhs) 1 Reconciliation differences - short payments 1397.32 2 Incorrect reversal of Cenvat credit in terms of Rule 6(3A) of Cenvat Credit Rules, 2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he method adopted by the appellants assessee by foregoing certain amount of Cenvat credit in respect of provision of exempted service is correct in terms of provisions of Rule 6(3A) of CCR, 2004; and (v) whether penalty is impossible on appearance under Section 77, 78/76 ibid. Upon examination of each of the above issues, the learned Commissioner had decided these issues by confirmation of the service tax demands along with imposition of penalty, with the exception of dropping the demand raised in respect of the issue of taxability of services in relation to vehicles provided to its associates in the SCN dated 13.10.2016 by holding that the same cannot be made liable for service tax under the category of 'Business Support Services'. Feeling aggrieved with the impugned order in confirmation of service tax demands on other issues, the appellants have preferred these appeals before the Tribunal. 3.1 Learned Advocate for the appellants contends that the service tax is not applicable in respect of various sales promotion activities involved in sale of vehicles and explained that the appellants are engaged in the sale of heavy commercial vehicles and passenger vehicles for which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of new vehicles is provided with free services during the warrant period as a part of standard sale arrangement and the value of such services are embedded in the selling price of vehicles. Thus, these transactions are not in the nature of service but is a sale which is subject to State VAT. As regards reversal of Cenvat credit, he stated that the appellants render no services in the premises dealing with sale of vehicles and hence there is no common inputs or input services requiring reversal of Cenvat credit; the appellants had taken Cenvat credit only at workshops where the activity of maintenance and repair services have been carried out; however, in certain premises where the service of motor vehicles and sale of spare parts is carried on, they had reversed the Cenvat credit attributable to input services on non-taxable activity. 3.3 Further, as regards 'other income' during the adjudication stage, the appellants had explained the same with supporting documents as to how these are not covered under the taxable category; however, the learned Commissioner in the impugned order dated 13.10.2020, did not deal with the same properly. Thus, they claimed that the service tax dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or vehicle other than three wheeler scooter auto-rickshaw and motor vehicle meant for goods carriage; xx xx xx xx xx (zzb) to a client, by any person in relation to business auxiliary service; xx xx xx xx xx (zzzq) to any person, by any other person, in relation to support services of business or commerce, in any manner; xx xx xx xx xx 65. (19) "business auxiliary service" means any service in relation to (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or Explanation.--For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "inputs" means all goods or services intended for use by the client; (v) production or processing of goods for, or on behalf of, the client; (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or colle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to it in clause (28) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988); 65. (9) 2"authorised service station" means any service station, or centre, authorised by any motor vehicle manufacturer, to out any service, repair, reconditioning or restoration of any motor car, light motor vehicles or two wheeled motor vehicles manufactured by such manufacturer;" Interpretations. "65B. In this Chapter, unless the context otherwise requires,-- xx xx xx xx xx (44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include-- (a) an activity which constitutes merely,-- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions, it transpires that for the disputed period relating to the pre-negative list regime i.e., prior to 01.07.2012, the taxability was determined in terms of coverage of an activity under the service tax net by defining taxable services under Section 65(105) ibid, which enumerated each of the specified services. However, for the period post-negative list regime, i.e., from 01.07.2012, the category of services hitherto defined under the erstwhile regime were merged under a common phrase i.e., 'service' as defined under Section 65B(44) ibid, which was brought into effect from 01.07.2012. As the disputed period relate to pre-negative list regime as well as post-negative list regime, we are governed by the relevant provisions of Section 65(105) and Section 65B(44) ibid, as applicable to the relevant period. 7.1 In the impugned order dated 13.10.2020, learned Commissioner had dealt with the five issues under dispute summarized in para 2.3 above, by categorizing these as (A) to (E) and arrived at the conclusion, as follows: (A) Services in relation to providing vehicles to associates, in course of its business activities: (page 56 of impugned order) "From the discussion in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of any reconciliation statement/clarification from the assessee, I am inclined to hold that the same pertains to amount applicable to service tax and service tax is payable by them on the same. Held accordingly." (C) Servicing of vehicles during the 'free warranty' period provided/ rendered during the course of its business activities: (page 62 of impugned order) "…The assessee had submitted to the audit that the value of 'Free service' is adjusted by way of additional discount and the time of purchase of vehicles from 'Hyundai Motors'. Thus there is some consideration flowing to the assessee on this behalf which is appropriately chargeable to service tax. I therefore hold that the service tax is currently leviable thereon. Held accordingly." (D) The method adopted for foregoing certain amount of Cenvat credit in respect of provision of exempted salaries, in terms of the provisions of Rule 6(3A) of the CCR, 2004: (page 63&64 of impugned order) "…In the absence of any such evidence, I am inclined to hold that the procedure as set out in Rule 6 (3) & 6(3A) of the Cenvat Credit Rules, 2004 have not been followed scrupulously and thus the Cenvat credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is offered to the appellants dealer when they achieve particular target in terms of quantity of sales, or value of sales as per various schemes introduced by the manufacturers. The discounts offered in the above manner by issue of credit note also amount to reduction in purchase price of the individual vehicles which are covered during the aforesaid volume/value of sales. In respect of reimbursements scheme, various discounts offered depending on the specific model of the vehicles being sold during a particular specified period, the appellants dealer extends such benefits to all eligible buyers of the vehicles. Hence, we find that the said benefit of discount for incentives/ reimbursable amounts also results in reduction of net sale price of vehicles to the ultimate consumer. 7.3. Further, we also find that on perusal of the 'dealership agreement' dated 15.09.2017 entered into by the appellants with Tata Motors Limited, submitted along with the paper book, has specifically provided about the 'Net Dealer Price' under which the appellants are required to sell the product under such an contractual arrangement. The extract of the said clause is given below: "12 (a) The dealer shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also no evidence on record to show that the goods on which the discounts were given while effecting sales to the dealers were passed on to the customers, that is, buyers of the cars. There was also a case of false/fabricated circulars claimed to have been issued to the dealers, the receipt of which has been denied by all the dealers, in that referred case. Thus, we are of the view that the ratio of the said decision cannot be applied in the present case before us, as the facts of the case are entirely different. 7.5. We further note that the learned Commissioner had also relied upon the Order of the Tribunal in the case of HDFC Bank Ltd. Vs. Commissioner of Central Excise, Thane-II vide Final Order Nos. A/86593/2019 dated 13.09.2019 passed in Appeal No. ST/85741 of 2014 for conforming the service tax demand under the category of Business Auxiliary Services. In this regard we find that the Tribunal in the above relied upon case had referred to the services provided by HDFC bank, who had entered into agreement with various vehicle manufacturers/dealers, for providing loan to customers/clients of vehicle manufacturers/dealers at a rate lower than the rate at which they grant loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant for achieving certain targets of purchase of spare parts which is purely an activity of buying and selling on which local VAT is paid at the time of sale. Appellant strongly argued that such an incentive is only a trade discount based on performance. Appellant has relied upon the case law Deputy Commissioner of Sales Tax v. Motor Industries Co., Ernakulam (supra). Similarly appellant is getting incentives on MGA, Incentive on Free MGA, Balance Score Card, Incentive on Wagon R and Alto Cars, Incentive on Esteem and Maruti 800 etc., Incentive of free Credit, Incentive on sale of employees of LIC, SBI and Fetchers Scheme, Misc. Spot Credit and IFC, Finance pay out and National Subvention of MUL, part reimbursement of advertisement and incentive for arranging camps/sales mela and Free Mega Checkup Camps. It is the case of the appellant that all these amounts received from MUL, are either compensatory payments or in the nature of performance based trade discounts on achieving certain performance targets or is an activity which is mutually beneficial to both the appellant and MUL. It is not the case of the Revenue that MUL continues to remain the owner of the goods dealt by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in the prescribed manner." (emphasis supplied) 75. Section 67 of the Act deals with valuation of taxable services for charging service tax. Sub-section (1) of Section 67 provides that where service tax is chargeable on any taxable service with reference to its value, then such value shall, where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by the service provider. It is, therefore, clear that only such amount is subject to service tax which represents consideration for provision of service and any other amount which is not a consideration for provision of service cannot be subjected to service tax. 76. In this connection, it would be appropriate to refer to the decision of the Supreme Court in Union of India v. Intercontinental Consultancy and Technocrats [2018 (10) G.S.T.L. 401 (S.C.)]. The Supreme Court observed that service tax is on the "value of taxable services" and, therefore, it is the value of the services which are actually rendered which has to be ascertained for the purpose of calculating the service tax. It is for this reason that the expression "s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... target incentive" payments. It reasoned as follows at [I06]-[I08] : I06. The last remaining payment type is Ford's retail target incentive payment. It is clear from the "Drive for Success" program that the payment is triggered at the time, and by reason, of the Applicant's recording of a level of new sales for a relevant period of eligible vehicles to eligible customers in excess of a specified target set by Ford. Significantly, though, and unlike the fleet rebates and the run-out model support payments, the target incentive payment has no nexus with any one particular supply. It is a payment made in connection with supplies generally, or perhaps more accurately, it is a payment made in connection with the making of supplies generally. 53. On analysis, the so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacture and the dealer to the mutual benefit of both. The relationship involves a whole raft of obligation from one to the other all, presumably, with the ultimate objective of maximizing their respective commercial positions. As the AP Group put it, the overall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es received on such account cannot, therefore, be treated as consideration for any service. The incentives received by the appellant cannot, therefore, be leviable to service tax. (emphasis supplied) 80. It, therefore, clearly transpires from the aforesaid decisions that incentives paid for achieving targets cannot termed as "consideration" and, therefore, are not leviable to service tax under Section 67 of the Finance Act." Further, in the case of Bombay Tyres International Pvt. Ltd. (supra), the Hon'ble Supreme Court had observed as under regarding 'Trade discount'. The relevant paragraph of the judgment is extracted below: "1. Trade Discounts - Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price." Furthermore in the case of Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant for the use of Participating Group Companies are not availed by the Appellant for its own use or consumption, and the Appellant has no function or existence other than as Trustee/Manager (agent) of the Participating Group Companies cost sharing arrangement. We therefore, find no bones in observing that the Appellant completely satisfies the conditions of a 'Pure Agent' as set out in Rule 5(2) of the Valuation Rules. 5.18 In Pharmalinks Agency (I) Pvt. Ltd. v. CCE, 2015 (37) S.T.R. 305, the Tribunal in the matter of a clearing and forwarding agent, who was receiving reimbursement towards freight charges under a separate agreement from the service recipient, held that the assessee is acting as a Pure Agent by making the payment of expenses subsequently taking the reimbursement of the same from the service recipient. Therefore, in the instant case the amount so recovered by the Appellant is in the capacity of a Pure Agent and thus the same cannot be subjected to the Service tax." 7.8 CBIC has vide its circular No. 87/05/2006-ST dated 06.11.2006 has also clarified on the service tax issues relating to authorized motor vehicle dealers and service stations, which have als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that firstly the sale of cars takes place from the manufacturer to the appellant-car dealer. Depending upon the various factors weighed upon by an individual end consumer, he purchases particular car/vehicle. In this process of sale of car, the appellant undertakes various activities to enable such sale of cars to ultimate end customer. The trade discount, incentives and commission offered by the car manufacturer M/s MSIL is in accordance with the agreement of the scheme announced by them. The Department does not dispute that there was such agreements, scheme between the appellant in the car manufacturers and the account of the appellant only reflect the actual discount allowed to them. The Department's argument is that the said discount/commission is in view of services rendered by the appellant by way of popularisation of the sales and consumption of the products by the end customer. We find it difficult to accept the conclusion arrived at in the impugned order that all the discounts/commission/incentives given by the manufacturer for the various types of targets achieved in terms of the number of vehicles sold under a particular model/category, consistent achievement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -62003, exempts service tax to the extent of value of the goods and materials sold by the service provider to the service recipient, if documentary proof of such sale exists and no credit of excise duty paid on such spares or consumables have been taken. It may, however be pertinent to note that for availing such exemption, the goods must be sold and consequently, they must be available (whether independently or as a part used for repair of a vehicle) for sale. In other words, the exemption would not be available to such consumables which have been consumed during the process of providing service and are not available for sale. 3. As regards 'free servicing' (where the customer does not pay any charges) of the motor vehicles, normally the service charges are reimbursement by the vehicle manufacturers, who promises such a facility to attract customer. As the law does not in any way restricts the levy of service tax only on the service charges received from the recipient of the service, therefore, such reimbursements are subject to service tax. 4. In some cases, the automobile dealers help the buyers of the vehicles for arranging the finances. For this, they have a tie- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f cars in the case before us, is no way comparable to services provided to customers at "free of charge" for which reimbursement are given by the car manufacturer. Similarly, this is not the case where the appellant is advising the end customers to buy the cars supplied by the manufacturer amongst various choices available to the customer in the car market for earning the commission/incentives which could be treated as sales promotion. As the present case of incentives/commission is solely related to trade discounts for sale of cars in accordance with the regular practice as well as the agreement/schemes that were in vogue in the industry, we do not treat the same as compensation received by the appellant for any services provided to the car manufacturer M/s MSIL. 6.3 We also find that the dispute pertaining to the issue of service tax liability on discounts/commission offered to car dealers by manufacturer has attained finality in view of the decisions taken by this Tribunal and the Apex Court in a number of cases. In this connection, we refer to the decision of the Tribunal in the case of Commissioner of Service Tax, Mumbai-I v. Sai Service Station Limited 2014 (35) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en it is a normal market practice to offer discounts/institutions to the dealers. The issue is settled in the case of Sai Service Station (supra). Therefore, we reject the appeal of the department." 6.5 Also, in the case of Toyota Lakozy Auto Private Limited v. Commissioner of Service Tax & Central Excise, Mumbai-II & V 2017 (52) S.T.R.299 (Tri.- Mumbai), the Tribunal has held as follows: "However, in view of the settled position in the decisions of the Tribunal supra, we hold that the discounts received on procurement of vehicles from the manufacturer are not liable to tax as 'business auxiliary services' and set aside the demand on that head." 6.6 We further find that in the case of Autobahn Enterprises Pvt. Limited v. Commissioner of Service Tax, Mumbai-I 2022 (56) G.S.T.L. 312 (Tri.-Mumbai) by referring to the decisions taken by the Tribunal in Re Toyota Lakozy Auto Private Limited and Re Jaybharat Automobiles Limited, the Tribunal has held as follows: "6. From the decisions cited by Learned Chartered Accountant, we find that the dispute pertaining to discount offered to corporate customers has attained finality. In this connection, the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra). Therefore, we reject the appeal of the department." and in re Sai Service Station Limited it was held that "14. In respect of the incentive on account of sales/target incentive, incentive on sale of vehicles and incentive on sale of spare parts for promoting and marketing the products of MUL, the contention is that these incentives are in the form of trade discount. … These targets are as per the circular issued by MUL. Hence these cannot be treated as business auxiliary service" 7.9 In respect of the services in relation to providing vehicles to associates, in course of its business activities, the learned Commissioner had concluded that the nature of activity of supplying vehicle to the goods transport agency, by the appellants is squarely covered by the ambit of the exemption notification No.25/2012-ST dated 20.06.2012 and by agreeing to the points submitted by the appellants, learned Commissioner had held that the said service cannot be categorized/classified under the head 'Business Support Services'. As there is no grievance expressed by the appellants in the appeals filed before us, on this issue as it is not against them and there is no a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional Sales Tax Authorities. Further, the details submitted by the appellants indicate that they have already reversed the Cenvat credit on input services availed at locations from where both service of vehicles and sale of spare parts was carried out to the tune of Rs.17,68,172/- and the same has been disclosed to the Department. In this regard, we also find that the impugned order do not provide any basis or evidential documents, upon which the incorrect availment of Cenvat credit could be determined in terms of CCR, 2004. Further, learned Commissioner at page 60 of the impugned order has recorded that "the assessee have submitted statement giving details of 'other income' alongwith reason, ledge accounts copies of each head of account under the groupings and taxability thereof with sample supporting evidence/documents." However, we find neither there is any cursory examination of the same nor any specific findings recorded by the learned Commissioner in the impugned order. In the absence of clear finding for demand of reversal of Cenvat credit and for demand of service tax on 'other income' without examination of documents, we find that the same cannot be legally sustainable. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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