Custom, Excise & Service Tax Tribunal
Suri Automobiles vs Kanpur on 25 March, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.II
Service Tax Appeal No.70157 of 2023
(Arising out of Order-in-Appeal No. 610-ST-ALLD-2022, dated -19/12/2022
passed by Commissioner (Appeals) CGST & Central Excise, Allahabad)
M/s Suri Automobiles .....Appellant
(Nehru Nagar, Civil Lines, Sipri Bazar,
Jhansi, Uttar Pradesh 284003)
VERSUS
Commissioner, CGST, Kanpur ....Respondent
(117/7, Sarvodya Nagar, Kanpur Nagar, Uttar Pradesh 208005) APPEARANCE:
Request for adjournment for the Appellant Ms. Chitra Srivastava, Authorized Representative for the Respondent CORAM: HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) FINAL ORDER NO.-70161/2025 DATE OF HEARING : 25.03.2025 DATE OF DECISION : 25.03.2025 SANJIV SRIVASTAVA:
When the matter was called none appeared for the Appellant though there is a request received by E-mail from the counsel for the Appellant requesting for an adjournment. Since the issue is in very narrow compass the request matter was taken up for consideration on the basis of records.
2.0 This appeal is directed against Order-in-Appeal No. 610-ST-ALLD-2022, dated -19/12/2022 passed by Commissioner (Appeals) CGST & Central Excise, Allahabad. The Original Adjudicating Authority dropped all the proceedings against the 2 Service Tax Appeal No.70157 of 2023 Appellant raised vide Show Cause Notice dated 29.12.2020. Aggrieved Department filed an appeal against the order of the Original Authority before the Commissioner (Appeals). Commissioner (Appeals) by the impugned order remanded the matter to the Original Adjudicating Authority holding as under:-
"4.7 In view of the above judicial pronouncement I find that mere citing of courts/tribunal judgment is not sufficient to arrive at a decision but applicability needs to be discussed explicitly. I observe that in the instant case the adjudicating authority has failed to discuss as to how the judicial pronouncements cited in the impugned order are applicable in the instant case. Also, adjudicating authority should specify as to what documentary evidences they have examined to conclude that the discount/incentives fall in the same category.
4.8 In view of the above I, therefore, remand the matter to the adjudicating authority in the light of Section 85(4) of the Act with direction to pass speaking order after discussing documentary evidences and the basis of the applicability of the tribunal decisions in the instant case. The respondent is also directed to cooperate with the adjudication proceedings and submit all the necessary documents to the adjudicating authority within 15 days of receipt of this Order to ascertain the nature of services, eligibility of abatement and re- quantification of service tax liability.
5. In view of the above, I set aside the impugned Order and remand the matter to the original adjudicating authority to decide the case afresh in the light of above observation, preferably within six months from date of receipt of this Order."
2.1 Appellant is engaged in providing taxable services on behalf of Maruti Udyog Ltd, as registered dealer covered under 'Repair and Maintenance' which is defined as taxable services under the Finance Act 1994 (hereinafter referred to as "the Act"). He is also registered with the Department, vide Service 3 Service Tax Appeal No.70157 of 2023 Tax Code No AARFS6245CST001 for providing taxable services under category 'Business Auxiliary Service'.
2.2 On the basis of information received it was observed that they were providing taxable services viz. "achieving targets of purchase /sales of cars" to the principal manufacturer and received Commission/ Incentive/ Discounts/ Reimbursement in lieu of it. Amount received as Commission/Incentive/Discounts/ Reimbursement for achieving targets of purchase/sales of cars is was covered by the expression 'agree to do an act" and hence was covered by clause (e) of Section 66E of Finance Act, 1994 as declared service.
2.3 An inquiry against the respondent was initiated. In response the respondent submitted Ledger of Trade Discount / Incentives in their Books of Accounts for the, Audited Balance Sheets, and ST 3 Returns for the FY 2015-16, 2016, & 2017-18. From the documents it was observed that during the FY 2015-16 to 2017-18 (up to June 2017) the respondent had received consideration of Rs. 1,04,65,159/- as discounts/incentives from the manufacturer on which they failed to discharge their Service Tax (including Cesses) to the tune of Rs. 15,48,729/-.
2.4 Show Cause Notice dated 29.12.2020 was issued to the Appellant asking them to show cause as to why:-
a. The total taxable amount of Rs 1,04,65,159/- (Rs One Crore Four Lakh Sixty Five Thousand One Hundred and Fifty Nine Only) received by the party from the manufacturer as described hereinabove during F. Y. 2015-16 to F. Y. 2017-18 (upto June'17) for the relevant periods on account of the taxable services should not be treated as the value of taxable services provided by them and accordingly why Service Tax not'paid/short paid, at appropriate rate as shown in the table above total amounting to Rs 15,48,729/-(Rs Fifteen Lakh Forty Eight Thousand Seven Hundred and Twenty Nine Only) (Inclusive of Ed. Cess, H.Ed. Cess, Swach Bharath Cess 4 Service Tax Appeal No.70157 of 2023 and Krishi Kalyan Cess) should not be demanded and recovered from them under the provisions of Section 73(1) of the Finance Act ibid and read with Section 174 of the Central Goods and Service Tax Act, 2017, as shown in the above table.
b. Why interest as applicable on the service tax amount mentioned at (a) above, should not be demanded and recovered from them under Section 75 of the Finance Act, 1994 and read with Section 174 of the Central Goods and Service Tax Act, 2017;
c. Penalty should not be imposed on them under Section 76 of the Act read with Section 174 of the Central Goods and Service Tax Act, 2017 for their failure to pay Service Tax in prescribed manner.
d. Penalty should not be imposed on them under Section 77 of the Act read with Section 174 of the Central Goods and Service Tax Act, 2017 for their failure to pay Service Tax in prescribed manner and e. Penalty should not be imposed on them under Section 78 of the Act read with Section 174 of the Central Goods and Service Tax Act, 2017 for suppressing the value of the taxable services provided.
2.5 The demands made in the Show Cause Notice was dropped by the Original Authority vide order dated 08.06.2022.
2.6 Aggrieved Department filed appeal before the Commissioner (Appeals) who remanded the matter to the Original Adjudicating Authority with some observation reproduced in Para 1 above.
2.7 Aggrieved by the order of the Commissioner (Appeals) Appellant has filed this appeal.
3.0 Heard Ms. Chitra Srivastava, Authorized Representative for the Revenue. She reiterates the findings recorded in the impugned order.
4.1 I have considered the impugned order along with the submissions made in appeal and during the course of arguments.
5 Service Tax Appeal No.70157 of 2023 4.2 The order in original records as follows for dropping the demand:
"24. I further find that the party has quoted numerous case laws in their reply, some of them are relevant to the issue in the impugned Show Cause Notice and specifically discuss about the taxability of discounts/ incentives as "business Auxiliary Service" which are discussed as below:
24.1 In the context of the demand raised vide the impugned Show Cause Notice in the instant case, I rely upon the settled position in the decision of the tribunal in the case of T M Motors Pvt. Ltd. vs. Alwar on 22 June, 2018 in Service Tax Appeal No ST/53009/2015-Cu(DB) wherein the Tribunal relied upon the judgement of one of its Tribunal in the case of Toyota Lakozy Auto Pvt. Ltd. reported as 2017 (52) STR 299 (Tri-Mumbai) and held 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.
By following the decision (supra) we set aside the demand of service tax on this ground."
The relevant portion of the judgment of the Tribunal in the case of Toyota Lakozy Auto Pvt. Ltd. 2017 (52) STR 299 (Tri-Mumbai) is reproduced below:
3. Appellant contends that ` 81,35,813/- and ` 1,21,47,133/- for the two periods has been wrongly subjected to tax because the agreement between the appellant and M/s. Toyota Kirloskar Motor Limited is one of supply of vehicles by the latter on 'principal-to-
principal' basis on which title and risk, as per Agreement, are passed on to appellant when the vehicles are excise cleared and placed on common carrier. Depending on order quantity, the manufacturer raises invoices after according discounts which are designated as commission/incentive merely as a management terminology. Learned Chartered Accountant for appellant places reliance in the decisions of the Tribunal in Jaybharat Automobiles Limited v. Commissioner of Service Tax, Mumbai [2015-TIOL-1570-CESTAT-MUM = 2016 (41) S.T.R. 311 (Tri.)], Sai Service Station Limited v. Commissioner of Service Tax, Mumbai [2013-TIOL- 1436-CESTAT-MUM = 2014 (35) S.T.R. 625 (Tri.)], Tradex Polymers Private Limited v. Commissioner of Service Tax, Ahmedabad [2014 (34) S.T.R. 416 (Tri.- Ahmd.)] and Garrisson Polysacks Private Ltd. v.
6 Service Tax Appeal No.70157 of 2023 Commissioner of Service Tax, Vadodara [2015 (39) S.T.R. 487 (Tri.-Ahmd.)]. In re Jaybharat Automobiles Limited, the Tribunal held that "6.5 On the appeal by Revenue on the issue of incentives received by the appellant from the car dealer, we find that the relationship between the appellant and the dealer is on a principal to principal basis. Only because some incentives/discounts are received by the appellant under various schemes of the manufacturer cannot lead to the conclusion that the incentive is received for promotion and marketing of goods. It is not material under what head the incentives are shown in the Ledgers, what is relevant is the nature of the transaction which is of sale. All manufacturers provide discount schemes to dealers. Such transactions cannot fall under the service category of Business Auxiliary Service when 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."
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. The assessee respondent is the authorized dealer of car manufactured by MUL and are getting certain incentives in respect of sale target set out by the manufacturer. These targets are as per the circular issued by MUL. Hence these cannot be treated as business auxiliary service."
24.2 Further, I also find that the decision of Tribunal in the case of Toyota Lakozy Auto Pvt. Ltd. reported as 2017 (52) STR 299 (Tri-Mumbai) was also relied upon in another decisions of the Tribunal in the case of Autobahn Enterprises Pvt. Ltd. vs Commissioner of Service Tax (CESTAT Mumbai) in Service Tax Appeal No 87226 of 2014.
24.3 In context of the taxability of the service in question in the impugned Show Cause Notice, I find another decision of Tribunal to rely upon, in the case of M/s Sharyu Motors Vs. Commissioner of Service Tax 2016 7 Service Tax Appeal No.70157 of 2023 (43) STR 158 (Tri. Mumbai) wherein the Tribunal held that, "As regards the Service Tax liability under the category of Business Auxiliary Services for the amount received and for achieving the target under Target Incentive Scheme, we find that the appellant had been given targets for specific quantum of sale by the manufacturers of the cars. As per the agreement, on achievement of such target and in excess of it, appellant was to receive some amount as an incentive. It is the case of the Revenue that such amount is taxable under Business Auxiliary Services, we find no substance in the arguments raised by the learned AR as well as the reasoning given by the adjudicating authority. The said amounts are incentive received for achieving the target of sales cannot be treated as Business Auxiliary Services, as incentive are only as trade discount which are extended to the appellant for achieving the targets."
25. I view of the aforesaid judgments of the Tribunal, I find that the discounts / incentives received by the party are only in the form of trade discounts which are received by the dealer/party on achieving the sale targets fixed by the car manufacturer and these discounts/ incentives shall not be treated as Business Auxiliary services for deciding the liability of Service Tax on the same. Accordingly, relying upon the various judgments of the Hon'ble Tribunal as discussed above, I find that the discounts / incentives received by the party does not amount to Taxable amount under Business Auxiliary Services and are not liable to Service Tax.
26. Thus in view of discussions & findings made in foregoing paras, I find that, as the matter stands settled in favour of the party, the demand of Service Tax raised by the Department in the impugned Show Cause Notice is not sustainable and therefore liable to be dropped. As the demand of Tax itself is not sustainable, the question of demand of interest and imposition of penalty does not arise."
4.3 I find that the issue involved in the present case i.e. whether the discounts/ incentives received by the authorized dealer of car manufacturer, from the car manufacturer will be covered by the clause (e) of Section 66D of the Finance Act, 1994 was considered by the Delhi Bench in the case Prem 8 Service Tax Appeal No.70157 of 2023 Motors Private Limited [2023 (73) G.S.T.L. 97 (Tri. - Del.)]. Bench observed as follows:
"5. We have heard the Learned Counsel for the respective parties and perused the records.
6. The Learned counsel for the Appellant argued that incentives are attributable to the activity of sale and not for rendering any services by the Appellant and therefore are not chargeable to service tax. The case of the Appellant is that they are merely engaged in sale- purchase of vehicles and the steps taken to promote the sale is for vehicles owned by the Appellant itself. In support of their contention they have relied on various decisions of the Tribunal. According to them, the activity undertaken by them only constitutes transfer of title in goods by virtue of sale of vehicles which falls within the negative list and as per Section 66D(e) of the Finance Act, 1994, 'trading of goods' is excluded from levy of service tax. They have also raised the issue of limitation as the Show Cause Notice was issued on 12.4.2019 covering the period from April 2013 to June 2017 and hence the same is barred by time.
7. The authorised representative for the revenue has supported the findings of the authorities below.
8. The issue which arises for our consideration is whether service tax is leviable on incentives / discount reimbursement extended by MSIL to the Appellant.
9. The issue is no longer res integra and as referred to by the Learned Counsel for the Appellant the same has been considered and decided in favour of the assessee in the following cases:
(i) Rohan Motors Limited vs. Commissioner of Central Excise (2021 (45) GSTL 315 (Tri-Del.) (ii) TV Sundram Iyengar & Sons Pvt Ltd. vs. Commissioner of CGST & C.EX. Madurai (2021 (55) GSTL 144 (Mad.))-
2021-VIL-391-MAD-ST (iii) B M Autolink vs. Commissioner of Central Excise,2022-VIL-900- CESTATAHM-ST (iv) Roshan Motors Pvt Ltd. vs. 9 Service Tax Appeal No.70157 of 2023 Commissioner of Central Excise2022-VIL654-CESTAT- DEL-ST (v) Anand Motor Agencies Limited vs. Commissioner of Customs-2022-VIL116-CESTAT-ALH- ST (vi) Kafila Hospitality and Travels Pvt Ltd. vs. Commissioner of Service Tax (2021(47)GSTL 140(Tri- LB)-2021-VIL-101-CESTAT-DEL-ST
10. That all the above cases relates to dealership agreement between the manufacturer of motor vehicles (MUL, MSIL ,TML) with their dealers for sale purchase of vehicles. In terms of the agreement it has been noticed that the dealer works on principle to principle basis and not as an agent of the manufacturer. The agreement itself provides for certain sales promotion activities which are for the mutual benefit of the business of the manufacturer as well as the dealer. The observations of the Ahmedabad Bench of the Tribunal in B M Autolink (supra).
"4. We have carefully considered the submissions made by both the sides and perused the records. We find the fact is not under dispute as the Appellant being a dealer purchase the vehicles from M/s Maruti Suzuki India Ltd and subsequently sell the same to various customers. The transaction between M/s Maruti Suzuki India Ltd and the dealer and subsequently sale transaction between the dealer and the end customers are purely on principle to principal basis. The vehicle manufacturer M/s Maruti Suzuki India Ltd. on the basis of yearly performance of sale grants the discount to the dealer, this discount is nothing but a discount in the sale value of the vehicle sold throughout the year therefore these sales discount in the course of transaction of sale and purchase of the vehicles hence, the same cannot be considered as service for levy of service tax."
11. The Larger Bench of this Tribunal in the case of Kafila Hospitality and Travels Pvt Ltd (supra) dealt with the issue whether service tax can be levied under the category of 'Business Auxiliary Service' on target based 10 Service Tax Appeal No.70157 of 2023 incentives paid to the travel agents by the Airlines as they were promoting and marketing the business of the Airlines. The Tribunal took the view that it is not a case where the air travel agent is promoting the service of the Airlines rather by sale of airlines ticket he was ensuring the promotion of its own business even though this may lead to incidental promotion of the business of the Airlines. On the issue, whether 'incentive' paid for achieving target are taxable, the Tribunal analysed the scope of the term 'incentives' that they are generally given to encourage performance of the party. It is relevant to appreciate the observations made in the said judgment:
"77. Consideration, which is taxable under section 67 of the Finance Act, should be transaction specific. Incentives, on the other hand, are based on general performance of the service provider and are not to be related to any particular transaction of service. It needs to be noted that commission, on the other hand, is dependent on each booking and not on the target. If the air travel agent does not achieve the predetermined target, incentives will not be paid to the travel agents.
78. In this connection it will be appropriate to take note of the decision of the Federal Court of Australia AP Group. The Federal Court of Australia held that in order to levy tax, the payment must be attributable to a particular supply and not to supplies in general and so the target incentives paid by a motor vehicle manufacturer to a dealer would not qualify as consideration as the incentives would be in relation to all supplies and not in relation to a particular supply. The relevant portion of the decision of the Federal Court is reproduced below:-
"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
11 Service Tax Appeal No.70157 of 2023 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 relationship contemplates a continuing dialogue between wholesaler and retailer in which promises are routinely exchanged, but to characterize this dialogue as involving supply after supply is unrealistic and impractical. To characterize the payment of the incentives intended to encourage the overall relationship to operate efficiently as involving supplies for consideration equally unpersuasive.A dealer will always wish to sell as many cars as practicable and to move old stock to make way for new stock. So too a dealer will always wish its ordering arrangements to be the most efficient and economically beneficial to it. The manufacture will have the same objectives. It is this context which underpins the Tribunal's conclusion that the payments are not for the supply of anything by the dealer. As the Tribunal said at [86] the dealer (which must be inferred to act in an economically rational manner in the ordinary course) will always want to run the business in this way. The fact that the dealer receives a payment as an incentive when certain thresholds associated with running the business in this way does not mean that the dealer is supplying a service to the manufacturer for consideration. If the incentive payment were not available there is no basis to infer that the dealer would not behave in the same way for free. For these reasons there cannot be said to be any supply for consideration in these arrangements."
(emphasis supplied)
12. As a matter of judicial discipline the aforesaid decisions are binding on us and in light thereof we find that the present case is squarely covered by the 12 Service Tax Appeal No.70157 of 2023 law laid down in those judgments. We have examined the dealership agreement entered between MSIL and the Appellant and we find that MSIL is engaged in manufacturing, marketing and selling of motor vehicles and the Appellant purchases the vehicles from the manufacturer as their authorised dealer on principal to principal basis. The relevant clause is quoted herein below:
"C. MSIL having considered the representations made and the application submitted by the Dealer agrees to appoint the Dealer as the Authorised Dealer. It is made clear that MSIL would sell the products and parts to the dealer on principle to principal basis. The dealer would sell the products and parts and would provide service to the customers (which would include, but not be limited to, the service in terms of the warranty as per the owner's manual provided by MSIL from time to time) which promotes and maintains customer confidence and customer satisfaction on the terms and conditions mutually agreed to between the parties and contained in this agreement."
13. We also find that the activity undertaken by the Appellant is for the sale and purchase of the vehicle and the incentives are in the nature of trade discounts. The incentives, therefore form part of the sale price of the vehicles and have no correlation with the services to be rendered by the Appellant. That in terms of the dealership agreement, the Appellant purchases the vehicles from MSIL and sells the same to its end customers. The activity of promoting the sale is with respect to the vehicles owned by the Appellant which incidentally is in interest of both the parties. Reliance is placed on the observations referred above in the case of Kafila Hospitality and Travels Pvt Ltd. (supra).
14. We also find that the Appellant is engaged in the onward sale of vehicles which involves merely transfer of property in goods which is excluded 13 Service Tax Appeal No.70157 of 2023 from the definition of 'service'. That section 66D of the Finance Act, 1994 contains the negative list of services under various clauses and clause (e) provides for 'trading of goods'. On this ground also we find that incentives which are part of sale activity are not exigible to service tax.
15. We are therefore of the considered view that the amount of incentives and discounts cannot be treated as consideration for any service and therefore no Service Tax is leviable thereon. Having decided the issue on merits in favour of the assessee, it is no longer required to go into the question of limitation raised by the Appellant.
16. The impugned order is, therefore, set aside and the appeal is allowed accordingly."
4.2 On the issue regarding booking cancellation charges are not exigible to service tax, Learned counsel submits that Cancellation of booking charges are in the nature of compensation and not consideration. Hence, there is no provision of service made towards such cancellation. In the case of Divine Autotech Private Limited v. CCT, 2024-VIL- 745-CESTAT-DEL-ST, it was held that booking cancellation charges for motor vehicles received by Appellant is in the nature of compensation and not consideration for service. Further the CESTAT placed reliance on Circular No. 178/10/2022-GST dated August 3, 2022 wherein the issue of cancellation charges has been dealt with at length. Therefore, no service tax could be charged on them. From the above discussions and findings, and the issues being covered by the judgements cited supra in the identical situation, the amount received as discount/ incentive from the vehicle manufacturer by the Appellant being the dealer is not liable to service tax and service tax is also not leviable on the booking cancellation charges.
4.4 Decision of the Delhi Bench in case of Prem Motors has been followed by the Ahmadabad Bench in case of Comet Car Sales And Service Private Limited [Final Order No. 12675- 12679/2024 dated 12.11.2024].
14 Service Tax Appeal No.70157 of 2023 4.5 In view of the above decisions as I do not find any reasons to hold that the Appellant had under taken any activity for the service recipient against the consideration received I am not in position to uphold the order on the merits of demand. Though Commissioner (Appeal) has remanded the matter to original authority for de-novo consideration, I do not find any merits in the remand order as the issue is squarely covered by the above decisions.
4.6 I do not find any merits in the impugned order.
5.1 Appeal is allowed.
(Operative part of the order is pronounced in open court) Sd/-
(SANJIV SRIVASTAVA) MEMBER (TECHNICAL) Nihal