Custom, Excise & Service Tax Tribunal
Starline Cars Private Limited vs Service Tax - Ahmedabad on 23 August, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
REGIONAL BENCH - COURT NO. 03
SERVICE TAX APPEAL NO. 10132 OF 2022
[Arising out of OIA-AHM-EXCUS-003-APP-76-2021-22 dated 16/12/2021 passed by
Commissioner of Central Excise, Customs and Service Tax-AHMEDABAD]
STARLINE CARS PRIVATE LIMITED .....Appellant
Nagalpur Mehsana Highway
Mehsana
Gujarat
Vs.
C.S.T.-SERVICE TAX - AHMEDABAD .....Respondent
th 7 Floor, Central Excise Bhawan, Nr. Polytechnic Central Excise Bhavan, Ambawadi, Ahmedabad, Gujarat-380015 WITH SERVICE TAX APPEAL NO. 10535 OF 2020 [Arising out of OIO-AHM-EXCUS-003-COM-007-19-20 dated 28/02/2020 passed by Commissioner of Central Excise, Customs and Service Tax-AHMEDABAD-III] STARLINE CARS PRIVATE LIMITED .....Appellant Nagalpur Highway Mehsana Gujarat Vs. C.S.T.-SERVICE TAX - AHMEDABAD .....Respondent Custom House... 2nd Floor, Opp. Old Gujarat High Court, Navrangpura, Ahmedabad, Gujarat-380009 Appearance:
Mr. Shailesh Shah, CA for the Appellant Shri Sanjay Kumar, Superintendent (AR) and Shri Tara Prakash, Deputy Commissioner (AR) for the Respondent CORAM: HON'BLE MR. RAMESH NAIR, MEMBER ( JUDICIAL ) HON'BLE MR. C. L. MAHAR, MEMBER ( TECHNICAL ) FINAL ORDER NO. 11787-11788/2024 Date of Hearing: 29.07.2024 & 31.07.2024 Date of Decision: 23.08.2024 RAMESH NAIR The brief facts of the case are that appellant M/s. Star Line Cars Pvt Ltd is an authorized car dealer of M/s. Maruti Suzuki India Limited and Page |2 ST/10132/2022-DB & ST/10535/2020-DB engaged in the activity of purchase of cars from M/s. Maruti Suzuki India Limited and selling the same to the individual customers on principle-to-
principle basis. In Addition to the car trading they are also engaged in providing services of repair reconditioning, restoration or decoration or any similar services of motor vehicle, and business auxiliary service. They also availed the facility of cenvat credit under Cenvat Credit Rules,2004. During the course of audit of appellant's record for the period from 2013-2014 to 2016-2017, various objections were raised. Thereafter, the show cause notices were issued wherein the following allegations were made:-
(i) The appellant have wrongly availed the cenvat credit of service tax paid on transport/GTA in respect of transportation charges which is inclusive of service tax in the purchase value of the car shown in the invoices issued by M/s. Maruti Suzuki India Limited. The appellant have calculated the service tax of reversed calculation basis and taken the cenvat credit of such service tax paid on transportation charges to M/s. Maruti Suzuki India Limited. It was further alleged that in terms of Rule 3 of Cenvat Credit Rules, 2004 only a manufacturer or provider of output service is allowed to credit of service tax paid on any input services received by them. It appears that in the present case the inward transportation of goods is solely used for transportation of goods meant for trading of cars and is not used in or in relation to output services (i) repair, (ii) business auxiliary services. Hence the said service of GTA would not qualify as input service in as much as service provided by GTA had not been utilized by assessee in providing their output services. In this issue, in both the appeals the period involved is 2013-2014 to 2016-2017 and April, 2017 to June, 2017 for which show cause notice dated 08.10.2018 was issued.
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(ii) The appellant are engaged in taxable services as well as trading of cars and availing the cenvat credit on the common input services, therefore, they are required to pay an amount @ of 7% of difference between cost of purchase price on the goods and sale of goods. Thus, a demand of Rs. 3,53,46,789/- under Rule 6 (3) of cenvat credit rules, 2004 was proposed.
(iii) The appellant are receiving incentives /commission on account of purchase and sale of cars from M/s. Maruti Suzuki India Limited.
In this regard, the show cause notices alleges that this incentive/commission are given by M/s. Maruti Suzuki India Limited on exceeding the target on sale of vehicles supplied by M/s. Maruti Suzuki India Limited and earned these indirect incomes as sales incentives and commissions. The manufacturer pay the said incentives on account of promotion and marketing of their product, to boost their sales. As per the show cause notice this activity is classifiable under business auxiliary service and the same is liable to service tax.
(iv) The appellant during the Financial Year from 2013-2014 to 2016- 2017 had collected handling charges from the customers for handling of vehicles but had not paid service tax on such handling charges. Such handling charges have been received and booked by the said assessee under the heading of showroom income. It appears to be taxable under business auxiliary services. Accordingly, the demand on this account was also raised in the show cause notice.
1.2 The adjudicating/appellate authority confirmed/upheld the demand of service tax on various counts as above. Therefore, the present appeals filed by the appellant.
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2. Shri Shailesh Shah, Learned Chartered Accountant appearing on behalf of the Appellant submits that as regard the issue that the appellant has availed wrong cenvat credit on transportation, he submits that the service tax on transport which was borne by the appellant, the appellant is the service provider of services which are in the nature of exemption and taxable service and the inward transportation is used in relation to providing the taxable service as well as exempted service, therefore, the appellant in terms of Rule of cenvat credit rules is eligible to take the cenvat credit. He submits that Rule (3) merely offers option to output service provider who does not maintain separate accounts in relation to receipt, consumption and inventory of inputs/inputs service used for provision of output service chargeable to duty/tax as well as exempted services. If such options are not exercised by the service provider, then service tax authorities can choose one of the option on behalf of the service provider. Therefore, the appellant have correctly availed the cenvat credit in respect of inward transportation in terms of Rule 6 of cenvat credit rules, 2004. In support he placed reliance on the following judgments:-
CCE & CU V. Roofit Industries Ltd. - 2015 (319) E.L.T. 221 Hindustan Zinc Ltd. V. Commissioner of CGST Udaipur.- 2021 (44) G.S.T.L. 163 CCE V. Nahar Exports Ltd.- 2007 Taxpub (ST) 0994 Commissioner of Service tax V. Hero Honda Motors Ltd. - 2013 Taxpub (ST) 0114 M/s. The Oudh sugar Mills Ltd. V. Custom, Excise and Service Tax. -
2017 Taxpub (ST) 1129 Kundan Cars Pvt. Ltd. V. CCE - (2016) 043 STR 0630 Badrika Motors Pvt Ltd. V. Commissioner - 2014 (34) STR 3549 (Trib) CCE V. Adishiv Forge (P) Ltd. - 2007 Taxpub (ST) 1272 CCE V. Modi Motors - 2012 taxpub (ST) 1215 Page |5 ST/10132/2022-DB & ST/10535/2020-DB 2.1 As regard the second issue related to duty of 7% under Rule 6 (3) of difference between the purchase price and sale price of goods, he submits that the appellant have admittedly reversed the proportionate cenvat credit in respect of common input service used in taxable service as well as non - taxable services such as trading activity. Therefore, the demand under Rule 6 (3) for an amount equal to 7% of the difference between the purchase and sale price of the cars is not correct. He takes support of the following judgments:-
Chandrapur Megnate wires (P) Ltd. V. Collector - 1996 (81) E.L.T.3 Tiara Adverting V. Union of India - Writ petition no. 18590 of 2017 decided on 27/9/2019 Bombay Minerals Ltd. V. Commissioner of C.E.N.S.T Rajkot - 2019 (29) GSTL 361 Orian appliances Ltd. - 2010 (19) STR 205 Shree Rama Multitech Ltd. V. Union of India - 2011 (267) ELT 153 Mercedez Benz India (P) Ltd. V. Commissioner of C.E.X. Pune-1 -
2015(40) STR 381 STAR Agriwarehousing & Collaterm Management Ltd. V. Commissioner of C.Ex. & S.T. Jaipur. - 2021 (44) GSTL 271 2.2 As regard the issue of receipt of incentive / commission from M/s. Maruti Suzuki India Limited, he submits that these incentives are received in the course of purchase and sale of the cars on principle to principle basis therefore, irrespective of any nomenclature, this incentive/commission are discount given by M/s. Maruti Suzuki India Limited to the appellant. Therefore, a discount during the course of trading is not liable to service tax. In support he placed reliance on the following judgments :-
T. M. Motors Pvt Ltd V. CGSTC & CE - ST Appeal No. ST/53009/2015 Page |6 ST/10132/2022-DB & ST/10535/2020-DB Shreenath Motos Pvt Ltd V. CST - 2018 Taxpub (ST) Pandit Automobiles V. CE&ST - Final Order No. 70379/2017 dt.
13//04/2017 CCE v. LMJ Service Ltd. - Appeal No. ST 56973/2013-SM/DEL Tata Motors Insurance Ser. Ltd. V. CST - 2007 Taxpub (ST) 0813 AIA Engineering Ltd. V. Commissioner of Service Tax Ahmedabad -
2019 (19) STR 257 Commercial Auto (Deharadun) Pvt Ltd V. CCE & ST - 2018 Taxpub (ST) 1181 Toyota Lakozy Auto P. Ltd. V. CST Mumbai - 2017 (52) STR 299 Sharyu Motors V. CST, Mumbai - 2016 (43) STR 158 My Car (P) Ltd. V. CCE, Kanpur - 2015 (40) STR 1018 CST V. Jay Bharat Automobiles Ltd. - 2016 (41) STR 311 CST V. Sai Service Station - 2014 (35) STR 625 2.3 On the issue regarding service tax demand on handling charges, he submits that while selling cars to individual customers, the appellant charged handling charges in the same invoice of the car to the customers, therefore, the handling charges is an expenses on account of sale of cars.
This handling charge is nothing but part and parcel of sale price of the car sold by the appellant to the customer on principle- to-principle basis therefore there is no existence of provision of service, service provider and service recipient. Therefore, on this handling charges also demand is not sustainable. He placed reliance on the following judgments:-
Indian Oil Corporation Ltd. V. CCE - 2015 Taxpub (ST) 0505 Automotive Manufacturers Pvt Ltd V. Comm. Of Central Excise & Customs Nagpur. - 2015 (63) Taxman 236 Infinium Motors Guj Pvt Ltd V. CST Service Ahmedabad Commissioner of Customs, Central Excise & Service Tax V. Andhara Sugars Ltd. - 2018 Taxpub (ST) 0318 (SC) Page |7 ST/10132/2022-DB & ST/10535/2020-DB CCE v. Vasavadatta Cements Ltd - 2018 Taxpub (ST) 0770 (SC) 2.4 He had submitted a written submission whereby he submits that as regard the cenvat credit on transport, the demand was raised for extended period. However, the appellant is the registered service provider and availing the cenvat credit and paying service tax on the taxable service which has been declared from time to time in their returns. The issue was raised during audit of appellant's record, therefore, there is no suppression of fact. Accordingly, the demand for the extended period is not sustainable.
3. Shri Sanjay Kumar, Learned Superintendent (AR) and Shri Tara Prakash, Learned Deputy Commissioner (AR) appearing on behalf of the respondent reiterates the finding of the impugned order.
4. We have carefully considered the submission made by both sides and perused the records. We find that in both appeals one of the issue of cenvat credit on GTA is common , therefore, both the appeals are taken up for disposal by this common order. As regard the issue of cenvat credit on GTA in respect of transportation charges and service tax thereon included in the purchase invoice of cars issued by M/s. Maruti Suzuki India Limited, we find that such GTA service is exclusively related to purchase of cars which are traded and sold as such therefore the GTA in the present case is exclusively used for trading activity which is an exempted service in terms of Rule 6 (1), hence the appellant is not entitled for cenvat credit in respect of any input or input services used exclusively for exempted service, therefore, in our view the credit on GTA service is not admissible to the appellant. However, the appellant have vehemently submitted that the demand for the extended period is time bar. In this regard we find that the availment of cenvat credit on GTA among other services has been recorded in their various records and the same has been declared in their ST-3 return from time to time. It is also a fact that the appellant Page |8 ST/10132/2022-DB & ST/10535/2020-DB are engaged in taxable as well as exempted activities, therefore, in such case, it was a bona fide belief that the cenvat credit on all the input service is admissible to the appellant. The objection about wrong availment of credit on this count was also raised by the auditors from the records of the appellant, therefore in this factual scenario, suppression of fact, mis-
declaration, wilful mis-statement , fraud etc cannot be attributed to the appellant. Therefore, in our considered view, demand for the extended period in respect of availment of cenvat credit on GTA is not sustainable.
However, the demand for the normal period is sustainable and the same is upheld . For the same reasons stated above, the appellant is also not liable for any penalty. Accordingly, penalties in relation to the alleged wrong availment of cenvat credit on GTA are set aside. The department can re-
calculate the cenvat credit for normal period and recover the same.
4.1 As regard the demand of 7% on the amount which is difference of purchase price and sale price of the car in terms of Rule 6 (3), we find that the appellant have admittedly reversed the cenvat credit on common input services attributed to the exempted service i.e. trading activity, therefore, the appellant is not liable for payment of 7% in terms of 6 (3) of Cenvat Credit Rules, 2004. This issue has been considered time and again in the following judgments:-
Chandrapur Megnate Wires (P) Ltd vs, Collector -1996 (81) ELT 3 (SC) "6. It is true that the assessee has not maintained separate accounts or segregated the inputs utilised for manufacture of dutiable goods and duty free goods, as should have been done. The contention of the Department that in this situation, the assessee is not entitled to reverse the entries and get the benefit of the tax exemption is a question which merits serious consideration. There is no doubt that the assessee should have maintained separate accounts for duty free goods and the goods on which duty has to be paid. But our attention was drawn to a departmental circular letter on this problem in which it has been clarified by the Ministry of Finance as under :-
"3. The credit account under MODVAT rules may be maintained chapterwise, MODVAT credit is not available if the final products are exempt or are chargeable to nil rate of duty. However, where a manufacturer produces along with dutiable final products, final products which would be exempt from duty by a notification (e.g. an end use notification) and in respect of which it Page |9 ST/10132/2022-DB & ST/10535/2020-DB is not reasonably possible to segregate the inputs, the manufacturer may be allowed to take credit of duty paid on all inputs used in the manufacture of the final products, provided that credit of duty paid on the inputs used in such exempted products is debited in the credit account before the removal of such exempted final products."
This circular deals with a case where the manufacturer produces dutiable final products and also final products which are exempt from duty and it is not reasonably possible to segregate inputs utilised in manufacture of the dutiable final products from the final products which are exempt from duty. In such a case, the manufacturer may take credit of duty paid on all the inputs used in the manufacture of final products on which duty will have to be paid. This can be done only if the credit of duty paid on the inputs used in the exempted products is debited in the credit account before the removal of the exempted final products.
7. In view of the aforesaid clarification by the Department, we see no reason why the assessee cannot make a debit entry in the credit account before removal of the exempted final product. If this debit entry is permissible to be made, credit entry for the duties paid on the inputs utilised in manufacture of the final exempted product will stand deleted in the accounts of the assessee. In such a situation, it cannot be said that the assessee has taken credit for the duty paid on the inputs utilised in the manufacture of the final exempted product under Rule 57A. In other words, the claim for exemption of duty on the disputed goods cannot be denied on the plea that the assessee has taken credit of the duty paid on the inputs used in manufacture of these goods.
8. The appeal is therefore, allowed. The order of the Customs, Excise and Gold (Control) Appellate Tribunal dated 17th May, 1995 is set aside. There will be no order as to costs."
4.2 In the above judgment of Hon'ble Supreme Court has dealt with the issue of exemption notification which contained the condition that the assessee should not avail the cenvat credit on the input used in the manufacture of final product. However, the proposition laid down by the Hon'ble Supreme Court is that even though at the time of receipt of input MODVAT credit was availed but even subsequently if it is reversed then the situation shall be as if no cenvat credit was availed and accordingly, the condition of the notification stands fulfilled. Considering the ratio of above decision in the present case also 7% demand is not sustainable only for the reason that the appellant have availed cenvat credit on certain common input service which is also attributed to exempted service, however, since the appellant have reversed the credit attributed to the part of common service used in exempted service, then the situation is as good as P a g e | 10 ST/10132/2022-DB & ST/10535/2020-DB the appellant has not availed the cenvat credit. Therefore, the provision of Rule 6 (3) whereby demand of 7% on the difference of purchase and sale price of Car is not applicable.
4.3 The identical issue has been considered by this tribunal in the case of Mercedes Benz India Pvt Ltd passed the following order :-
"5. We have considered the submissions made by both sides. From the facts and circumstances of the case and arguments put forth by rivals, we find that the issue to be decided by us is whether appellant is required to pay 5% of total sale value of the goods traded by them in terms of Rule 6(3)(i) when the appellant paid the actual credit attributed to the quantum trading sale in terms of Rule 6(3A) alongwith interest following the option available under Rule 6(3)(ii). Provisions for payment of 5% of the sale value of exempted goods is provided as one of the option given in Rule 6(3) of Cenvat credit Rules which is reproduced below :-
RULE 6. Obligation of a manufacturer or producer of final products and a [provider of output service. - (1) The CENVAT credit shall not be allowed on such quantity of [input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services], except in the circumstances mentioned in sub-rule (2) :
Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.
Explanation 1. - For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of Rule 2 shall include non- excisable goods cleared for a consideration from the factory.
Explanation 2. - Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder.
(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for -
(a) the receipt, consumption and inventory of inputs used -
(i) in or in relation to the manufacture of exempted goods;
(ii) in or in relation to the manufacture of dutiable final products excluding exempted goods;
(iii) for the provision of exempted services;
(iv) for the provision of output services excluding exempted services; and
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ST/10132/2022-DB & ST/10535/2020-DB
(b) the receipt and use of input services -
(i) in or in relation to the manufacture of exempted goods and their clearance upto the place of removal;
(ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal;
(iii) for the provision of exempted services; and
(iv) for the provision of output services excluding exempted services, and shall take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b).
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow [any one] of the following options, as applicable to him, namely :-
(i) pay an amount equal to five percent of value of the exempted goods and exempted services; or
(ii) pay an amount as determined under sub-rule (3A); or
(iii) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of said clause (a) and pay an amount as determined under sub-rule (3A) in respect of input services. The provisions of sub-clauses (i) and (ii) of clause (b) and sub-clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such payment :
Provided that if any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable under clause (i) :
Provided further that if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be [six per cent.] of the value so exempted.
Provided also that in case of transportation of goods or passengers by rail the amount required to be paid under clause (i) shall be an amount equal to 2 per cent. of value of the exempted services.
Explanation I. - If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.
Ld. Adjudicating Authority demanded 5% of the total sale of the trading turnover of goods on the ground that option provided under Rule 6(3)(i) is applicable on the ground that claim of the appellant on the option provided under Rule 6(3)(ii) is not available for the reason that appellant has not complied with condition provided under sub Rule (3A) of Rule 6 which provides that manufacturers of the goods shall follow certain procedure and conditions as provided under sub-rule (3A)(a)(i) to (iv) inasmuch as the appellant have not given said information in writing to the Jurisdictional Superintendent of Central Excise. Secondly the appellant, as provided under Claus (b) of sub-rule (3A) have not paid the amount of Cenvat on monthly basis and paid after almost 11 months.
P a g e | 12 ST/10132/2022-DB & ST/10535/2020-DB 5.1 We have observed that in Rule 6(3) prevalent at the relevant time, two options have been provided :-
(i) Payment of 5% on value of exempted services.
(ii) Payment of an amount equal to the Cenvat Credit amount attributed to input services used in or in relation to manufacture of exempted goods or provision of exempted services as provided under sub rule (3A)(b).
It is observed that the appellant has availed the option provided under sub- rule (3)(ii) of Rule 6 and paid an amount as per sub-rule (3A) along with interest and intimated the same to the jurisdictional superintendent in writing vide letter dated 14-3-2012. From the perusal of the said letter, we observed that the appellant categorically stated in the said letter that payment of Cenvat Credit, which they have made alongwith interest is in accordance with Rule 6 (3A) of Cenvat Credit Rules. With this act of the appellant, it is clear that the appellant opted for the option as provided under Rule 6(3)(ii) of the Cenvat Credit Rules, 2004, in accordance to which, the appellant are supposed to an amount equivalent to Cenvat Credit on input service attributed to the exempted service in terms of Rue 6(3A). In the present case, the appellant has availed Cenvat credit in respect of common input services, which has been used in relation to the manufacture of the final product as well as for trading of bought out cars. Therefore they are supposed to pay an amount equivalent to Cenvat credit which is attributed to the input service used for exempted service i.e. sale of car. In our view, three options have been provided under Rule 6(3) and it is up to the assessee that which option has to be availed. Revenue could not insist the appellant to avail a particular option. In the present case the appellant have admittedly availed option as provided under Rule 6(3)(ii) and paid an amount as required under sub-rule (3A) of Rule 6. As regard the compliance of the procedure and conditions as laid down for availing option as provided under sub-rule (3)(ii), we find that foremost condition is that the appellant is required to pay an amount as per the formula provided under sub-rule (3A) on monthly basis. However, we find that as per the provision, payment on monthly basis is provisional basis, therefore it is not mandatory that whole amount or part of the amount was required to be paid on every month. The appellant though belatedly calculated the amount required to be paid in terms provided under sub-rule (3A) of Rule 6, therefore to fulfill the condition, assessee should pay the said amount, which has been complied by the appellant.
5.2 As regard the delay in payment, if any, the appellant have discharged the interest liability on such delay. Regarding the compliance as provided under Clause (a) of sub-rule (3A) of Rule 6 the appellant while exercising this option is required to intimate in writing to the Jurisdictional Superintendent, Central Excise, the following particulars namely :
(i) Name, address and registration No. of the manufacturer of goods or provider of output service;
(ii) Date from which the option under this clause is exercised or proposed to be exercised;
(iii) Description of dutiable goods or taxable services;
(iv) Description of exempted goods or exempted services;
(v) Cenvat credit of inputs and input services lying in balance as on the date of exercising the option under this condition.
P a g e | 13 ST/10132/2022-DB & ST/10535/2020-DB As per the submission of the appellant and perusal of their letter along with enclosed details, it is found that more or less all these particulars were intimated to the Jurisdictional Superintendent. The appellant has been filing their returns regularly on monthly basis to the department. On perusal of the copies of the such return submitted along with appeal papers, it is observed that the particulars, as required under clause (a) of sub-rule (3A) of Rule 6 has been produced to the range superintendent. Therefore all the particulars which are required to be intimated to the Jurisdictional superintendent while exercising option stand produced. Though these particulars have not been submitted specifically under a particular letter, but since these particulars otherwise by way of return and some of the information under their letters has admittedly been submitted, we are of the view, as regard this compliance of Rule 6(3A), it stood made.
5.3 As regard the contention of the adjudicating authority that this option should be given in beginning and before exercising such option, we are of the view that though there is no such time limit provided for exercising such option in the rules but it is a common sense that intention of any option should be expressed before exercising the option, however the delay can be taken as procedural lapse. We also note that trading of goods was considered as exempted service from 2011 only, thus it was initial period. We are also of the view that there is no condition provided in the rule that if a particular option, out of three options are not opted, then only option of payment of 5% provided under Rule 6(3)(i) shall be compulsorily made applicable, therefore we are of the view that Revenue could not insist the appellant to avail a particular option. In the present case admittedly it is appellant who have on their own opted for option provided under Rule 6(3)(ii). The meaning of the option as argued by the Ld. Sr. Counsel is that "option of right of choosing, something that may be or is chosen, choice, the act of choosing". From the said meaning of the term 'option', it is clear that it is the appellant who have liberty to decide which option to be exercised and not the Revenue to decide the same.
5.4 We find that the appellant admittedly paid an amount of Rs. 4,06,785/- plus interest, this is not under dispute. Therefore in our view, the appellant have complied with the condition prescribed under Rule 6(3)(ii) read with sub-rule (3A) of Rule 6 of Cenvat Credit Rules, therefore demand of huge amount of Rs. 24,71,93,529/- of the total value of the vehicle amounting to. Rs. 494,38,70,577/- sold in the market cannot be demanded. We are also of the view that Rule 6 of the Cenvat Credit Rules is not enacted to extract illegal amount from the assessee. The main objective of the Rule 6 is to ensure that the assessee should not avail the Cenvat Credit in respect of input or input services which are used in or in relation to the manufacture of the exempted goods or for exempted services. If this is the objective then at the most amount which is to be recovered shall not be in any case more than Cenvat Credit attributed to the input or input services used in the exempted goods. It is also observed that in either of the three options given in sub-rule (3) of Rule 6, there is no provisions that if the assessee does not opt any of the option at a particular time, then option of payment of 5% will automatically be applied. Therefore we do not understand that when the appellant have categorically by way of their intimation opted for option provided under sub-rule (3)(ii), how Revenue can insist that option (3)(i) under Rule 6 should be followed by the assessee.
5.5 As discussed above and in the facts of the case that actual Cenvat credit attributed to the exempted services used towards sale of the bought out cars in terms of Rule 6(3A) comes to Rs. 4,06,785/- where as adjudicating P a g e | 14 ST/10132/2022-DB & ST/10535/2020-DB authority demanded an amount of Rs. 24,71,93,529/-. In our view, any amount, over and above Rs. 4,06,785/- is not the part of the Cenvat Credit, which required to be reversed. The legislator has not enacted any provision by which Cenvat credit, which is other than the credit attributed to input services used in exempted goods or services; can be recovered from the assessee.
5.6 We have gone through judgments relied upon by the Ld. A.R. In the arguments, we found that as regards the judgments on the issue of availment of Cenvat credit on the input or input services used in dutiable and exempted goods, the provision involved in the present case i.e. Rule 6(3) (i)
(ii) (3A) has not been considered in the relied upon judgments, therefore the same are not applicable. As regard the other judgments, all these judgments having different facts and dealing with other provisions such as SSI exemption, exemption notification, etc., which are not identical to the fact of the present case, Moreover, in the present case the substantive provisions under Rule 6(3)(ii) and sub rule (3A) i.e. payment of equivalent to the Cenvat credit, which the appellant have complied with and if at all there is delay, the required interest has also been paid, therefore in the present case, there is no case of noncompliance of procedure and condition. Therefore the judgments cited by the ld. A.R. are not applicable.
6.1 In view of these observations, we are of the considered view that demand confirmed by the adjudicating authority has no legs and therefore the same cannot be sustained. The impugned order is set aside and Appeal is allowed."
4.4 The principal bench of this Tribunal in the case of Star Agriwaterhousing & Collaterm Management Ltd (Supra) allowed the appeal of the assessee by giving following finding :-
"8. We have heard the rival contentions and are of the view that it is a matter of record that the appellant have been providing both taxable and exempted output services in respect of which they have been availing credit of common input services. It is also a matter of record that the appellant have fulfilled the requirement of Rule 6(3)(ii) of the Cenvat Credit Rules, 2004 read with Rule 6(3A) and have been reversing the amount of common Cenvat credits, proportionate to value of exempted output services. In this regard we take note of the fact that appellant have furnished Cenvat credit register for the period April, 2009 to June, 2012 which indicate that they have regularly been reversing the proportionate amount of the Cenvat credit taken on the common inputs which have gone into exempted output services. In this regard, we are of the view once the appropriate reversal have been made under Rule 6(3A) of the Cenvat Credit Rules any procedural violations of minor nature would be of in-consequential nature and will not disentitle the assessee from availing the Cenvat credit of the common inputs for which they have already been making a regular reversal of proportionate credits. We also take note of the fact that the Department has nowhere mentioned in entire proceedings that the amount of Cenvat credit reversed is not proportionate to the value of exempted services or not proper otherwise. The only ground that the appellant have not followed the laid down procedure of availing the option of Rule 6(3A) like not declaring value of turnover of P a g e | 15 ST/10132/2022-DB & ST/10535/2020-DB exempted services in their periodic service tax return, etc., can be minor procedural lapses, but same cannot become ground for denying a substantial benefit to the appellant.
9. We are also of the view that once the proportionate reversal of the Cenvat credit has taken place, that tantamount to not availing of the input services credit of the common inputs which are going into the exempted services. While holding this view we take shelter of the decision of the Hon'ble Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd. v. Collector of Central Excise, Nagpur - 1996 (81) E.L.T. 3 (S.C.).
10. We also take note of this Tribunal's decision on the same issue in case of M/s. The Oberoi Rajvilas v. Commissioner of Central Excise, Jaipur reported under 2018 (5) TMI 1715 - CESTAT New Delhi, the relevant extract of same are reproduced here below :-
"9. From the above, we note that the appellant has followed the proportionate method for availment of credit on common input services. It cannot be said that the appellant has availed any credit on input services used in providing exempted service. The reversal of credit as above satisfies the requirement of non-availment of credit laid down in the Notification No. 1/2006-S.T. ibid.
10. It is a settled position of law that proportionate reversal at a later date will satisfy the requirement of non-availment of Cenvat credit. This view is supported by various decisions of the Supreme Court/High Courts and Tribunal, some of which have been cited by the appellant.
11. The procedure prescribed in Rule 6(3A) of the [Cenvat] Credit Rules is only to make the provisions of Rule 3 workable. By means of proportionate reversal the requirement of Rule 6(3) has been substantially satisfied. This is also provided in Rule 6(3D) of the Cenvat Credit Rules which was introduced at a later date".
11. In view of above discussion, we find no merit in the order-in-original. Accordingly, we set aside the same and allow the appeal."
4.5 In view of the above judgments, the issue is settled and the same is no longer res-integra that once the proportionate credit in respect of the input services attributed to exempted services is reversed, the demand of 7% as per Rule 6 (3) is not sustainable. Hence, the demand on this count is set aside.
4.6 As regard the issue that the incentive/commission given by M/s.
Maruti Suzuki India Limited to the appellant in connection with sale of car , we find that there is no dispute that the appellant are purchasing the cars from M/s. Maruti Suzuki India Limited on principle-to principle basis, therefore, any incentive or commission given by M/s. Maruti Suzuki India P a g e | 16 ST/10132/2022-DB & ST/10535/2020-DB Limited to the appellant is nothing but the trade discount given in the course of sale and purchase of the cars. When the relationship of the M/s.
Maruti Suzuki India Limited and the appellant is of seller and purchaser of goods neither any service provision exists nor any service charge involved.
Any transaction between the M/s. Maruti Suzuki India Limited and the appellant is towards the sale of cars to the appellant and except sale and purchase no other activity is involved. Therefore, even though some nomenclature such incentive or commission were used in the transaction it is ultimately in connection with the sale of cars and the same is trade discount. Any transaction of sale /purchase cannot be brought in purview of service tax. This issue is no longer res-integra as the same has been decided in the following judgments :-
In the case of T M Motors Pvt Ltd (Supra) , the Delhi bench of this Tribunal considered the same issued and held as under:-
"(b) While acting as a dealer for Maruti cars, the appellant receives certain amount by way of rebates/discount/incentives in the price of the car. Some of these incentives are received by the appellant on the basis of various target based incentives permitted by the manufactures of the cars. The Department was of the view that the appellant is required to pay service tax on such discounts received under the category of business auxiliary service.
The learned counsel submitted that the discounts/incentives received by the appellant from the manufacturer of cars will not be liable for payment of service tax. In this connection, he relied on the decision of the Tribunal in the case of Toyota Lakozy Auto (P) Ltd. 2017 (52) STR 299 (Tri.-Mumbai).
We have considered the decision of the Tribunal (supra0 wherein the Tribunal observed as follows:
'3. Appellant contends that Rs. 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 supplyof 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 management terminology. Learned CA for appellant places reliance in the decisions of the Tribunal in Jaybharat Automobiles Limited v. CST, Mumbai 2016 (41) STR 311 (Tri.), Sai Service Station Limited v. CST, Mumbai 2014 (35) STR 625 (Tri.), Tradex Polymers Private Ltd. v. CST, Ahmedabad (2014 (34) STR 416 (Tri.-Ahm) and P a g e | 17 ST/10132/2022-DB & ST/10535/2020-DB Garrisson Polysacks Private Ltd. v. CST Vadodara (2015 (34) STR 416 (Tri.- Ahmd.) In re Jaybharat Automobiles Limited, the Tribunal held that '6.5 on the appeal by Resenue 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 incetives/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 lead to the conclusion that the incentives 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 after discount/institutions to the dealers. The issues 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 incetive, incentive on sale of vehicle 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 assesse respondent is the authorised dealer of a 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.'
4. Learned Authorised Representative reiterates the finding of the adjudicating authority. 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.' By following the decision (supra) we set aside the demand of service tax on this ground."
In the case of Shreenath Motors Pvt Ltd (Supra), the divison bench of this Tribunal passed the following order :-
"6. Heard both the sides and perused the case records. We have gone through the relevant agreements between the appellants and M/s. HTML. The incentives are in the form of trade discounts to the appellants and hence cannot be termed as any provision of service rendered by the Appellants to M/s. HTML. Hence there is no reason to demand service tax on the said incetive amount. Our view is also based upon the Tribunal judgment in case of CCE, Raipur v. Ralas Motors in (Appeal No. ST/119/2009-CU(DB), dt. 1- 10-2-15). We therefore hold that the service tax demand on incentives is not sustainable. As regards PDI charges we find that the pre-delivery inspection is conducted by the dealer on his own in respect of vehicles purchased from P a g e | 18 ST/10132/2022-DB & ST/10535/2020-DB HTML, while handling over the vehicles to their customers. From the show cause notice it is observed that PDI and post delivery free servicing of vehicles during the warranty period, is carried out as per agreement with the manufacturer and the entire cost incurred on the same is born by the dealer. It is undisputed that the appellant has not received any separate amount from the manufacturer/customer for the same and the cost is incurred out of their profit margin earned on trading of the vehicles. As the value of the same is already included in the value of vehicles sold, no service tax is leviable on the cost of the PDI Charges. The tribunal in case of Kiran Motors Co.-2009 (16) STR 74 (Tri. Ahmd.) and in the case of Pillai & Sons Motor Co.- 2009 (14) STR 844 (Tri.-Chennai) has set aside the demands in similar set of facts. In view of our above findings, we hold that the service tax demand and penalty against the Appellant are not sustainable. We therefore set aside the impugned order and allow the appeal."
In the case of Infinium Motors Guj Pvt Ltd, this tribunal passed the following order :-
"5. We have carefully considered the submissions made by both the sides and perused the records.
5.1 The Adjudicating Authority has confirmed the demand on the following counts:
(1) Service tax demand on value of spare parts and lubricants by including the same in the Gross value of Service of Authorized Service station services.
(2) Service Tax demand on sales incentives provided by M/s. Toyota Kirloskar to the appellant in relation to sale of their vehicles.
(3) Demand of Cenvat under Rule 6(3) of Cenvat Credit Rules equal to 5/7% of the value of trading activity.
(4) Demand of Cenvat credit availed on cement and steel.
5.2 As regard demand on value of spare parts and lubricants, the Adjudicating Authority held that the value of spare parts and lubricants should be included in the Gross value of Authorized Service Station Services. In this regard to ascertain the actual nature of the transaction, we reproduce the relevant invoice for service of Authorized Service Station and spare parts and lubricant, the same is scanned below:
P a g e | 19 ST/10132/2022-DB & ST/10535/2020-DB P a g e | 20 ST/10132/2022-DB & ST/10535/2020-DB From the above invoice it is observed that though the appellant have raised one invoice for service and sale of spare parts and lubricants, but both were clearly indicated separately in the invoice, and wherever there is service component, the Service Tax was charged and wherever there was sale of spare parts and lubricants the VAT was charged. It is clearly shows that during the provision of service of Authorized Services Station there are two components, one is service portion and other is sale of spare parts and lubricants. Since, the appellant admittedly paid the VAT on sale of spare parts and lubricants. It is clearly a sale purchase transaction and same cannot be part of the Gross value of the service of Authorized Service Station. The Adjudicating Authority in principle has not denied that the sale P a g e | 21 ST/10132/2022-DB & ST/10535/2020-DB of spare parts and lubricants has not to be included in the Gross value of service, but he rejected the claim of the appellant only on the ground that the appellant have not submitted all the documents. We are in utter surprise that despite the appellant have made a clear claim that they are engaged in sale of spare parts and lubricants and in support of that some sample invoices were submitted, the pattern of sale and service of the appellant is clearly disclosed to the Adjudicating Authority by the appellant. Therefore, in this position the adjudicating authority ought not to have rejected the claim of the appellant regarding sale of spare parts and lubricants. We find that the appellant have also produced Chartered Accountant certificate along with Annexure 1 which is reproduced below:
P a g e | 22 ST/10132/2022-DB & ST/10535/2020-DB P a g e | 23 ST/10132/2022-DB & ST/10535/2020-DB P a g e | 24 ST/10132/2022-DB & ST/10535/2020-DB From the above Chartered Accountant certificate which is based on the various accounting document such as invoices, books of accounts of the appellant clearly shows that the spare parts and lubricants were sold by the appellant and on which the appropriate VAT tax was paid. This gets further established that the appellant have filed VAT return regularly, which is evident from form 304 submitted under VAT Act copy of the same was submitted along with the copy of paper book submitted on 6 july,2022. From all these documents which are not in dispute, the fact that the appellant have sold the spare parts and lubricants and VAT was paid thereupon is clearly P a g e | 25 ST/10132/2022-DB & ST/10535/2020-DB established. Therefore, the sales portion of spare parts and lubricants will not attract Service Tax as held in various judgments, some of the judgments are cited below:
Star Motors Vs. CCE, Nagpur- 2017(5) GSTL 306 (Tri.-Mumbai) "4. We have carefully considered the submissions made by both the sides. On perusal of the sample invoice of the authorized service station, we find that the parts used for providing repair and maintenance service of the vehicle, the same is clearly sold to the client on which the VAT was paid. Therefore the parts used for providing repair and maintenance service is sale of goods and not part of service, therefore the same is not taxable under the Finance Act, 1994. Moreover, even if the part replaced during repair and maintenance of the vehicle is considered as part of the overall service of the authorized service station, since the description of parts of quantity and value was clearly shown separately in the invoice the same is covered under exemption Notification No. 12/2003- S.T. and for this reason also no service tax can be demanded on the sale of the parts. As per our above discussion, we are of the considered view, that service tax on the value of parts used for repair and maintenance of vehicle is clearly not sustainable. The impugned order is set aside. The appeal is allowed."
Tanya Automobiles (P) Ltd Vs. CCE & ST, Meerut -l -2016 (43) STR 155 (Tri.-All.) "The appellant is an Authorized Service Station of Motor Vehicles. A. show cause notice dated 19-4-2012 was issued subsequent to 18 ST/10665/2021 audit during the December, 2010/January, 2011 wherein it appeared that the appellant was paying Service Tax on the labour charges only and not paying ST on value of spare parts and lubricants used in the course of servicing of the motor vehicles. It appeared to Revenue that the practice was not in tune under Rules 5 & 6 of Service Tax (Determination of Value) Rules, 2006 read with Section 67 of the FA read with C.B.E. & C. Circular No. 96/8/2007-Service Tax. Further it appeared to revenue that the C.B.E. & C. Circular No. 87/05/2006-Service Tax clarified that in respect of spare parts and consumables, which have been consumed during the process and are not available for sale, for availing such exemption in terms of Notification No. 12/2003-S.T., the goods must be sold and consequently they must be available for sale. It further appeared to Revenue that whether spare parts or consumables are consumed during the servicing of the vehicles, the Service Tax is to be discharged on entire amount of invoice/bills including the value of spare parts raised by the party against the servicing of vehicles. It was further observed in the show cause notice that where the party is liable to pay Service Tax on the entire invoices/bills raised by them, then by virtue of Notification No. 12/03-S.T. exemption is available to the extent of value of the goods and materials sold by the service provider to the service recipient, subject to the documentary proof of such sale exists and no credit of Central P a g e | 26 ST/10132/2022-DB & ST/10535/2020-DB Excise duty paid on consumables and spares has been taken. It was further observed that the appellant is not entitled to benefit of Notification No. 12/03 as they are not issuing separate invoices for sale of spares. It further appeared to the Revenue that the spare parts and consumables utilized in the course of servicing of vehicles without which the service is not complete and hence an integral part of service. Accordingly, Service Tax was proposed to be levied on the amount relatable to spare parts and lubricants for the extended period October, 2006 to December, 2011 amounting to Rs. 5,81,935/- with interest and further proposal of penalty under Sections 76, 77 & 78 of the Finance Act.
2. The appellant contested the show cause notice by filing a written submission pointing out that they are showing the spare parts and lubricants separately in the invoice on which VAT/Sales Tax is being paid and on service components and labour charges, the Service Tax is being paid. Thus, no Service Tax can be levied on the sale of goods.
3. The show cause notice was adjudicated vide Order-inOriginal dated 8-3- 2013 and reduced amount of Rs. 4,74,146/- was confirmed considering that the appellant have already deposited an amount of Rs. 1,10,635/- for the period April, 2011 to December, 2011 which was confirmed by the Asstt. Commissioner along with interest and further penalty was imposed under Section 76 @ Rs. 200/- for every day during failure continue or at the rate of 2% of such tax, per month, whichever is higher up to the period 9-5-2008. Penalty of Rs. 19 ST/10665/2021 10,000/- was imposed under Section 77 and Rs. 4,74,146/- under Section 78 of the Finance Act.
4. Being aggrieved, the appellant preferred an appeal before the Commissioner (Appeals), who vide the impugned order has been pleased to reject the appeal and has upheld the Order-in-Original.
5. Being aggrieved, the appellant is in appeal before this Tribunal.
6. The learned Counsel for the appellant urges that the issue is no longer res integra as the same stands settled by order of another Division Bench of this Tribunal in the case of Samtech Industries v. Commissioner of Central Excise
- 2015 (38) S.T.R. 240 (Tri.-Del.), wherein the assessee was providing the service of repairing transformer and was using consumables like transformer oil and also component parts being coil etc., this Tribunal held, in view of the fact that it is not disputed that in respect of the supply of goods, used for providing of service of repair, Sales Tax/VAT is paid, which fact is evident from the invoice on record. It was also observed that when the value of goods used is shown separately in the invoice and on the same Sales Tax/VAT has been paid, the supply of the goods would have to be treated as sale and the transaction which are sale cannot be a part of the service transaction. Accordingly, Service Tax is chargeable only on the P a g e | 27 ST/10132/2022-DB & ST/10535/2020-DB services/labour charges and the value of the goods thereunder would not be includible in the assessable value. The Tribunal further observed that Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 has been struck down as ultra vires, the provisions of Sections 66 & 67 of the Finance Act by the Hon'ble Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India & Others - 2013 (29) S.T.R. 9 (Del.), it is categorically held that the value of goods used for providing the services which have been shown separately in the invoice, on which Sales Tax/VAT has been paid, cannot be included in assessable value and no Service Tax can be charged on the same.
6.1 The learned Counsel draws our attention to the finding of the Commissioner (Appeals), wherein it is observed as follows : - 'I observe that the appellants are paying Service Tax on labour charges, i.e. servicing components of the bills and paying VAT on value of the spare parts and consumable and lubricants." "I have perused copies of two sample bills enclosed with the appeal and find that the consumables e.g. gasket, filter, components, busing etc. are shown sold along with the service, are in the nature of integral part of the service."
Accordingly, he urges that in view of the categorical finding that the appellants have charged the spare and lubricants separately in their invoice and have paid Sales Tax on the same, no Service Tax can be demanded and the learned Commissioner (Appeals) has erred in holding that Service Tax is applicable on the goods and lubricants observing that the service is not complete without using of consumables and lubricants.
6.2 The learned Counsel further points out that ruling of the Tribunal in the case of Samtech Industries (supra) has been upheld by the Hon'ble High Court of Allahabad reported at 2015 (38) S.T.R. J434. The learned Counsel also brings to our notice that in similar facts and circumstances in the case of M/s. BalajiTirupati Enterprises, the C.B.E. & C. (Legal Cell) vide their letter dated 27-9-2013 addressed to the Commissioner of Central Excise, Meerut has observed as follows : - "The matter has been examined. Upon examination, it has been observed that the party has specifically mentioned the cost of items supplied/sold and there is documentary proof specifically indicating value of the goods. In this situation in view of the Notification No. 12/2003-S.T., dated 20-6-2003 and Hon'ble Supreme Court decision in the case of Commissioner v. Jain Brothers - 2012 (28) S.T.R. 162 (S.C.) demand of Service Tax against the party for the cost of goods supplied during repair does not appear sustainable. Therefore, the Board is of the view that in the overall facts and circumstances of the case, no purpose would be served in pursuing SLP in the matter." 6.3 He further urges that in view of the fact that Board have accepted the legal position and have not filed further appeal in the matter, the appeal is fit to be allowed.
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7. Heard learned DR, who supports the impugned order. On query from the Bench, as regards the matter has been settled in view of the Board's letter dated 27-9-2013, the learned DR submits that the Tribunal may pass appropriate order.
8. Having considered the rival contentions and in view of the settled legal position in the case of Samtech Industries (supra), upholding the order of this Tribunal by the Hon'ble High Court of Allahabad and also in view of the letter of the C.B.E. & C. accepted the legal position that the cost of items supplied/sold and there is documentary proof specifically indicating value of the goods, the demand of Service Tax against the assessee for the cost of the goods supplied during repair does not appear sustainable. In this view of the matter, we set aside the impugned order and allow the appeal with consequential benefits.
9. The stay application is also stand disposed of."
Samtech Industries Vs. CCE, Kanpur-2015 (38) STR 240(Tri.- Del.) "5. We have considered the submissions from both the sides and perused the records. The appellants provided the services of repair of transformers to their customers and in course of repair, they used various parts and consumables like transformers oil, for which separate amounts were shown in the invoices. The invoices issued by them show the value of the goods used and the service charges separately. The amounts charged for various parts like HV/LV oils and transformer oil are as per the rates specified in the contracts. It is not disputed that in respect of the supply of the goods used for providing the service of repair, Sales Tax/VAT is paid. This fact is clear from the invoices placed on record. In view of this, the appellants' contracts with their customers have to be treated as split contracts for supply of goods and rendering the service. When the value of the goods used has been shown separately in the invoices and Sales Tax/VAT has been paid on the same, the supply of the goods would have to be treated as sale and the transactions which are sale, cannot be the part of service transaction. In view of this, we hold that Service Tax would be chargeable only on the Service/Labour charges i.e. on service component and the value of goods used for repair would not be includible in the assessable value of the service. The ld. DR has cited Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 accordingly to which that "where any expenditure or costs are incurred by any service provider in the course of providing a taxable service, all such expenditures or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value of the services for the purpose of charging Service Tax on the said service, unless such costs or expenditure have been incurred by the service provider as "Pure Agents"
of the service recipient. However, this Rule has been struck down as ultra vires the provisions of Section 66 & Section 67 of the Finance Act, 1994 by P a g e | 29 ST/10132/2022-DB & ST/10535/2020-DB Hon'ble Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India & Others Ltd. reported in 2012-TIOL- 966-HC-Del.-ST = 2013 (29) S.T.R. 9 (Del.). In view of this judgment of Hon'ble Delhi High Court, the value of goods used for providing the service, which had been shown by the appellant separately in their invoices and on which Sales Tax/VAT had been paid, cannot be included for assessable value and no Service Tax can be charged on the same. The impugned orders, therefore, are not sustainable. The same are set aside. The appeals are allowed. Miscellaneous Application No. ST/Misc/60886/2013 for extension of stay in respect of Appeal No. ST/286/2012 also stands disposed of as the appeals itself has been allowed."
The above decision has been upheld by dismissing the department's appeal by the Hon'ble Allahabad High Court reported at Commissioner Vs. SamtechIndustries-2015 38 STR J 434 (Tri-All.) CCE & ST, Meerut-ll Vs. Krishana Swaroop Agarwal "The Revenue has filed this appeal against Order-in-Appeal No. 194-ST/MRT- II, dated 31-7-2011 which set aside the Order-inOriginal No. 13/ADDL. COMM./M-II/2012, dated 19-4-2012.
2. The facts, briefly stated, are as under: M/s. Ashish Automobiles (Proprietor Krishna Swaroop Agarwal) provided the 'Authorized Service Station' service. It was alleged that during the period January 2007 to March 2009 they discharged their Service Tax liability on the gross value of services but they did not take into account of the cost of spare parts or accessories or consumable such as lubricants and coolants provided/used during servicing of the vehicles. Adjudicating authority confirmed the demand amounting to Rs. 11,83,832/- along with interest and mandatory penalty. The Commissioner (Appeals) set aside the said Order-in-Original on the following grounds.
(i) Under Section 67 of the Finance Act, the taxable value is the gross amount charged for the taxable service.
(ii) Even in terms of Notification No. 12/2003-S.T., the value of the goods and materials sold by the service provider to the recipient of service is exempt from the Service Tax.
(iii) As per the C.B.E. & C. Circular No. 699/15/2003-CX, dated 5-3-2003 the price charged by authorised service station for engine oil, gear oil and coolants, etc., is towards the sale of these consumables to the customer. Therefore, the sale of consumables during course of providing service is akin to sale of parts/accessories and therefore value of such consumables is not includible in the value of taxable services provided value of such consumables is shown separately.
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(iv) The respondents had provided to the Commissioner (Appeals) their assessment orders of the Trade Tax department, Moradabad, for the financial years 2006-07 & 2007-08 showing sale value of spare parts/accessories/consumables and it is this value which has been taken for computing the impugned demand.
3. The Revenue has filed the appeal on the following grounds :
(i) Board Circular No. 96/7/2007-S.T., dated 23-8-2007 (para 36.03) has specifically clarified that Service Tax is not leviable on a transaction treated as sale of goods and subjected to levy of Sales Tax/VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/Sales Tax on a transaction indicates that the said transaction is treated as sale of goods.
"Any goods used in the course of providing service are to be treated as inputs used for providing the service and accordingly, cost of such inputs form integral part of the value of the taxable service".
Where Spare parts are used by a service station for servicing of vehicles, Service Tax should be levied on the spare parts, including the value of the spare parts, raised by service provider, namely, service station. However, the service provider is entitled to take input credit of Excise Duty paid on such parts or any goods used in providing the service wherein value of such goods has been included in the bill. The service provider is also entitled to take input credit of Service Tax paid on any taxable service used as inputs service for servicing of vehicles.
(ii) The respondent did not show proof of sale of spare parts to the service recipients.
(iii) The Notification No. 12/2003-S.T. is not applicable as the value of spare parts/accessories is includible in the assessable value.
4. We have considered the facts of the case. The Board Circular referred to above in effect actually states that Service Tax is not leviable on the transaction treated as sale of goods and subjected to levy of sales tax/VAT. It is seen that as recorded by the Commissioner (Appeals), respondents were able to establish that amount on which the impugned Service Tax has been demanded actually pertains to the sale of spare parts/accessories/consumables like lubricants etc. by showing copies of the VAT assessment orders for the financial years 2006- 07 & 2007-08. It would clearly entitle them to the benefit of Notification No. 12/2003-S.T. Indeed even the provisions of Section 67 lay down that the value for the purpose of levy of Service Tax is the gross amount charge for taxable service. Thus, we do not find any merit in the Revenue's appeal which is hereby quashed."
P a g e | 31 ST/10132/2022-DB & ST/10535/2020-DB Automotive Manufacturers Pvt. Ltd. Vs. CCE Nagpur-2015 (38) STR 1191 (Tri.-Mumbai) "The appeal arises from Order-in-Revision No. 04/2009/ST/C, dated 31-7- 2009 passed by the Commissioner of Central Excise & Customs, Nagpur.
2. Vide the impugned order, the learned Commissioner has confirmed a service tax demand of ` 4,86,299/- along with interest thereon apart from imposing penalties under Sections 76, 77 and 78 of the Finance Act, 1994 on the appellant, M/s. Automotive Manufacturers Private l.td., Nagpur, by setting aside the order of the adjudicating authority vide order No. 24 ST/10665/2021 90/STC/2007-08 dated 13-3-2008. Aggrieved of the same, the appellant is before us.
3. The learned counsel for the appellant submits that the appellant is an authorised dealer of MarutiUdyog Ltd., and are registered with the department as an authorised service station for Maruti cars and they have been discharging/Service Tax liability on servicing/repairing of the vehicles undertaken by them. While repairing or servicing of the vehicles, they also sometimes used parts on which sales tax/VAT liability is discharged. The parts and components are procured from M/s. Maruti Udyog Ltd. and they have lifted these parts from the warehouse/depots of Maruti Udyog Ltd. For bringing these parts into their service station, they have to incur octroi and other local taxes, freight, loading and unloading charges, etc. Therefore, while selling these parts to the clients as part of servicing activity, they include the cost incurred by them towards freight, loading, unloading, etc., as 'handling charges' and pay sales tax on the goods on the value inclusive of handling charges. Sometime they sell the parts as such without undertaking any service/repair activity and in such cases also they collect handling charges and discharge the sales tax liability. The present demand is in respect of handling charges collected by the appellant as part of the value of the goods when a composite, activity of sale as well as services are involved on the ground that the handling charges are towards service charges and hence they are liable to Service Tax. The learned counsel submits that the handling charges form part of the value of the goods sold on which sales tax/VAT liability has been discharged and this is towards the freight/loading and unloading charges involved in handling of the automobile components procured from M/s. Maruti Udyog Ltd. and they have nothing to do with the service/repair of the motor vehicles of the Maruti Suzuki. As per the Board's Circular No. 96/7/2007-ST dated 23-8-2007 it has been clarified that Service Tax is not leviable on a transaction treated as a sale of goods and subject to levy of sales tax/VAT when spare parts are sold by a service station during the servicing of vehicles. Even otherwise, what is liable to Service Tax is only the consideration received for servicing of the vehicles and not ihe P a g e | 32 ST/10132/2022-DB & ST/10535/2020-DB consideration received for sale of goods. Therefore, the impugned demands are not sustainable.
3.1 Reliance is placed on the decisions of this Tribunal in the case of Dynamic Motors - 201l-TIOL-1876-CESTAT-DEL = 2012 (26) S.T.R. 145 (T), Ketan Motors Ltd. v. Commissioner of Customs, Central Excise & Service Tax, Nagpur - 2014 (33) S.T.R. 165 (Trib.-Mum.) and a few other decisions in support of the above contentions. Accordingly, it is prayed that the impugned demand be set aside.
3.2 The learned counsel also points out that the adjudicating authority had examined this matter at length in his order dated 13-3-2008 and had concluded that the handling charges are part of the sale value of the goods on which sales tax/VAT liability has been discharged and hence not leviable to sales tax. This also supports the proposition that the impugned demands are not sustainable.
4. The Dy. Commissioner (AR) appearing for the Revenue reiterates the findings of the Revisionary authority and submits that since the handling charges are service rendered, service tax is leviable and accordingly, seeks to sustain the demands.
5. We have carefully considered he submissions made by both the sides. We notice that the appellant are charging handling charges whenever automobile parts are sold either independently or part of the service and repair of automobiles. In both the situations, invoice are issued for the sale of the goods as well as for collection of service charges for the services rendered. Handling charges were incurred in connection with the procurement of the goods and are included in the value of the goods sold and sales tax/VAT liability is discharged on the value inclusive of the handling charges. Therefore, we do not understand how service tax levy would apply especially when the goods are subject to sales tax/VAT on a value inclusive of handling charges. It is not in dispute that the handling charges are incurred in connection with the procurement of the parts. If that be so, they will obviously form part of the value of the goods when they are subsequently sold.
5.1 Section 67 of the Finance Act, 1994 mandate levy of service tax on a value or consideration received for rendering the services. Therefore, any consideration received for supply of goods is not covered within the scope of Section 67. The decisions of the Tribunal in the case of Ketan Motors Ltd. and Dynamic Motors, cited supra, also support this view.
6. Accordingly, the impugned order is clearly unsustainable in law and therefore, the same is set aside with consequential relief, if any, in accordance with law."
P a g e | 33 ST/10132/2022-DB & ST/10535/2020-DB Ketan Motors Ltd. Vs. CCE & ST, Nagpur-2014 (33) STR 165 (Tri.- Mumbai) "5. We have carefully considered the rival submissions. As the issue lies in a narrow compass, after dispensing with the requirement of pre-deposit, we take up the appeal itself for consideration.
5.1 In para 3.2 of the impugned order it is stated that the appellant had furnished the following information and documents vide letter dated 21-9- 2011: (i) Year wise details of value of spare parts used during the course of servicing of motor vehicles for the period 2006-07 to 2010-11; (ii) Copy of Balance Sheet, Profit & Loss Account for the year 2006-07 to 2009-10; and
(iii) Copy of ST-3 returns for the period 2006-07 to 2010-11.
5.2 However, while confirming the demand, the learned Commissioner has taken the value of sale of spare parts as reflected in the balance sheets. This is incorrect. If a transaction involves only sale of spare parts, the question of levying service tax would not arise at all and therefore, the Commissioner should have excluded those transactions involving pure sale of spare parts. As regards levy of service tax on transactions involving both sale of spare parts as also rendering of service in the Master Circular dated 23-8-2007, it is stated that "service tax is not leviable on a transaction treated as sale of goods and subjected to levy of sales tax/VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/sales tax on a transaction indicates that the said transaction is treated as sale of goods".
5.3 From the reading of the above circular, it would appear that even in a case of composite transaction involving sale of goods and rendering of service, if the bill/invoices issued clearly shows payment of sales tax/VAT on the spare parts, then the value of such spare parts would not be includible in the gross consideration received for rendering of service. The Commissioner has not considered these submissions made by the appellant and also the clarifications issued on the matter. Therefore, we are of the considered view that the matter has to go back to the adjudicating authority for fresh consideration. First of all, all the transactions involving only sale of spare parts should be excluded for the purpose of computation of service tax demand. Secondly, even in a case where the transaction involves both sale of spare parts and also rendering of service, the value of sale of spare parts should be excluded if sales tax/VAT liability has been discharged on such sales as is evident from the invoices/bills issued in this regard. The appellant is directed to produce before the adjudicating authority all the evidences they would like to rely upon in support of their above contention. 6. Thus, the appeal is allowed by way of remand. The stay application is also disposed of."
P a g e | 34 ST/10132/2022-DB & ST/10535/2020-DB From the above judgments it is seen that various Benches of this Tribunal have taken a consistent view in the identical facts of the present case that where during the provision of Authorized Service Station Services, the spare parts and lubricants sold and VAT thereupon was paid the value of such spare parts and lubricants would not attract Service Tax. Moreover, in some of the judgments, even the fact that one common invoice was issued showing both service part and sale of spare parts with payment of VAT/sales tax, is absolutely same. In view of the above judgments, issue involved in the present case is squarely covered. Hence, the demand of Service Tax on the value of spare parts and lubricants is not sustainable in the present case.
5.3 The second issue is that the Adjudicating Authority confirmed the demand of Service Tax on sales incentives given by M/s. Toyota kirloskar Motors Pvt Ltd. to the appellant in connection with sale of their vehicles to the appellant which were subsequently sold by the appellant to their customers. In this regard to arrive at the conclusion whether the incentive given by the seller of vehicle M/s. Toyota Kirloskar Motors Pvt Ltd. to the appellant being a purchaser of the vehicle what it is necessary to know the nature of transaction. As per the facts available on record, it is clear that the appellant purchased the vehicles from M/s. Toyota Kirloskar Motors Pvt Ltd. on principal to principal basis and in turn the said vehicles were sold by the appellant to their customers on principle to principle basis, at both the stages from M/s Toyota Kirloskar Motors Pvt Ltd. to the appellant and from the appellant to the customers, the transaction is clearly of purchase and sell of the vehicles. To ascertain that the transactions are of purchase and sale, the sample invoice from M/s Toyota Kirloskar Motors Pvt Ltd. to appellant and corresponding invoice from appellant to the ultimate customer are scanned below:
Purchased invoice in respect of vehicles sold by M/s. Toyota Kirloskar Motors Pvt. Ltd. to the appellant M/s. Infinium Motors Guj Pvt Ltd:
P a g e | 35 ST/10132/2022-DB & ST/10535/2020-DB Invoice for sale of above vehicles by the appellant M/s Infinium Motors Pvt Ltd to their customers:
P a g e | 36 ST/10132/2022-DB & ST/10535/2020-DB P a g e | 37 ST/10132/2022-DB & ST/10535/2020-DB From the above invoices, it is clear that transaction between M/s. Toyota Kirloskar Motors Pvt Ltd., and the appellant is of purchase and sale of the vehicles on principal to principal basis and in turn the same vehicle purchased by the appellant was sold by the appellant to the customers on principal to principal basis and not on behalf of M/s Toyota Kirloskar Motors Pvt Ltd. Therefore, the appellant in this transactions is not an agent of M/s. Toyota Kirloskar Motors Pvt Ltd but a buyer of goods. In the course of this trading activities the seller M/s Toyota Kirloskar Motors Pvt Ltd. gives P a g e | 38 ST/10132/2022-DB & ST/10535/2020-DB incentive to the appellant on the basis of quantum vehicles purchased by them from M/s Toyota Kirloskar Motors Pvt Ltd. This incentive is nothing but trade/ quantity discount against the purchase of the vehicle by the appellant from M/s Toyota Kirloskar Motors Pvt Ltd. This fact is not under dispute.
5.4 From the record, it is observed that this issue had been raised earlier also in the appellant's own case by the department, wherein the Commissioner (Appeals) has passed an Order having Order-in-Appeal No. AHM-SVTAX 000-APP-66-16-16-17 dated 11.08.2016 and decided the issue of sales incentives in the favour of the appellant. This case was remanded by the CESTAT vide Order No. S/1063/WZB/AHD/2011 and M/1318/WZB/AHD/2011 dated 27.07.2011 wherein this Tribunal directed the Commissioner (Appeals) to set aside the demand of service tax on sales incentives if the appellant proves that incentive / discount was received for trading or buying and selling. The Commissioner (Appeals) held that the appellant had purchased the cars from M/s. Toyota Kirloskar Motor Pvt. Ltd.
on their own account on payment of VAT and sold to the clients on payment of VAT. The Commissioner (Appeals) also held that the transaction was principal to principal basis and the service tax was not payable under the category of BAS.
From the above, it is not in dispute about the transaction even in the present case being identical and sales incentive given by M/s Toyota Kirloskar Motors Pvt Ltd to the appellant is nothing but in connection with purchase and sale of the vehicles. Hence, the same can not be considered as commission against any service by any stretch of imagination. This issue has been considered time and again and it was held as under:
CST, Mumbai - l V/s. Sai Service Station Ltd.-2014 (35)STR 625 (Tri.-Mum.) "18. In respect of sales/target incentive, the Revenue wants to tax this activity under the category of business auxiliary service. We have gone through the circular issued by MUL which provides certain incentives in respect of cars sold by the assessee-respondent. These incentives are in the form of trade discount. In these circumstances, we find no infirmity in the adjudication order whereby the adjudicating authority dropped the demand.
Hence, the appeal filed by the Revenue has no merit."
CST, Mumbai V/s. Jaybharat Automobiles Ltd.- 2016 (41) STR 311 (Tri.-Mumbai) "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 P a g e | 39 ST/10132/2022-DB & ST/10535/2020-DB 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."
Rohan Motors Ltd. V/s. CCE, Dehracun- 2021(45) GSTL 315 (Tri.- Del.) "10. As noticed above, the appellant purchases vehicles from MUL and sells the same to the buyers. It is clear from the agreement that the appellant works on a principal to principal basis and not as an agent of MUL. This is for the reason that the agreement itself provides that the appellant has to undertake certain sales promotion activities as well. The carrying out of such activities by the appellant is for the mutual benefit of the business of the appellant as well as the business of MUL. The amount of incentives 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."
Prabhakar Marotrao Thaokar & Sons V/s. CCE, Nagpur-2019 (20) G.S.T.L 294 (Tri.-Mum.) "4.On careful consideration of the submissions made by both the sides and on perusal of records. We find that as per the agreement particularly the following clause: "5. The Wholesale Distributor shall sale the goods at the price as determined by the Manufacturer. It shall not charge anything extra over and above the said price. The Manufacturers shall not be responsible for any loss of goods after it leaves the factory premises. Wholesale Distributor would be the owner of the goods once same are supplied to them by the manufacturer from the factory gate and the Wholesale Distributor shall take possession of the goods from the factory gate and shall transport the same to its godowns at its own expenses." It is observed from the above para that after supply of goods by the manufacturer the ownership of goods is transferred to the wholesale distributor who is the appellant here. The sales invoice raised by the manufacturer is scanned below:
P a g e | 40 ST/10132/2022-DB & ST/10535/2020-DB From the agreement coupled with the above invoice it can be seen that the transaction between the manufacturer M/s. Gunaji and the appellant is clearly of sale. In the invoice the manufacturer has charged 20% VAT the transaction is clearly at arms length hence sale transaction on principal to principal basis. From the invoice, it is also observed that a trade discount was passed on by the manufacturer to the appellant. As per this undisputed fact once, the transaction is of sale there is no relationship of service provider and service recipient between the manufacturer and the buyer (the present appellant). Accordingly, the discount passed on by the manufacturer to the appellant cannot be construed as a commission and the same is not the subject matter of levy of service tax. It is further seen that the appellant also, after purchase of goods from the manufacturer further sold to various traders. A copy of the sale invoice issued by the appellant is scanned below:
P a g e | 41 ST/10132/2022-DB & ST/10535/2020-DB From the above invoice it can be seen that it is clearly a sale invoice under which the appellant also paid the VAT. This shows that the transaction from the manufacturer to the appellant and subsequent from appellant to the individual traders are clearly sale transactions. Hence no service is involved. As per the above facts, we are of the clear view that a trading margin cannot be subject matter of levy of service tax. Accordingly, the impugned order is set aside and the appeal is allowed."
From the above judgments, it is evident that the fact of the present case and that of the cases cited above as well as the nature of transactions i.e. purchase and sale of the goods are identical and it was consistently held that any incentive/discount given by the motor vehicle manufacturer as a seller of vehicle to the dealer as purchaser of the vehicle will not amount to Commission under Business Auxiliary Service. Therefore, the same being not consideration of any service shall not be liable to Service Tax. Following the above judgments and discussion made by us hereinabove, we are of the considered view that the incentive given by M/s Toyota Kirloskar Motors Pvt Ltd to the appellant is not an amount of commission but being a trade discount is not liable for Service Tax.
5.4 The Adjudicating Authority also confirmed demand of an amount equal to 5%/6%/7% of the value of trading activity in terms of Rule 6(3) of Cenvat Credit Rules, 2004, on the ground that the appellant have availed Cenvat credit in respect of common input service, which is used for their taxable services as well as exempted services namely 'trading activity' of the vehicles, spare parts etc,. Consequently, Rule 6(3) was invoked according to which when an assessee avails the Cenvat credit on common input service used in taxable and exempted services, he has to pay 5%/6%/7% as P a g e | 42 ST/10132/2022-DB & ST/10535/2020-DB applicable from time to time. In this regard we find that the demand on this count was raised for the period from 2007-08 to 2012-13. As per provision of Cenvat Credit Rule 6 it has application in case the assessee is providing taxable and exempted service. The trading activity in respect of which the demand was raised under Rule 6(3) under a fiction of law made exempted service only with effect from 01.04.2011 by insertion of explanation under Rule 2(e) by notification No. 3/2011-CE(NT) dated 01.03.2011. In view of this amendment it is clear that the trading activity was not defined as exempted service prior to 01.04.2011. Therefore, the trading activity not being an exempted service during period 2007 to 2011, Rule 6(3) cannot be made applicable during such period. It is a settled law that any statutory amendment cannot be made applicable retrospectively unless the effect of retrospective is enacted by the parliament. Therefore, trading being exempted service is effective only from 01.04.2011. Hence, the demand under Rule 6(3) on trading activity for the period 2007-08 to 2010-11 is wholly illegal and without any support of law. This very issue has been considered by this Tribunal in the following judgments:
CCE, Bhopal V/s. My Car (Bhopal) P. Ltd.- 2019 (22) GSTL 273 (Tri.- Del.) "The present appeal is filed by the Department against Order-inAppeal No. 34/BPL/2013, dated 5-2-2013.
2. The brief facts of the case are that the appellant during the period under consideration (2010-2011) was providing the services and availing the Cenvat credit on the various services like telephone, advertisement, renting, insurance, banking, maintenance and repair, courier, security and other financial services under the provision of Cenvat Credit Rules. They were availing the Cenvat credit on all these input services. From the premises, where they are providing the taxable service, they were also carrying out the sale of cars, which was liable for Service Tax. The Department was of the view that since the respondent did not maintain separate accounts for the input services used towards the taxable activity as well as exempted activity, the respondent will be required to pay an amount in terms of Rule 6(3A) of the Cenvat Credit Rules. In this connection, Department was of the view that the activity of trading, which was also carried out by the appellant from the same premises, in addition to carrying out the service of authorized service for four wheelers, is to be considered as an exempted service but both the authorities below dropped the demand and, hence, the Revenue is in appeal before us.
3. With the above background, we heard Shri Amresh Jain, Learned DR for Revenue and Shri Milind Sharma Learned C.A. for assessee. The Learned DR submitted that the activity of trading has been specifically included as an P a g e | 43 ST/10132/2022-DB & ST/10535/2020-DB exempted activity w.e.f. 1-4- 2011 by way of amendment carried out in the Cenvat Credit Rules, 2004 vide Notification No. 13/2011-C.E. (N.T.), dated 31- 3-2011. He argued that the activity of trading has to be considered as an exempted service even for the disputed period i.e. 1-4-2010 to 31-3-2011.
4. The Learned Consultant representing the respondent, however, argued that trading has been included as an exempted service specifically vide the notification referred above. The notification cannot be held to be having retrospective effect and consequently he prayed that the impugned order may be sustained. He also brought to our notice that the Department also had earlier taken the stand to this effect vide Commissioner (Appeals) order No. 34/2013, dated 5-2-2013.
5. Heard both the sides and perused record. The respondent has carried out, during the disputed period, the taxable service of authorized service station.
They also carried out, from the same premises, the activity of trading of four wheelers. They have availed Cenvat credit of various input services which the Department has claimed has been utilized both for the taxable service as well as trading. The stand taken by the Department is that the activity of trading is to be considered as exempted service even though such activity has been specifically inserted as an exempted service only w.e.f. 1-4-2011 vide Notification No. 13/2011-C.E. (N.T.).
6. Both the authorities below have taken the clear stand that the activity of trading has come under the category of exempted service only w.e.f. 1-4- 2011 and the said amendment carried out to Cenvat Credit Rules cannot be considered as having any retrospective effect. Therefore, we find no reason to interfere with the impugned order. The appeal is accordingly dismissed."
Marudhan Motors V/s. CCE, Jaipur-ll - 2017 (47) STR 261 (Tri.- Del.) "The issue involved in this appeal for consideration by the Tribunal, is as to whether, during the period 2005-2006 to 2009-2010, trading should be considered as 'exempted service' under Rule 2(e) of the Cenvat Credit Rules, 2004 for the purpose of requirement of Rule 6(3) ibid.
2. The brief facts of the case are that the appellant is a service tax assessee and provides the taxable service namely, authorized services station, business auxiliary service and tour operator service. Apart from providing the taxable services, the appellant also engaged in the trading activities. Since Cenvat credit taken on common input services were used for providing both taxable service as well as for the services relating to the trading activity, the Department disallowed the Cenvat credit under Rule 14 of the Rules on the ground that trading activity should be considered as exempted service in terms of Rule 2(e) of the Rules, and as such, the appellant is required to maintain separate account or pay the amount towards provision of service on P a g e | 44 ST/10132/2022-DB & ST/10535/2020-DB the trading activity [In terms of Rule 6(3)(A) of the Rules]. The adjudication order dated 15-3-2012 passed in confirming the demand, culminated in the impugned order dated 16-4-2013. Hence this present appeal is before the Tribunal.
3. The term "exempted services" has been defined in Rule 2(e) of the Rules to mean taxable services which are exempted from the whole of the service tax leviable thereon, and include 38 ST/10665/2021 services on which no service tax is leviable under Section 66 of the Finance Act. The definition of exempted service was amended vide Notification No. 3/2011-C.E. (N.T.), dated 1-3- 2011. The effect of the amendment is that an explanation was added to the said Rule, clarifying that "exempted service includes trading". On perusal of both unamended and amended provisions of exempted service, it reveals that the activity of trading was not included within the ambit of definition prior to 1-4-2011. In this case, since the dispute is up to the period of 2009-2010, the amended definition of exempted service would not be applicable. Thus, the embargo credit in Rule 6(3) of the Rules does not have any application for taking of Cenvat credit on the activities concerning provision of taxable service and trading activity. Hence, denial of Cenvat credit by the authorities below, in my opinion, is not in conformity with the statutory mandates. Therefore, I do not find any merits in the impugned order and allow the appeal in favour of the appellant."
CCE, Ghaziabad V/s. Avon International P. Ltd.-2017 (5) GSTL 376 (Tri.-All.) "The present two appeals are arising out of same impugned Order-in-Appeal No. GZB-EXCUS-000-APP-11-14-15, dated 28- 4-2014. Therefore, they are taken together for decision. Appeal No. E/54591/2014 is filed by M/s. Avon International Pvt. Ltd. and Appeal No. E/53649/2014 is filed by Commissioner of Central Excise, Ghaziabad. M/s. Avon International Pvt. Ltd. have submitted compliance to interim order No. 05/2016, dated 27-1-2016.
2. The brief facts of the case are that appellant-manufacturer was issued with show cause notice dated 28-3-2013 wherein there was allegation that during the period from April, 2010 to March, 2011 they have cleared raw materials such as plastic granules re-processed, Calcium/Mineral powder fabric and Glass on which they did not avail Cenvat credit and sold them and it appeared to Revenue that such activity was trading and therefore since Cenvat credit of Service Tax paid on inputs services had gone into activity of manufacturer as well as abovestated trading, there was demand of amount of Rs. 2,12,569/- under Rule 6(3) of Cenvat Credit Rules, 2004. The appellant-manufacturer contended that trading was treated as exempted service through Notification No. 3/2011 C.E. (N.T.), dated 1-3-2011 w.e.f. 1- 4-2011 and therefore the said provision was not applicable to said P a g e | 45 ST/10132/2022-DB & ST/10535/2020-DB transactions. The Original Authority decided the issue through OIO dated 10- 10-2013 through which the demand was confirmed and equal penalty was imposed. The appellant-manufacturer preferred appeal before Commissioner (Appeals). The appeal was decided through impugned Order-inAppeal dated 28-4-2014 wherein the learned Commissioner (Appeals) has held that the said Notification No. 3/2011 declaring trading as service was clarificatory in nature and that is why the learned Commissioner (Appeals) have directed to modify the Order-in-Original dated 10-10-2013 to the extent that demand confirmed shall be re-calculated as discussed in paras 5 & 7 of the impugned Order-in-Appeal. Aggrieved by the said order, manufacturer filed appeal before this Tribunal. Further, Revenue also filed appeal before this Tribunal.
3. Heard the learned counsel for appellant-manufacturer who submitted that before 1-4-2011, there was no provision in the law to treat trading as service. 4. Heard the learned DR, who has supported the grounds of appeal filed by Revenue. 5. Having considered the rival contentions and on perusal of records, I find that statute did not have the definition of trading as service for the period before 1-4-2011. Therefore, the definition of trading as service was not applicable to the period upto 31-3-2011. The period covered in the said show cause notice is upto 31-3-2011, therefore the demand is not sustainable. As a result, Appeal No. E/54591/2014 is allowed and Appeal No. E/53649/2014 is dismissed."
In view of above judgments it is settled that demand under Rule 6(3) in respect of trading activity for the period upto 31.03.2011 is not sustainable.
4.7 In view of the above judgments it is settled law that any incentive/commission given by the car manufacturer to its dealer when the transaction in respect of cars is on sale/purchase basis and on principle- to-principle basis, the said incentive cannot be treated as commission in terms of definition of business auxiliary service, accordingly, the same is not liable to service tax. Hence, on this count the demand of service tax is set aside.
4.8 As regard the issue that the handling charges collected by the appellant from their customers whether is liable to service tax under business auxiliary service, we find that the handling charges is nothing but certain appellant's expenditure which is recovered by raising the sale bill in P a g e | 46 ST/10132/2022-DB & ST/10535/2020-DB respect of sale of car and the handling charges also shown as the part and parcel of the sale price of the car sold to their customer. Therefore, the handling charge is nothing but part of the sale price of the cars which is charged during the transaction of pure sale of the car. Therefore, any amount which is part and parcel of the sale is not exigible to service tax under any category. This issue has been considered in various judgments as follows:-
In the case of Automotive Manufacturers Pvt Ltd (Supra), the Mumbai Bench of this Tribunal passed the following order:-
"5. We have carefully considered the submission made by both the sides. We notice that the appellant are charging handling charges whenever automobile parts are sold wither independently or part of the service and repair of automobiles. In both the situations, invoice are issued for the sale of the goods as well as for collection of service charges for the services rendered. Handling charges were incurred in connection with the procurement of the goods and are included in the value of the goods sold and sales tax/VAT liability is discharged on the value inclusive of the handling charges. Therefore, we do not understand how service tax levy would apply especially when the goods are subject to sales tax/VAT on a value inclusive of handling charges. It is not in dispute that the handling charges are incurred in connection with the procurement of the parts. If that be so, they will obviously from part of the value of the good when they are subsequently sold.
5.1 Section 67 of the Finance Act, 1994 mandate levy of service tax on a value or consideration received for rendering the services. Therefore, any consideration received for supply of goods is not covered within the scope of Section 67. The decisions of the Tribunal in the case of Ketan Motors Ltd. and Dynamic Motors, cited (supra) also support this view.
6. Accordingly, the impugned order is clearly unsustainable in law and therefore, the same is set aside with consequential relief, if any, in accordance with law. "
The same issue of Service Tax on Handling charges is also settled in the following judgments:-
Indian Oil Corporation Ltd. v. CCE - 2015 Taxpub (ST) 0505 Infinium Motors Guj Pvt Ltd v. CST Service Ahmedabad P a g e | 47 ST/10132/2022-DB & ST/10535/2020-DB 4.9 In view of above judgments, it is settled law that the handling charges collected by the car sellers in the sale invoice being part and parcel of the sale price of the cars is not exigible to service tax, hence the demand of service tax on this count is not sustainable. Accordingly, on Handling charges also the demand is set aside.
5. As per our above discussion and finding, we hold that the demand of 7% on difference between the purchase price and sale price in terms of Rule 6 (3) is set aside, the demand of service tax on incentives /commission is set aside, the demand on handling charges is also set aside. As regard the demand of cenvat credit in respect of GTA , we find that demand though is sustainable on merit, however, the demand pertains to period beyond normal period i.e. for extended period in respect of both appeals are set aside on the ground of time bar and penalties are also set aside.
6. As a result, appeals are allowed with consequential relief in the above terms.
(Order pronounced in the open Court on 23.08.2024) (RAMESH NAIR) MEMBER ( JUDICIAL ) (C. L. MAHAR) MEMBER ( TECHNICAL ) Dharmi