Custom, Excise & Service Tax Tribunal
Commissioner Of Central Tax-Hyderabad ... vs Jasper Industries Private Ltd on 27 February, 2026
(1)
ST/30149/2020
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
HYDERABAD
Division Bench - Court No. - I
Service Tax Appeal No. 30149 of 2020
with Application No. ST/CROSS/30204/2020
(Arising out of Order-in-Original No. HYD-EXCUS-002-COM-024-19-20 dt.17.02.2020
passed by Principal Commissioner of Central Tax, Hyderabad-GST)
Commissioner of Central Tax
Hyderabad - GST ......Appellant
GST Bhavan, LB Stadium Road,
Basheerbagh, Hyderabad - 500 004
VERSUS
M/s Jasper Industries Pvt Ltd
Golden Edifice, Khairatabad Circle,
Hyderabad, Telangana - 500 044 ......Respondent
Appearance Shri P.R.V. Ramanan, AR (Special Counsel) for the Appellant. Shri V. Lakshmikumaran, Shri Narendra Dave & Shri Siddhanth Indrajit, Advocates for the Respondent.
Coram: HON'BLE MR. A.K. JYOTISHI, MEMBER (TECHNICAL) HON'BLE MR. ANGAD PRASAD, MEMBER (JUDICIAL) FINAL ORDER No. A/30126/2026 Date of Hearing: 11.12.2025 Date of Decision: 27.02.2026 [Order per: A.K. JYOTISHI] The Department has come in appeal against the Order dt.17.02.2020 (impugned order), whereby, the demand of duty as well as imposition of penalty, as contemplated by Department in terms of SCN dt.24.10.2018, has been dropped by the Adjudicating Authority.
2. The issue, in brief, is that M/s Jasper Industries Pvt Ltd (hereinafter referred to as respondent) were approved authorized dealer to resell vehicles and accordingly were buying motor vehicles from M/s Tata Motors (2) ST/30149/2020 Ltd (Tata Motors) on principal-to-principal basis and thereafter re-selling the same to its customers. Additionally, they were also providing certain after- sales services and value added services in respect of said services. The terms and conditions of these purchases and sales as well as after-sales services were in terms of Dealership Agreement dt.10.02.2017. The department felt that the respondents were receiving certain consideration from Tata Motors towards target based incentives and other incentives, viz., exchange bonus, loyalty bonus, scheme/additional discounts etc., which appeared to be consideration towards services rendered by the respondents to Tata Motors and on which no service tax was discharged. Based on perusal of certain financial statements and relevant documents including dealership agreement dt.10.02.2017, as also, the statements of certain persons of respondent, the department felt that, inter alia, certain activities were being performed by the respondents contractually and for which certain considerations were being received from Tata Motors in the nature of target based incentives/discounts as well as non-target based incentives/discounts or other discounts etc. It was also felt that the amounts credited by Tata Motors were not in the nature of reimbursements. Therefore, it was considered that the respondents were committed to provide certain services of promotion of sales and service in respect of vehicles purchased from Tata Motors and also to obtain order therefor. Therefore, the incentives and discounts received from Tata Motors was a consideration towards said service of promotion and other contractual obligations performed by respondents. Therefore, these activities would fall within the ambit of taxable service under section 65B(44) of Finance Act, 1994, and service tax is required to be paid during the period April, 2013 to June, 2017.
3. In the course of adjudication, the respondents have mainly submitted that they have not provided any taxable service to Tata Motors and the discounts/incentives received by them cannot be treated as consideration for provision of any services. They have also pointed out that any activity in relation to transfer of title in goods or immovable property by way of sale, gift or in any other manner is outside the scope of service in terms of section 65B(44) of the Finance Act, 1994 and therefore, the value attributable to transfer of title in goods in any manner shall not be chargeable to service tax. Further, the incentives, which were given to (3) ST/30149/2020 them, were actually reductions in purchase price by Tata Motors by way of discounts and schemes on the vehicles that were purchased from them. They also relied on various judgments, as under, in support that incentives received by a dealer of vehicle from a manufacturer would be in the nature of discount or trade receipts and would not be includible in the taxable value of services.
a) CST, Mumbai Vs Sai Service Station Ltd [2014 (35) STR 625 (Tri- Mum)]
b) Toyota Lakozy Auto Pvt Ltd Vs CST, Mumbai [2017 (52) STR 299 (Tri- Mum)]
c) Sharyu Motors Vs CST, Mumbai [2016 (43) STR 158 (Tri-Mum)]
d) My Car Pvt Ltd Vs CCE, Kanpur [2015 (40) STR 1018 (Tri-Del)]
e) CST Vs Jaybharat Automobiles Ltd [2016 (41) STR 311 (Tri-Mum)]
4. They also argued that in the case of Rohan Motors Ltd Vs CCE, Meerut-I [2018 (7) TMI 29 - CESTAT New Delhi], the Coordinate Bench of Tribunal held that discounts/incentives received by the dealer of cars from the manufacturer cannot be made liable to service tax as the dealer purchases the cars from the manufacturer on a principal-to-principal basis. Similarly, in certain other cases, the leviability of service tax on target based incentives was not held tenable. He has relied on the following judgments.
a) Satnam Auto Vs CCE & ST-I, Meerut [2017-VIL-109-CESTAT-Del-ST]
b) Khadi & Village Industries Commission Vs CST [2014-TIOL-1703- CESTAT-Mum]
c) AMR India Ltd Vs CCE & ST, Hyderabad-II [2015-TIOL-2834-CESTAT- Bang]
d) Tradex Polymers Pvt Ltd Vs CST, Ahmedabad [2014 (34) STR 416 (Tri-Ahmd)]
e) Garrisson Polysacks Pvt Ltd Vs CST, Vadodara [2015 (39) STR 487 (Tri-Ahmd)]
f) CCE, Chandigarh Vs Facinate Advertising & Marketing [2013 (31) STR 77 (Tri-Del)]
g) Kerala Publicity Bureau Vs Commissioner [2008 (9) STR 101 (Tri-
Bang)]
h) Euro RSCG Advertising Ltd Vs CST, Bangalore [2007 (7) STR 277 (Tri- Bang)] (4) ST/30149/2020
i) Commercial Auto Dehradun Vs CCE & ST, Meerut [2018 (6) TMI 807 - CESTAT New Delhi]
j) P Gautam & Co Vs CST [2011 (24) STR 447 (Tri-Ahmd)]
5. They also relied on the Larger Bench decision in the case of Kafila Hospitality and Travels Pvt Ltd Vs CST, Delhi [2018-VIL-760-CESTAT-Del- ST] and also the fact that the SCN issued on similar issue to the dealer of Tata, viz., M/s Select Motors, Warangal was dropped by the jurisdictional Commissioner of Central Excise, vide OIO dt.25.11.2014, and no appeal was preferred by the department.
6. The adjudicating authority, after taking into account the submissions made by them, examined the issue where he observed that the crux of the allegation is whether the amounts received from Tata Motors by the respondents in the form of discounts/incentives etc., were in the nature of consideration for services which respondent has provided in terms of agreement and therefore liable for service tax or otherwise. According to the adjudicating authority, the said discounts and incentives were given to the respondents for achieving certain targets on purchase (offtake) as well as sale of vehicles (retail sales), which was purely an activity of buying and selling and not in the nature of consideration for any activity carried out by the respondents towards Tata Motors. Accordingly, he has held that the said discounts and incentives were either compensatory payments or were in the nature of performance-based trade discounts on achieving certain performance targets or was an activity, which was mutually beneficial to both and thus, the transaction involved between the respondents and Tata Motors is in relation to sale of vehicles. Further, since as per the agreement, they were purchasing vehicles for resale purpose only and therefore, the activity of selling of goods is an essential factor and receiving of incentives/discounts is incidental to the said activity of sale and therefore, the receipt of incentives/discounts and sale of goods are to be treated as provision of single activity, which gives such bundle its essential character. The adjudicating authority has also relied on various judgments including Toyota Lakozy Auto Pvt Ltd Vs CST, Mumbai (supra), Sharyu Motors Vs CST, Mumbai (supra), CST, Mumbai Vs Jaybharat Automobiles Ltd (supra) and My Car Pvt Ltd Vs CCE, Kanpur (supra). Thus, essentially, he has held that the said trade discounts, both target based and other discounts, are primarily in (5) ST/30149/2020 connection with sale of goods and the amounts received from Tata Motors cannot be treated as 'consideration' towards rendering the 'taxable service' under section 65B(44) of the Finance Act, 1994 and accordingly, dropped the demand.
7. The department examined the impugned order and, inter alia, felt that the said order is not legal and proper and therefore, filed the present appeal. They have essentially taken the grounds that the dealership agreement contractually binds respondent to perform certain activities and certain obligations to be undertaken by the respondents towards Tata Motors, which, inter alia, included effective promotion and sale of the products and to professionally do after sales service and therefore, for such activities and performances, Tata Motors were paying certain amounts by calling them as target based and non-target based/ other incentives, bonus, etc., which were administered through various circulars issued from time to time. It has also been submitted that the contractually obligated activities being performed by the respondents bear the distinct identity and character of being an entirely different and subsequent transaction, for which Tata Motors is paying the consideration by way of aforesaid discounts and incentives, etc. It has been submitted that incentives being paid by Tata Motors for achieving specified targets and therefore, the adjudicating authority by disregarding that these set of transactions, where certain obligations and functions were being performed by the respondents to Tata Motors, are distinct from the activity of sale and purchase of vehicles, has dropped the proceedings, which is not legal and proper.
8. It has also been highlighted that the respondents were obligated to adhere to certain policies, guidelines, marketing strategies, etc., formulated by Tata Motors and therefore, the amount received by the respondents in the form of credit note/bank entries are retained by the dealer and are added up in the income of the respondent. It has also been pointed out that the quantum received as incentive/ reimbursement does not reflect itself during the vehicle sale transaction, ex-works, between the manufacturer and dealer and if it were to arise, that may only be subsequently. They have also submitted that these two transactions are distinct and separate transactions, which can be assessed independently and it is also not a case of bundled service as there cannot be bundle of 'sale of goods' and (6) ST/30149/2020 'undertaking the activity to get the incentive'. Insofar as reliance placed by the adjudicating authority on various case laws, they have highlighted that these are pertaining to period prior to 01.07.2012 and the Finance Act was amended post 01.07.2012 to bring in a new concept of charging service tax and thus, the said case laws have no relevance or precedence value. They have relied on the judgment of Hon'ble Supreme Court in the case of Alnoori Tobacco Products [2004 (170) ELT 135 (SC)].
9. Learned Special Counsel for the department has explained the various grounds taken by the department and especially highlighted that these are two different sets of transactions and admittedly, while one set of transactions is that of sale and purchase of vehicles, which cannot be subjected to service tax, whereas, the other set of transactions is in terms of certain performance and obligations, which were performed by the respondents to the manufacturer and for which certain amounts were received by them in the form of so-called 'incentives', 'discounts', etc. Therefore, those activities cannot be treated as any activity relating to sale of vehicle or goods and hence, the conclusion drawn by the adjudicating authority, based on which demand has been dropped, is erroneous and not correct.
10. By way of preliminary objection, learned Advocate for the respondent pointed out that they have filed Cross Objections, vide Application No. ST/CROSS/30204/2020, which has not been listed on the date of hearing this appeal. However, it was pointed out by the Bench that since in the impugned order, the entire relief has been given to the respondent and hence, they cannot be considered as an aggrieved party and therefore, there is no scope for filing any appeal or cross objections. However, learned Advocate for the respondent has submitted that in the event of non- maintainability of the cross objections filed by them, the grounds taken in the said memorandum may be considered as counter arguments to the grounds taken by the Revenue (Appellant) in this appeal. Therefore, cross objections application is disposed of as withdrawn, however, learned Advocate will be at liberty to take grounds taken in memorandum of cross objections to counter the arguments of the Revenue. The said memorandum of cross objection is disposed off accordingly.
(7)ST/30149/2020
11. Learned Advocate for the respondent has explained various types of schemes. It was also highlighted that in this case there is no express or implied contract between Tata Motors and the respondent to provide any specific service. The dealership agreement is essentially a contract for selling the product to the respondent and reselling by the respondent to customers and certain after sales service relating thereto. Thus, there is no agreement between the respondent and Tata Motors for provision of any service as such and hence it cannot be held that the respondents have provided any service to Tata Motors in terms of any specific contract. They have relied on the judgment in the case of CST Vs SGS India [2014-TIOL- 580-HC-Mum] and Vodafone Essar Cellular Ltd Vs CCE, Pune-III [2013 (31) STR 738 (Tri-Mum)]. It was also further highlighted that dealership agreement between Tata Motors and the respondent is a single indivisible contract, which cannot be vivisected so as to treat each condition under the agreement as a separate service/activity. He has relied on the judgment of Hon'ble Supreme Court in the case of Chatturbhuj Vithaldas Jasani Vs Moreshwar Parashram & Ors [1954 SCR 817]. He has also relied on the judgment in the case of CST, Chennai Vs Repco Home Finance Ltd [2020- VIL-309-CESTAT-Che-ST], wherein, it was, inter alia, held that consideration must flow from the service recipient to the service provider and should accrue to the benefit of service provider and there is a marked distinction between 'conditions to a contract' and 'considerations for the contract'.
12. As an alternative plea, learned Advocate has also submitted that even if assuming that they have provided various services like promotion, advertisement and marketing to Tata Motors, there is no provision in the said contract for any consideration in exchange for said activities and therefore, in the absence of such consideration, there could not be any service in terms of section 65B(44) read with section 67 of the Finance Act. It was also submitted that there is no nexus between the discounts/ incentives/bonus and the activities/services, as alleged in the SCN, provided by the respondents to Tata Motors in terms of dealership agreement and as held by the Larger Bench in the case of Kafila Hospitality & Travels Pvt Ltd Vs CST [2021 (47) GSTL 140 (Tri-LB)], there has to be a direct linkage between the consideration and the service rendered. It was also pointed out that in any case, once the vehicle is taken over along with its title and ownership, any activity subsequent thereto, such as marketing, (8) ST/30149/2020 advertisement, sales promotion, etc., would be effectively promotion of respondent's own goods and business and therefore, the alleged services would be in the nature of services to self and it would not meet the criteria of service as the said activity is not being carried out by a person for another person. He has relied on the following judgments in this regard.
a) Philips India Ltd Vs CCE [1997 (91) ELT 540 (SC)]
b) Kafila Hospitality & Travels Pvt Ltd Vs CST [2021 (47) GSTL 140 (Tri- LB)]
c) CCE Vs Nahar Industrial Enterprises Ltd [2010 (19) STR 166 (P&H)]
13. Learned Advocate for the respondent has justified the impugned order passed by the adjudicating authority on the grounds that the said order is well reasoned and based not only on factual appreciation of the facts and documents but also in view of the settled law through catena of judgments in this regard. He has highlighted that there is no dispute that the sale of vehicle from Tata Motors to the respondent is on principal-to-principal basis and the respondents are not an agent of Tata Motors. It is also an admitted position that certain schemes and incentives were being announced from time to time in terms of which the payments were made subject to meeting the targets and other conditions of the schemes. It was also not in dispute that the vehicles were purchased by the respondents for the purpose of reselling to customers, where, while there was a list price 'MRP' provided by the Tata Motors, certain discounts were also being offered to the customers by the respondent in terms of various circulars issued from time to time by Tata Motors, as also, from their own margin.
14. Apart from the argument in support that the adjudicating authority has taken a correct view relying on the factual matrix and evidence on record as well as relied upon case laws, he has submitted that the issue itself is no longer res integra and stands decided in favour of the respondent. He has relied on catena of judgments, as under.
a) Prem Motors Pvt Ltd Vs CCE & CGST, Jaipur [2023 (73) GSTL 97 (Tri- Del)]
b) Surjeet Auto Agency Vs CCGST, Dibrugarh [2023 (10) CENTAX 55 (Tri-Cal)]
c) BM Autolink Vs CCE [2022-VIL-900-CESTAT-Ah-ST] (9) ST/30149/2020
d) Rohan Motors Ltd Vs CCE [2021 (45) GSTL 315 (Tri-Del)]
e) Rohan Motors Ltd Vs CCE [2018 (7) TMI 29 - CESTAT ND]
f) Anand Motor Agencies Ltd Vs CC [2022-VIL-116-CESTAT-Alh-ST]
g) CST, Mumbai-I Vs Sai Service Station Ltd [2014 (35) STR 625 (Tri- Mum)]
h) Comet Car Sales & Services Pvt Ltd Vs CCE & ST [2024 (11) TMI 667
- CESTAT Ahmedabad]
15. It was also pointed out that the decision of the Tribunal, vide Final Order No.50204/2023 in the case of Prem Motors Pvt Ltd (supra) has been accepted on merit by the department, as informed by the department in response to their RTI query dt.19.05.2025 and therefore, once a decision has been accepted by the department, it is estopped from taking a contrary stand on similar issue. They have placed reliance on the following judgments.
a) Damodar J. Malpani Vs Collector [2002 (146) ELT 483 (SC)]
b) Unipatch Rubber Ltd Vs CCE, Bhopal [2011 (272) ELT 340 (SC)]
c) CCE, Pune Vs TELCO [2003 (11) TMI 68 (SC)]
d) Birla Corporation Ltd Vs CCE [2005 (186) ELT 266 (SC)]
16. It was also highlighted that the department has gone beyond the original SCN, in as much as, in the grounds of appeal, the department has identified the nature of activities being carried out by the respondent, whereas, such services have not been identified or explained at any prior stage of litigation. While in SCN it has been alleged that respondents were rendering service by way of achieving target set by Tata Motors and also by extending notified trade discounts announced by Tata Motors, whereas, in their grounds of appeal, they have taken a stand that respondents were contractually obligated to perform certain activities and incentives are in lieu of performing said activities. Further, on the issue of limitation also, extended period is not invokable as the matter would be revenue neutral. Similarly, penalty imposed under section 76 and 78 are also not invokable.
17. Learned Advocate for the respondent has further explained that the respondents are receiving various trade discounts and other discounts in terms of various scheme circulars at the time of purchase of vehicles and in such cases, the net dealer price is always discounted price of the product (10) ST/30149/2020 sold. However, their discounts are also regulated in terms of various schemes floated from time to time. During the period April, 2013 to June, 2017, certain target based discounts/other discounts were offered, which were meant both for customers as well as dealers on achieving certain retail targets and additionally, offtake achievements. Therefore, various target based discounts or other discounts were applicable both to the dealers as well as also available to the customers invariably based on certain pre- specified targets at the stage of offtake or at the retail stage in terms of circulars issued from time to time. Insofar as non-target based discounts, they are receiving certain discounts from Tata Motors. These discounts are availed in a manner where the Tata Motors sets the list price of the vehicle and the same price is quoted by the respondent to the ultimate customer and certain discounts are offered by Tata Motors on the list price, a portion of which is reimbursed by Tata Motors, though initially borne in full by the respondents. Therefore, the final price at which the vehicle is sold to the end customer is the price, which is arrived at after taking into account the discounts offered both by the respondent and Tata Motors. Therefore, essentially, this mechanism is regulated through a credit note raised in favour of the customer, whereas, the debit note is raised by the respondent to the Tata Motors seeking reimbursement of the same and therefore, the effect of the whole transaction is that the respondent purchases the vehicle from the manufacturer at a reduced price and subsequently, the vehicle is sold at a reduced price to the customer.
18. Heard both sides and perused the records.
19. We find that the adjudicating authority has essentially held that the amount of incentives/discounts, etc., received by them are relatable to the activity of buying and selling of vehicles and therefore, not leviable to service tax. He also held that said incentives and discounts were either compensatory payment or in the nature of performance based trade discounts linked to performance target or are activities mutually beneficially to both. The department, on the other hand, has mainly contested that sale of vehicle and provision of service are two distinct set of transactions and the same could not be bundled and treated as part of the same transaction.
20. Before we proceed to analyze the impugned order in the light of various grounds of appeal taken by the department, first and foremost thing (11) ST/30149/2020 is to go through the dealership agreement, which is the crux of the issue. We find, inter alia, that respondent is an appointed dealer for Tata Motors for resale of vehicles, which is manifested by clause 3(b) of the agreement. Therefore, it is obvious that the purchase of vehicle is not for self- consumption of respondent but for resale to actual customers. It is also explicitly agreed upon in the agreement that the transaction is on principal- to-principal basis, which has also not been disputed by the department or the adjudicating authority. There are certain terms and conditions, as pointed out by the department in their grounds of appeal, suggesting that the respondents are under obligation to carry out certain activities or follow certain instructions, etc., or make certain best efforts to meet the policy guidelines, as is evident from various clauses, especially clause 4(a) & 4(b), which are cited below for ease of reference.
"4. (a) The Dealer shall work diligently and faithfully
(i) With a view to fostering and promoting sales of the Products within the Territory and for providing of services
(ii) To safeguard the interests of the Company and its brand image, and
(iii) To discharge its obligations under this Agreement to the best of his ability The Dealer shall not act in any manner that may hinder or interfere with or prejudice the
(i) Development of the Company's business or
(ii) The sales and promotion of the products in the territory The Dealer shall at all-time follow the instructions received from the company in respect of
(i) The resale of the products and
(ii) For providing services Subject to clauses 11, 12 & 13 and shall strive to cover the entire Territory effectively by its sales and after sales system to ensure that the Dealer achieves the yearly targets such as sales volume and market share, set by the company.
4. (b) The Dealer shall also, if so advised by the Company, use his best endeavours to promote services, including but not limited to the loyalty programs relating to sales, service of products, rural marketing, retail channel finance and insurance, loan financing or any other financing business of Company or its subsidiaries or approved affiliates or associates whereby customers for the Company's products are facilitated through such schemes offered by the Company or its subsidiaries or approved affiliates or associates."
21. Clauses 12(a) and 12(b) of the same agreement are also cited below for ease of reference.
(12)ST/30149/2020 "12. (a) The Dealer shall buy the Products and Value Added Services at the Net Dealer prices as notified by the Company from time to time and as ruling on the day of delivery. The prices will be for the delivery from the Company's Works, Regional Sales offices, Regional Spare Parts Warehouses, Spare Part Centres or any other specified locations of the company. The dealer shall also be eligible for getting discounts on the net dealer price on the basis of the schemes, which may be communicated by the company from time to time subject to the dealer fulfilling the terms and conditions thereof. In such a case the net dealer price shall be the discounted price of the products.
In addition, local taxes and any other tax and/or duty and/or packing charges and any other outgoings, if payable, shall be borned by the Dealer.
12. (b) The Company shall advise the maximum price of Products (UMRP in respect of Spare Parts) and Value Added Services and may make changes therein from time to time and the Company shall have absolute discretion in advising maximum prices of all Products and Services."
22. It is also provided in terms of clause 21(a) to 21(e) of the agreement that the respondent will carry out certain advertisement, display and demonstrate at his own expense in order to promote its (dealer's) business in its territory, which should be consistent with sales policy, procedures and practices as advised by the Company (Tata Motors). Thus, these activities are explicitly for promoting the respondent's business itself and not for promoting the vehicles of Tata Motors. Agreement also provides for various schemes and discounts to be announced from time to time by Tata Motors.
23. Therefore, we find force in the submission of the respondent that a contract cannot be vivisected into different set of activities in order to make a part of it relatable to service and part of it relatable to sale. The entire contract has to be read together to understand the essence of the contract. It is obvious from the holistic reading of entire contract that the dealer is not buying vehicle for its own consumption as buyer and it is only meant for resale. It is also obvious from various terms and conditions that certain obligations/conditions have been cast upon the Tata Motors as well as on the respondent and the same has been mutually agreed upon. There are certain activities, which they are obligated to perform but in their own interest and for their own sales promotion. There are certain activities, where they are encouraged to buy more (offtake) or sell more and if they buy more or sell more beyond the stipulated target, they are entitled for certain discounts/incentives, which are regulated in the books of accounts maintained by Tata Motors. Thus, when various circulars are issued by Tata Motors for various incentives and discounts, it is linked to certain (13) ST/30149/2020 performance of the respondent to get such offtake discount/incentives etc. It is also in their own interest to promote their sales and it is not as if Tata Motors is asking them to sell certain minimum quantity or carry out advertisement for Tata Motors for which they will be compensated through offtake discount or incentives. The entire contract is that of purchase for resale purpose and for providing certain after sales services. There is no explicit provision in the dealership agreement/contract binding the respondents to perform certain specified activities or services exclusively to Tata Motors and for which there is an agreed consent from both the sides. Moreover, no explicit consideration has been specified for performing the said activities, which is also not mandatory. We find that there is force in the contention of the respondents that these are conditions for executing the contract, which cannot be considered as consideration for executing a part of the contract by vivisecting the whole contract into a contract for sale and a contract for service. Clearly, there is no direct nexus between the activities performed i.e., selling more cars or buying more cars, which is in the nature of sale and the amount of incentives and discounts received by them in terms of various schemes announced from time to time. Incidentally, respondents are aware in terms of the agreement that such schemes may be announced from time to time providing incentives/discounts linked to their purchase and resale of vehicles from Tata Motors. Moreover, certain activities undertaken by them also promote their own sales and profit margin. Therefore, the said activities would be in the nature of self-service, hence, outside the scope of service. It is nobody's case that trade discount cannot be given post sale by the main manufacturer to their dealer.
24. We further find that the adjudicating authority has relied on catena of judgments in support that said amount of incentives/discounts are relatable to sale and not to service, for which department has submitted that these judgments were in the context of Finance Act, as it existed prior to 01.07.2012. While it may be true that most of the judgments were in the context where the issue was whether the discounts/incentives can be subjected to service tax under the category of BAS or otherwise, but the factual matrix remains the same i.e., leviability of service tax on incentives/ discounts given by vehicles manufacturers to dealers. In all these judgments, it was held that the said activities would not be chargeable to service tax though under BAS, as it was changed. In these judgments, it (14) ST/30149/2020 was clearly held that such incentives/concessions, etc., were in the nature of trade discounts given by principal manufacturer to dealer in relation to vehicles and hence not falling under BAS. Obviously, if such payments or credit have been allowed in terms of certain schemes or circulars and it was treated as trade discount, then the said discount cannot become a consideration for providing any service of the nature as canvassed by the Revenue i.e., contractual obligations. Hence, we do not find this ground is legally tenable in the facts of the case.
25. We have also perused the judgments relied upon by the adjudicating authority. In the case of Toyota Lakozy Auto Pvt Ltd Vs CST, Mumbai (supra), Tribunal relied on the judgment in the case of CST, Mumbai Vs Sai Service Station Ltd (supra) and also CST, Mumbai Vs Jaybharat Automobiles Ltd (supra) and held that discounts received on purchase of vehicles are not liable to service tax. The judgment in the case of Jaybharat Automobiles Ltd (supra) and Sai Service Station Ltd (supra) clearly held that such trade discounts/incentives are not taxable as BAS but essentially it was not treated as transaction relatable to sale. Para 3 & 4 of the judgment are cited below.
"3. Appellant contends that ` 81,35,813/- and ` 1,21,47,133/- for the two periods has been wrongly subjected to tax because the agreement between the appellant and M/s. Toyota Kirloskar Motor Limited is one of supply of vehicles by the latter on 'principal-to-principal' basis on which title and risk, as per Agreement, are passed on to appellant when the vehicles are excise cleared and placed on common carrier. Depending on order quantity, the manufacturer raises invoices after according discounts which are designated as commission/incentive merely as a management terminology. Learned Chartered Accountant for appellant places reliance in the decisions of the Tribunal in Jaybharat Automobiles Limited v. Commissioner of Service Tax, Mumbai [2015-TIOL-1570-CESTAT-MUM = 2016 (41) S.T.R. 311 (Tri.)], Sai Service Station Limited v. Commissioner of Service Tax, Mumbai [2013-TIOL-1436-CESTAT-MUM = 2014 (35) S.T.R. 625 (Tri.)], Tradex Polymers Private Limited v. Commissioner of Service Tax, Ahmedabad [2014 (34) S.T.R. 416 (Tri.-Ahmd.)] and Garrisson Polysacks Private Ltd. v. Commissioner of Service Tax, Vadodara [2015 (39) S.T.R. 487 (Tri.-Ahmd.)]. In re Jaybharat Automobiles Limited, the Tribunal held that "6.5 On the appeal by Revenue on the issue of incentives received by the appellant from the car dealer, we find that the relationship between the appellant and the dealer is on a principal to principal basis. Only because some incentives/discounts are received by the appellant under various schemes of the manufacturer cannot lead to the conclusion that the incentive is received for promotion and marketing of goods. It is not material under what head the incentives are shown in the Ledgers, what is relevant is the nature of the transaction which is of sale. All manufacturers provide (15) ST/30149/2020 discount schemes to dealers. Such transactions cannot fall under the service category of Business Auxiliary Service when it is a normal market practice to offer discounts/institutions to the dealers. The issue is settled in the case of Sai Service Station (supra). Therefore, we reject the appeal of the department."
and in re Sai Service Station Limited it was held that "14. In respect of the incentive on account of sales/target incentive, incentive on sale of vehicles and incentive on sale of spare parts for promoting and marketing the products of MUL, the contention is that these incentives are in the form of trade discount. The assessee respondent is the authorized dealer of car manufactured by MUL and are getting certain incentives in respect of sale target set out by the manufacturer. These targets are as per the circular issued by MUL. Hence these cannot be treated as business auxiliary service."
4. Learned Authorized Representative reiterates the findings 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."
26. Thus, reliance placed on judgments like Sharyu Motors Vs CST, Mumbai (supra) and CST, Mumbai Vs Jaybharat Automobiles Ltd (supra) are relavant to hold that said incentives/discounts received under various schemes were in relation to sale and hence not leviable to service tax.
27. Further for the period post 01.07.2012, due to change in statutory provisions, the department has alleged any specific service as it is no longer required to be classified under BAS etc., as long as these are treated as activities. However, in the grounds of appeal itself, they have mainly referred to various activities being performed by the respondents for Tata Motors as advertisements, sales promotion, etc., and the incentives/discounts amount being received by them in relation to perform said activities. The same set of activities were performed for coverage under the BAS pre 01.07.2012, which was not considered as leviable to service tax in the said judgments though under a particular heading i.e., BAS on the ground that the transactions were on principal-to-principal basis as also that such transactions are related to sale. We have perused some of the judgments relied upon by the adjudicating authority. In the case of Sharyu Motors Vs CST, Mumbai (supra), the issue was taxability of amount received by a dealer from manufacturer of car for achieving target under BAS and the Tribunal, inter alia, relying on the judgment in the case of CST, Mumbai Vs Sai Service Station Ltd (supra), held that no service tax is leviable. The relevant para is cited below for ease of reference.
(16)ST/30149/2020 "5.1 As regards the Service Tax liability under the category of Business Auxiliary Services for the amount received and for achieving the target under Target Incentive Scheme, we find that the appellant had been given targets for specific quantum of sale by the manufacturers of the cars. As per the agreement, on achievement of such target and in excess of it, appellant was to receive some amount as an incentive. It is the case of the Revenue that such amount is taxable under Business Auxiliary Services, we find no substance in the arguments raised by the learned AR as well as the reasoning given by the adjudicating authority. The said amounts are incentive received for achieving the target of sales cannot be treated as Business Auxiliary Services, as incentive are only as trade discount which are extended to the appellant for achieving the targets. We find that this view has been taken by the Tribunal in the case of Sai Service Station (supra). With respect, we reproduce the relevant paragraphs:-
"14. In respect of the incentive on account of sales/target incentive, incentive on sale of vehicles and incentive on sale of spare parts for promoting and marketing the products of MUL, the contention is that these incentives are in the form of trade discount. The assessee respondent is the authorized dealer of car manufactured by MUL and are getting certain incentives in respect of sale target set out by the manufacturer. These targets are as per the circular issued by MUL. Hence these cannot be treated as business auxiliary service.
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."
28. In the case of CST, Mumbai Vs Sai Service Station Ltd (supra), it was, inter alia, held that incentives on account of sale target and for promoting and marketing products are in the nature of trade discounts. Therefore, all these judgments were relevant in the sense that such incentives/discounts, etc., are not leviable to service tax under the category of BAS but Tribunal never ruled that said activities would be more appropriately classifiable under some other head. It is also important to note that erstwhile BAS under section 65(19) covered any service in relation to, inter alia, promotion or marketing or sale of goods produced or provided or belonging to a client, customer care service provided on behalf of client. In the present appeal, for the period post 01.07.2012, though the said activity is not being classified under BAS but from the grounds of appeal, as also from the tone and tenor of the submissions of the appellant, it is apparent that department felt that the respondents are promoting or marketing or selling the goods produced or provided by or belonging to a client and are receiving consideration in the (17) ST/30149/2020 form of incentives/discounts. Therefore, the ratio holding that when the manufacturer and dealer are engaged in principal-to-principal transaction, they cannot be brought under the category of BAS, would also be relevant to hold that they are not providing any service of this nature to the client, as the transaction is on principal-to-principal basis.
29. The respondents have also relied on certain other judgments, which are in the context of statutory provisions in the Finance Act, as it existed post 01.07.2012. In the case of Prem Motors Pvt Ltd Vs CCE & CGST, Jaipur (supra), the Coordinate Bench at Delhi examined the issue of non-payment of service tax in relation to payments received as incentives/discounts, which were considered as consideration for providing services by the department. The Tribunal relied on various judgments of the Coordinate Benches to hold that the issue was no longer res integra. They have also relied on the judgment of the Larger Bench in the case of Kafila Hospitality and Travels Pvt Ltd Vs CST, Delhi (supra), to hold that incentives are generally given to encourage performance of the party and thereafter, held that the activity undertaken by M/s Prem Motors Pvt Ltd was for sale and purchase of vehicle and incentives were in the nature of trade discounts. As submitted by respondent and not disputed by the department, this judgment has not been challenged by the department on merit. The relevant paras of the judgment are cited below for ease of reference.
"10. That all the above cases relates to dealership agreement between the manufacturer of motor vehicles (MUL, MSIL ,TML) with their dealers for sale purchase of vehicles. In terms of the agreement it has been noticed that the dealer works on principal to principal basis and not as an agent of the manufacturer. The agreement itself provides for certain sales promotion activities which are for the mutual benefit of the business of the manufacturer as well as the dealer. The observations of the Ahmedabad Bench of the Tribunal in B.M. Autolink (supra).
"4. We have carefully considered the submissions made by both the sides and perused the records. We find the fact is not under dispute as the appellant being a dealer purchase the vehicles from M/s. Maruti Suzuki India Ltd. and subsequently sell the same to various customers. The transaction between M/s. Maruti Suzuki India Ltd. and the dealer and subsequently sale transaction between the dealer and the end customers are purely on principal to principal basis. The vehicle manufacturer M/s. Maruti Suzuki India Ltd. on the basis of yearly performance of sale grants the discount to the dealer, this discount is nothing but a discount in the sale value of the vehicle sold throughout the year therefore these sales discount in the course of transaction of sale and purchase of the vehicles hence, the same cannot be considered as service for levy of service tax."(18)
ST/30149/2020
11. The Larger Bench of this Tribunal in the case of Kafila Hospitality and Travels Pvt. Ltd. (supra) dealt with the issue whether service tax can be levied under the category of 'Business Auxiliary Service' on target based incentives paid to the travel agents by the Airlines as they were promoting and marketing the business of the Airlines. The Tribunal took the view that it is not a case where the air travel agent is promoting the service of the Airlines rather by sale of airlines ticket he was ensuring the promotion of its own business even though this may lead to incidental promotion of the business of the Airlines. On the issue, whether 'incentive' paid for achieving target are taxable, the Tribunal analysed the scope of the term 'incentives' that they are generally given to encourage performance of the party. It is relevant to appreciate the observations made in the said judgment:
"77. Consideration, which is taxable under section 67 of the Finance Act, should be transaction specific. Incentives, on the other hand, are based on general performance of the service provider and are not to be related to any particular transaction of service. It needs to be noted that commission, on the other hand, is dependent on each booking and not on the target. If the air travel agent does not achieve the predetermined target, incentives will not be paid to the travel agents.
78. In this connection it will be appropriate to take note of the decision of the Federal Court of Australia A.P. Group. The Federal Court of Australia held that in order to levy tax, the payment must be attributable to a particular supply and not to supplies in general and so the target incentives paid by a motor vehicle manufacturer to a dealer would not qualify as consideration as the incentives would be in relation to all supplies and not in relation to a particular supply. The relevant portion of the decision of the Federal Court is reproduced below:-
53. On analysis, the so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacturer and the dealer to the mutual benefit of both. The relationship involves a whole raft of obligation from one to the other all, presumably, with the ultimate objective of maximizing their respective commercial positions. As the A.P. Group put it, the overall relationship contemplates a continuing dialogue between wholesaler and retailer in which promises are routinely exchanged, but to characterize this dialogue as involving supply after supply is unrealistic and impractical. To characterize the payment of the incentives intended to encourage the overall relationship to operate efficiently as involving supplies for consideration equally unpersuasive. A dealer will always wish to sell as many cars as practicable and to move old stock to make way for new stock. So too a dealer will always wish its ordering arrangements to be the most efficient and economically beneficial to it. The manufacturer will have the same objectives. It is this context which underpins the Tribunal's conclusion that the payments are not for the supply of anything by the dealer. As the Tribunal said at [86] the dealer (which must be inferred to act in an economically rational manner in the ordinary course) will always want to run the business in this way. The fact that the dealer receives a payment as an incentive when certain thresholds associated with running the business in this way does not mean that the dealer is supplying a service to the manufacturer for consideration. If the incentive payment were not available there is no basis to infer that the dealer would not behave in the same way (19) ST/30149/2020 for free. For these reasons there cannot be said to be any supply for consideration in these arrangements. (Emphasis supplied)
12. As a matter of judicial discipline the aforesaid decisions are binding on us and in light thereof we find that the present case is squarely covered by the law laid down in those judgments. We have examined the dealership agreement entered between MSIL and the appellant and we find that MSIL is engaged in manufacturing, marketing and selling of motor vehicles and the appellant purchases the vehicles from the manufacturer as their authorised dealer on principal to principal basis. The relevant clause is quoted herein below:
"C. MSIL having considered the representations made and the application submitted by the Dealer agrees to appoint the Dealer as the Authorised Dealer. It is made clear that MSIL would sell the products and parts to the dealer on principal to principal basis. The dealer would sell the products and parts and would provide service to the customers (which would include, but not be limited to, the service in terms of the warranty as per the owner's manual provided by MSIL from time to time) which promotes and maintains customer confidence and customer satisfaction on the terms and conditions mutually agreed to between the parties and contained in this agreement."
13. We also find that the activity undertaken by the appellant is for the sale and purchase of the vehicle and the incentives are in the nature of trade discounts. The incentives, therefore form part of the sale price of the vehicles and have no correlation with the services to be rendered by the appellant. That in terms of the dealership agreement, the appellant purchases the vehicles from MSIL and sells the same to its end customers. The activity of promoting the sale is with respect to the vehicles owned by the appellant which incidentally is in interest of both the parties. Reliance is placed on the observations referred above in the case of Kafila Hospitality and Travels Pvt. Ltd. (supra).
14. We also find that the appellant is engaged in the onward sale of vehicles which involves merely transfer of property in goods which is excluded from the definition of 'service'. That Section 66D of the Finance Act, 1994 contains the negative list of services under various clauses and clause (e) provides for 'trading of goods'. On this ground also we find that incentives which are part of sale activity are not exigible to service tax."
30. In the case of Anand Motor Agencies Ltd Vs CC, Lucknow (supra), the Coordinate Bench, inter alia, examined the issue of leviability of service tax on incentives received from Maruti Udyog Ltd and thereafter, relying on the judgment of Rohan Motors Ltd Vs CCE, Dehradun [2021 (45) GSTL 315], similar view was taken.
31. In the case of Shree Ambica Auto Sales and Service Vs CCE & ST, Surat-I [2024 (10) TMI 901 - CESTAT Ahmedabad], wherein, period of demand is post 01.07.2012 and issues involved are similar, the Tribunal relying on various judgments, inter alia, held trade incentives/discounts are not liable to service tax.
(20)ST/30149/2020
32. We also find force in the submissions of the respondent that this agreement between Tata Motors and respondent has to be read in full and not picking up certain terms and conditions selectively to support a view that there is a separate agreement of service also within the same agreement. Some of the provisions of the agreement relied by the department are more in the nature of conditions binding a dealer and principal manufacturer. The same cannot be considered as a separate activity distinct from the activity of sale and are integral to the activity of sale/purchase and resale of goods i.e., vehicles. It is a settled law that there is a distinction between a condition to a contract and consideration for a contract.
33. Therefore, we find, as is apparent from the terms and conditions of the dealership agreement between the respondent and Tata Motors, that the respondents have been appointed as their dealer and the transaction is on principal-to-principal basis. The respondents are initially buying vehicles on their own account and thereafter, reselling the same to ultimate customers in terms of various terms and conditions of the dealership agreement. There are various terms and conditions, which also provide for certain activities in relation to advertisement, sales promotion, etc., however, there is no explicit provision in the agreement that clearly brings out that they are entitled for certain fixed consideration for undertaking some of the pre- determined activities and on the contrary, most of these conditions are also in the interest of respondents themselves, as it would help them sell more vehicles and earn more profit. It is also obvious that the target based incentives are aimed at selling more vehicles, which is not only benefitting the manufacturer/supplier i.e., Tata Motors but also the respondents. These incentives/discounts are based on the actual number of vehicles the respondents buy (offtake) from Tata Motors, as also, their sale (retail target). Thus, these incentives are nothing but discounts linked to sale either at the stage of purchase by respondent or at the time of resale by them. Incentives paid for achieving target cannot be termed as consideration and therefore, not leviable to service tax under section 67 of the Finance Act. It is also obvious that Tata Motors is prescribing MRP for each of the vehicle sold for resale to the ultimate customer and initially the sales invoice is based on the list price circulated by Tata Motors, thereafter, various schemes are offered by Tata offering discounts on said listed price.
(21)ST/30149/2020 Therefore, there is a clear relatability of such discounts and incentives towards the sale of goods and accordingly, it would not be liable to service tax. Further, in the present appeal, conditional discounts and incentives cannot be termed as 'consideration' for any service and the said incentives and discounts are relatable to sale of vehicle on which VAT has been paid. Therefore, these transactions cannot be treated as services, as held by Coordinate Benches in some of the referred cases, supra. The judgments relied upon by adjudicating authority are relevant to hold that incentives/discounts are relatable to sale and are not commission leviable to service tax under Business Auxiliary Service (BAS) and thus the ratio of the said judgment can be relied upon to hold that these incentives and discounts are not a commission or consideration for performing certain contractual obligations/conditions, which is an essential ingredient to bring a transaction or activities leviable to service tax.
34. To sum up,
a) There is no explicit provision in the agreement with regard to discounts/incentives, etc., as a part of performing any contractual obligations, which the department has alleged as an activity.
b) Discounts/incentives cannot be treated as consideration for any contractual obligation i.e., activities, in the facts of the case and settled law, referred supra.
c) Certain activities are in the nature of self-service as it is not being performed by the respondents for another person and hence cannot be covered within the scope of service.
35. We, therefore, find that the conclusion drawn by the adjudicating authority based on facts and relevant judgments in this regard, that these trade discounts and incentives are primarily in connection with sale of goods and that the amounts received by the respondents from Tata Motors cannot be treated as consideration towards rendering any taxable service under section 65B(44) of the Finance Act, 1994, is not suffering from any infirmity. We do not find any merit in the grounds taken by the appellant/department to differ from the conclusion arrived at by the adjudicating authority for dropping the demand. However, we refrain from examining some other grounds raised by respondent concerning non-maintainability of extended period or non-extension of cum-tax benefit without prejudice to the grounds (22) ST/30149/2020 supporting the impugned order, as the issue has been decided on merit itself.
36. In view of the above, the appeal filed by the department is liable to be dismissed and the impugned order of the Adjudicating Authority is upheld.
37. Appeal dismissed.
(Pronounced in the Open Court on 27.02.2026) (A.K. JYOTISHI) MEMBER (TECHNICAL) (ANGAD PRASAD) MEMBER (JUDICIAL) Veda