Discounts Received From Manufacturer & Passed On To Customers During Car Sale Doesn't Constitute Service, Not Liable To Service Tax: CESTAT

The Bench of Binu Tamta (Judicial Member) and Rajeev Tandon (Technical Member) has observed that “sale/target incentive/incentive on sale of vehicles and incentive on sale of spare parts received by assessee, could not be considered as rendering of business auxiliary service.”

In this case, the assessee/appellant is an authorized dealer of cars. The DGCEI during the year initiated certain investigations regarding consumer specific schemes (incentive/discount schemes) floated and implemented by HCIL for the purpose of levy of service tax for the period 01.10.2012 to 30.06.2017.

It was observed by the investigating agency that during the aforesaid period the assessee had received monetary considerations for providing services through credit notes and had made adjustments of accounts during the relevant point in time.

Show cause notice was issued and the Adjudicating Authority confirmed the demand against the assessee under section 73(1) of the Finance Act, 1994.

Aggrieved by the decision of Adjudicating Authority the assessee filed an appeal to the Commissioner (Appeals-I), Central Tax, CGST, New Delhi who rejected the appeal and upheld the order of the Adjudicating Authority. The assessee has challenged the order passed by the Commissioner (Appeals-I), before the Tribunal.

The assessee contended that discounts as per schemes introduced by HCIL are offered from time to time that are required to be followed by the assessee and passed on to their customers. This discount is reimbursed by HCIL by way of credit notes credited to their bank accounts.

The Tribunal after referring to previous judgments stated that when it was categorically held that there was no liability to Service Tax on activity relating to sale of spare parts for the car, how per se the activity relating to car sales could be taken as one leviable to Service Tax.

The bench opined that it is not disputed that the amount reimbursed by virtue of credit notes actually relates to target incentives and discounts offered by HCIL passed on to the customers through the assessee related to its business of sale of cars, spare parts and accessories and not on account of rendition of any service. It therefore belies logic to include the said activity relating to sale of goods within the ambit of section 66B of the Finance Act.

“……..the provisions of the Finance Act cannot be made applicable to such transactions between the assessee and the HCIL and between the assessee and/or its customers. The discounts and incentives are offered by the manufacturer in relation to sale and purchase of the goods passed on to the ultimate consumers while transferring the possession and ownership of the goods.” added the bench.

In view of the above, the Tribunal allowed the appeal.

Case Title: M/s Capital Cars Pvt. Ltd. v. Commissioner of Central Goods & Service Tax & Central Excise, New Delhi

Case Number: Service Tax Appeal No.51048 of 2020

Counsel for Appellant/ Assessee: Sameer Sood and Jatin Mandovaria

Counsel for Respondent/ Department: Anand Narayan

Click Here To Read/Download The Order