Incentives Given To Audi Authorised Service Station Not 'Business Auxiliary Service', No Service Tax Payable: CESTAT

The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that incentives given to audit-authorised service stations are not 'business auxiliary services'.

The bench of Sulekha Beevi C.S. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) have observed that the demand has been made under the definition of service under Section 65 (44) B. There is no element of service. The incentives are purely on the basis of sales and not for providing service or promoting the business of M/s. Volkswagen or Castrol India. The demand made after July 1, 2012 is also not sustainable. The demand for service tax raised on incentives or discounts from M/s. Volkswagen and M/s. Castrol cannot be sustained and requires it to be set aside.

The appellant/assessee is in the sales and service of the 'AUDI' brand of cars and is providing taxable services such as 'Authorized Service Station Service' and 'Business Auxiliary Service'. The appellant has obtained registration under the Service Tax Commissionerate.

The appellant company was established in December 2015, and prior to its formation, M/s.Jubilant Motor Works Pvt. Ltd. was carrying out the Chennai operations with a separate service tax registration. The appellant took over all the business activities in respect of Chennai operations from M/s.Jubilant Motor Works Pvt. Ltd. from December 2015 onwards, along with all assets and liabilities in respect of Chennai operations.

The intelligence gathered by the officers of the Directorate General of Central Excise Intelligence, Bangalore Zonal Unit, indicated that the appellant, M/s. Jubilant Motor Works (South) Pvt. Ltd., is evading payment of service tax. As it appeared from the ST 3 returns filed with the department, the appellant has not declared their entire service income as accounted for in their books of accounts.

It appeared that the appellant was availing input service tax credit in respect of services that are used by them in their showroom and their service centre. These show rooms and service centres are engaged in the activity of trading in cars, spares, and accessories as well as providing taxable service. Thus, it appeared that appellant was availing of ineligible CENVAT credit on certain common input services used for taxable services and trading and utilising the same towards payment of their service tax liability. Based on the intelligence, investigations were initiated, and relevant documents and records were resumed under summons proceedings.

It was noted that the appellant has not declared the incentive income in the service tax returns and has not discharged service tax. An incentive income from Castrol Company was not declared in the service tax returns and has not discharged service tax on the same. Similarly, the appellant had not paid service tax on the car advance money forfeited. When a customer books a car, a certain amount is collected from him in advance of the booking. Subsequently, if the customer cancels the booking, the advance amount given by the customer will be forfeited against the cancellation.The appellant had not declared the income in the ST 3 returns and had not discharged the service tax.

The appellant had availed of an input service tax credit on certain common input services that were used for both taxable and trading (exempted services). The appellant did not follow the procedure prescribed under Rule 6(3) of the CENVAT Credit Rules 2004 by maintaining separate accounts. However, after the initiation of the investigation, they quantified the ineligible CENVAT credit availed and utilised by them in respect of trading (exempted services) and the service tax liability and paid up Rs. 41,09,425.

The department contended that the incentives are given to the appellant for promoting the business and sales of M/s. Volkswagen, and therefore these incentives are nothing but consideration received for providing business auxiliary services. So also, in the case of incentives received by the appellant from M/s. Castrol India, they are for providing sales promotion of Castrol products. The confirmation of the demand for service tax under Business Auxiliary Services is correct and proper.

The court held that the incentives offered for achieving sales targets cannot be said to be incentives for promoting the sale of M/s. Volkswagen, as the appellant, is interested in doing more sales for their own benefit of making more profit. It cannot be said that they promote the sales of M/s. Volkswagen or M/s. Castrol India Ltd. The incentives depend on the targets achieved, which the appellant is interested in achieving as they would earn more profit. Even if there was no such incentive, the appellant would be attentive and focused on selling cars to the maximum possible. The incentive is not in the nature of any consideration for providing services to M/s. Volkswagen and M/s. Castrol India Ltd.

Counsel For Appellant: Raghavan Ramabhadran

Counsel For Respondent: Rudra Pratap Singh

Case Title: M/s.Jubilant Motor Works (South) Pvt. Ltd. Versus The Commissioner of GST & Central Excise

Case No.: Service Tax Appeal No.42289 OF 2018

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