CESTAT: Authorised Dealer of Tata Motors Ltd. not Liable to Pay Service Tax on Incentives Received under Dealership Agreement

CESTAT: Authorised Dealer of Tata Motors Ltd. not Liable to Pay Service Tax on Incentives Received under Dealership Agreement

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi by its division member bench comprising of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) held that the authorized dealer was not liable to pay service tax on various incentives that it received from Tata Motors Ltd. as per the dealership agreement.

The appellant/dealer- M/s Veer Prabhu Marketing Ltd was registered with the Service Tax Department under the categories of business auxiliary services, Authorized Service Station Services, and Renting of immovable property. It is the authorized dealer of Tata Motors Ltd. 6 for sale, service, and spare parts of medium and heavy commercial vehicles in 5 districts of Rajasthan. The appellant was purchasing such vehicles from Tata on its own account and thereafter selling them to the customers. On sales, the appellant was paying Value Added Tax.

According to the appellant, the dealings between Tata and itself were on principal-to-principal basis. However, if the appellant met specific sales targets various incentives were available to the appellant as per the policy of the Tata. The appellant was also authorized to service vehicles and for servicing the appellant was collecting service charges and cost of spares from its customers.

The appellant filed a declaration under the Voluntary Compliance Encouragement Scheme (VCES) to settle tax dues and seek immunities from interest, penalties, and other proceedings under the Finance Act, 1994 and declared taxable receipts of Rs. 2,53,92,806/- and paid service tax on this amount of Rs. 17,08,986/-. A show cause notice (SCN) dated 18.11.2014 was issued to the appellant proposing to reject the declaration under section 111 of the Finance Act, 2013 on the ground that the declaration was substantially false as the actual taxable receipts were Rs. 22,41,50,211/- on which a tax of Rs. 2,49,65,525/- was to be paid. The SCN proposed to recover the unpaid tax along with interest and impose penalties. These proposals were confirmed by the impugned order passed by the Commissioner of Central Excise, Jodhpur. Aggrieved, the appellant filed an appeal before the CESTAT.

The issue that came up for consideration before the CESTAT was whether the appellant was liable to pay service tax on various incentives, which it received from Tata as per the dealership agreement.

The bench observed that, "it is undisputed that the agreement is titled dealership agreement and that it also clarifies that the appellant has to purchase vehicles from Tata Motors and then sell them. If it meets the targets, it gets additional incentives. This in our considered view, is in the form of a trade discount. Trade discount can take many forms, such as, cash discount, quantity discount, year-end discount, etc. These incentives are in the form of year end discount. This is an incentive given to encourage the dealer to buy and sell larger number of vehicles. It is not a payment for any service rendered to the manufacturer. In market, buyers who purchase larger quantities of any good often get a better price. The incentives in this case are of this nature."

The CESTAT found that the demand on the incentives received by the appellant was not eligible to service tax.

The bench noted that there were several tax modifications in the figures presented by the ld. Consultant for the appellant, hence it was of the view that since, the Commissioner had no opportunity to examine the figures and the relevant documents, the CESTAT deemed it to be a fit case to be remanded to the Commissioner for verification of the figures.

In view of the foregoing, the CESTAT allowed the appeal by way of remand to the Original Authority for the limited purpose of verifying the receipts for warranty services for the period 1st April, 2012 to 30th June, 2012 and re-determine the tax liability, if any.