The Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) ruled that the booking cancellation charges for motor vehicles are compensation for the loss they suffered, it should not be considered as a service they provided.
The appellants, Comet Car Sales, RB Cars Pvt. Ltd., and Nanavati Cars Pvt. Ltd., received Rs. 4,55,708 as booking cancellation charges for motor vehicles. The appellants were authorized dealers of vehicles for Maruti Suzuki India Ltd. (MSIL) and Renault India Pvt. Ltd. (RIPL).
The cancellation charges were imposed on customers who canceled bookings after confirming vehicle reservations. The department issued notice stating that these charges constituted consideration for services rendered, making them taxable under the Finance Act, 1994.
Aggrieved, the appellants appealed before the CESTAT arguing the charges were compensatory in nature covering losses due to blocked inventory or administrative costs. The counsel argued no services were provided regarding these charges so they should not be taxable.
The appellant’s counsel relied on the Delhi tribunal ruling in the case of Divine Autotech Private Limited v. CCT, 2024 which held that booking cancellation charges are compensatory, not consideration for service.
The two-member bench comprising Ramesh Nair (Judicial Member) And C L Mahar (Technical Member) observed that this issue has already been decided by many tribunals. The tribunal agreed that cancellation of a booking does not constitute a taxable service as no specific service activity was performed for the customer.
The tribunal relied on Circular No. 178/10/2022-GST dated August 3, 2022, which clarified that cancellation charges under GST are non-taxable. The referenced Delhi tribunal ruling in the case of Divine Autotech Private Limited v. CCT where it was held that booking cancellation charges for motor vehicles received by the appellant are like compensation and not consideration for service.
With this, the tribunal ruled that booking cancellation charges are compensatory and not consideration for any service rendered. The tribunal set aside the orders demanding service tax on the booking cancellation charges and allowed the appeal with consequential relief.
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