CESTAT allows Honda's Appeal, Holds Education Cess Leviable only on 'Levied and Collected' Service Tax Amount [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Principal Bench, New Delhi, has allowed the appeals filed by Honda Motorcycle and Scooter India Pvt. Ltd. in a service tax matter related to transportation and insurance charges recovered in excess from its dealers. The Tribunal held that no service tax is leviable on such excess amounts in the absence of a service provider-recipient relationship and where excise duty has already been paid on the entire transaction value including such charges.

The appellant, Honda Motorcycle and Scooter India Pvt. Ltd., is engaged in the manufacture and supply of motorcycles, scooters, and related components. It entered into dealership and transportation agreements, under which it arranged for the transportation and insurance of vehicles to the dealers' premises. For this service, the appellant collected fixed freight and insurance charges from its dealers, which were higher than the amounts actually paid to transporters and insurers. The excess amount was retained as profit.

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The Revenue initiated proceedings against the appellant by issuing a show cause notice demanding service tax of Rs.16.93 crore for the period from June 2011 to March 2016, along with penalties under Section 78A against company officials Naveen Kumar and Sunil Gupta. A subsequent statement of demand was also issued for the period from April 2016 to June 2017, demanding Rs.3.64 crore. The demands were confirmed by the adjudicating authority.

The appellant contended that the amounts collected for freight and insurance were part of the sale transaction, already subjected to central excise duty, and not consideration for any service under the Finance Act, 1994. The Tribunal accepted this submission, citing previous rulings including Pushpak Steel Industries Pvt. Ltd. V. CCE and Gokulanand Texturisers Pvt. Ltd., where it was held that transportation charges collected as part of the sale do not constitute taxable services under the category of 'Business Auxiliary Service'.

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The Tribunal further noted that the excess amounts retained by the appellant were not linked to any independent service agreement but were incidental to the sale of excisable goods. It also observed that once excise duty has been paid on the full transaction value, demanding service tax on the same amount would amount to double taxation. The decision of the Tribunal in the appellant’s own Manesar unit, where similar demands had been dropped, was also relied upon.

The Bench comprising Binu Tamta (Judicial Member) P.V. Subba Rao (Technical Member) concluded that no service tax was leviable on the excess freight and insurance recovered by the appellant. Consequently, the penalties imposed on Sunil Gupta and Naveen Kumar were also set aside. The appeals were allowed.

To Read the full text of the Order CLICK HERE

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