CESTAT rules in Favor of Honda: No Service Tax on Excess Freight Charges Collected from Dealers [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled in favor of Honda Motorcycle and Scooter India Pvt. Ltd., quashing a service tax demand of over Rs. 20 crore on excess freight and insurance charges collected from its dealers. The tribunal held that these charges were part of the transaction value on which excise duty had already been paid, making them ineligible for additional service tax.

Honda Motorcycle and Scooter India, a leading two-wheeler manufacturer, had been accused by the Revenue Department of evading service tax on excess amounts retained from dealers for transportation and insurance services. The department had issued show-cause notices demanding Rs. 16.93 crore for the period June 2011 to March 2016 and an additional Rs. 3.64 crore for April 2016 to June 2017, along with penalties.

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The tribunal, comprising Binu Tamta(Judicial Member) and P.V. Subba Rao(Technical Member), rejected the department's argument that the excess freight and insurance charges constituted a taxable service under "Business Auxiliary Service." The bench noted that Honda had already paid excise duty on these amounts, which were part of the transaction value of the goods sold. Imposing service tax on the same amount would amount to double taxation, the tribunal observed.

The order referenced several precedents, including Pushpak Steel Industries Pvt. Ltd. and Gokulanand Texturisers Pvt. Ltd., where similar demands were struck down. The tribunal also cited Honda's own case from its Manesar unit, where the department had previously accepted that no service tax was leviable on such charges.

The department had argued that the excess amounts retained by Honda were for providing transportation services, making them taxable. However, the tribunal found no separate service agreement between Honda and its dealers, concluding that the transportation arrangement was merely incidental to the sale of goods.

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Additionally, the tribunal set aside penalties imposed on Honda executives Naveen Kumar and Sunil Gupta under Section 78 of the Finance Act, 1994, as the primary demand itself was invalidated.

The ruling reinforces the principle that excise duty and service tax cannot be levied on the same transaction, preventing dual taxation. The tribunal's decision aligns with earlier judgments, including Tiger Logistics (India) Limited, where profit margins on freight were held to be business income, not taxable services.

In Conclusion, The Bench allowed Honda's appeals and set aside the impugned demands.

To Read the full text of the Order CLICK HERE

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