The Customs, Excises, Service Taxes Appellate Tribunal (CESTAT) held that the discount given for non-provision of certain services such as warranty to foreign buyers is not liable under Business Auxiliary Service (BAS) and therefore, no liability of service tax arises.
The Appellant, M/s. MAN Trucks India Pvt. Ltd. is engaged in the business of manufacture of heavy commercial vehicles falling under Chapter 87 of the Schedule to the Central Excise Tariff Act, 1985. The Appellant had entered into an agreement with M/s Man Trucks & Bus AG, Germany for the supply of Heavy Commercial Vehicles bearing the “MAN” trademark for sale outside India. The transaction involved the sale of heavy commercial vehicles by the Appellant to MAN Germany and thereafter by MAN Germany to its buyers.
As per the agreement, the Appellant had agreed to sell trucks, including spare parts for markets outside India exclusively to MAN Germany. Article 2.1 of the agreement stipulates that MAN Germany shall conclude all transactions emanating under the Agreement, in its own name, and for its own account. Article 9.2 provides that the Appellant shall not be responsible for rendering any after-sale services and MAN Germany shall arrange for such services in each of the export markets, as may be required by the marketing organizations of MAN Germany or the designated buyers of MAN Germany. Article 9.5 provides that in consideration for the warranty and after-sale service to be provided by MAN Germany, the Appellant shall allow a discount of 500 Euros from the export product sold by Appellant to MAN Germany.
The Principal Commissioner has in the impugned order stated that for the period of 1 April 2009 to 30 June 2012, it was clear from the clauses of the Agreement that the Appellant had shifted its responsibility of providing after-sale service to MAN Germany, for which it reduced the sale price by 500 Euros. Thus, it was this amount that was paid to MAN Germany for carrying out after-sale service on behalf of the Appellant and this would be BAS liable for payment of service tax.
The Tribunal headed by the President Justice Dilip Gupta and a Technical Member C.L. Mahar observed that the discount that was offered to MAN Germany was because the Appellant was not providing warranty and after-sale service. He also clearly stated that such an after-sale service will not be provided by the company and that it was open to MAN Germany to either provide or not provide after-sale service to the customers.
While quashing the order, the bench held that the agreement entered between the parties stipulated that the Appellant shall not be responsible for rendering any after-sale service. In such a situation, it cannot be said, under any circumstances, that MAN Germany was providing after-sale service on behalf of the Appellant. After-sale service was agreed to be provided by MAN Germany on its own account.
“The discount that is being offered by the Appellant to MAN Germany is merely an adjustment in the price of goods sold and is not towards the provision of any service to be undertaken by MAN Germany on behalf of the Appellant. The service provided by MAN Germany would, therefore, not classify as BAS,” the tribunal said.