Discounts or Incentives Received from Manufacturers for Bulk Purchases and Meeting Sales Targets are Trade Discounts, not Subject to Service Tax: CESTAT [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), New Delhi, declared that discounts and incentives received from manufacturers for bulk purchases and meeting sales targets are trade discounts and not subject to service tax.

This verdict was part of the appeal filed by M/s Divine Autotech Private Limited, which challenged the service tax demand imposed by the Commissioner of Central Tax, Delhi.

The appellant, M/s Divine Autotech Private Limited, represented by Shri Atul Gupta and Anmol Gupta argued that the incentives and discounts received from manufacturers for bulk purchases and meeting sales targets are trade discounts.

It was also asserted that these amounts are not related to the provision of any taxable service but are purely commercial transactions in the nature of discounts, which should not be subject to service tax.

The respondent revenue, Commissioner of Central Tax, represented by Shri Anand Narayan contended that the incentives and discounts received by the appellant from manufacturers should be treated as consideration for providing promotional services.

The respondent also argued that these amounts are linked to services rendered by the appellant to the manufacturers, thus qualifying as taxable services. Consequently, they believed that the service tax should be levied on these transactions.

The CESTAT noted that trade discounts are a routine part of commercial transactions and do not constitute consideration for any service. The appellant had received various discounts and incentives from car manufacturers, which were incorrectly subjected to service tax by the Commissioner.

The bench referred to the case law Rohan Motors Ltd. vs. Commissioner of Central Excise, Dehradun, to assert that such discounts are merely financial adjustments between businesses and should not be taxed as services.

The two-member bench of the CESTAT comprising Ms. Binu Tamta ( Judicial Member ) and Mr. P. V. Subba Rao ( Technical Member ) concluded that discounts or incentives received from manufacturers for bulk purchases and meeting sales targets are trade discounts and not linked to the provision of taxable services. Therefore, such amounts are not subject to service tax.

In result, the tribunal set aside the service tax demand on these discounts. This ruling is a significant clarification for the automotive industry and other sectors where bulk purchasing and sales incentives are common, stressing the distinction between trade discounts and taxable services.

To Read the full text of the Order CLICK HERE

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