No Service Tax Leviable on Discounts Received from Manufacturer & Passed on to Customers During Car Sale: CESTAT [Read Order]

The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that service tax is not leviable on discounts and incentives received from manufacturers and passed on to customers during car sales, which constitute the sale of goods.

Capital Cars Pvt. Ltd., the assessee/appellant, is an authorized dealer of cars. The DGCEI during the year initiated certain investigations regarding consumer-specific schemes (incentive/discount schemes) floated and implemented by HCIL for the levy of service tax for the period 01.10.2012 to 30.06.2017.

It was observed by the investigating agency that during the aforesaid period the assessee had received monetary considerations for providing services through credit notes and had made adjustments of accounts during the relevant point in time. Show cause notice was issued and the Adjudicating Authority confirmed the demand against the assessee under section 73(1) of the Finance Act, 1994.

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The assessee appealed the Adjudicating Authority’s judgment to the Commissioner (Appeals-I), Central Tax, CGST, New Delhi, who dismissed the appeal and maintained the Adjudicating Authority’s ruling. Before the Tribunal, the assessee has contested the Commissioner’s (Appeals-I) order.

As per the bench, there is no question that the amount reimbursed through credit notes is related to the target incentives and discounts that HCIL offers and passes on to the customers through the assessee in connection with its business of selling cars, spare parts, and accessories, rather than because any services were rendered. Therefore, it defies logic to include the aforementioned activity, which involves the selling of products, under section 66B of the Finance Act.

While allowing the appeal, the two-member bench of Binu Tamta (Judicial Member) and Rajeev Tandon (Technical Member) has observed that sale/target incentive/incentive on sale of vehicles and incentive on sale of spare parts received by the assessee could not be considered as rendering of business auxiliary service.

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