Relief to Honda ,No Service Tax on Excess Transportation Charges Recovered from Buyers: CESTAT [Read Order]

In a ruling in favour of Honda Motorcycle and Scooter India Pvt. Ltd., the New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has stated that excess transportation costs that are recouped from the buyers are exempt from service tax.

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A Standard Dealership Agreement was signed by the assessee, Honda Motorcycle and Scooter India Pvt. Ltd., with each of its dealers.  In order to do this, the assessee had to hire transporters to move the two-wheelers to the dealers' location and sign a Standard Transportation Agreement. They also had to get two-wheeler insurance while in transit, which they did by purchasing an Open Marine Policy.

On the sale invoices, the assessee separately declared the freight and insurance charges that it had recovered from its dealers.  Retained excess freight and insurance fees were considered service profits.  The Department requested information on the extra freight and insurance receipts that were properly provided based on the inquiry.

The assessee received a show-cause notice that increased the demand for the extra freight and insurance charges collected from dealers. Following adjudication, the Tribunal has confirmed the full demand. The Tribunal was asked to decide whether excess transportation or insurance-related costs that were collected from the buyers were subject to service tax.

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The assessee argued that it was unreasonable to demand service tax on the same transaction after excise duty had been paid.

 The Tribunal noted that the facility of providing transportation of goods to the buyers' premises is an activity related directly to the supply of goods manufactured by the assessee and cannot be linked to any kind of service and, therefore, cannot be made exigible to service tax. The invoice placed on record, clearly reflect the assessable value of the goods, statutory levies and transportation/freight charges.

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The two member bench of Binu Tamta (Judicial) and P.V. Subba Rao (Technical) observed that the activity of arranging transportation of goods till the dealer's premises cannot be classified under “Business Auxiliary Service” and, therefore, no service tax is payable on transportation related expenses recovered in excess by the assessee from their buyers.

While allowing the appeal, the CESTAT held that the assessee discharged the excise duty liability on excess freight and insurance charges, consequently, the levy of service tax is unsustainable.

To Read the full text of the Order CLICK HERE

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