Maruti Dealership Incentives Qualify as Trade Discounts Not Taxable Services: CESTAT Quashes ₹2.21Cr Service Tax Demand on Audi Motors [Read Order]

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) allowed the appeals filed by Audi Motors Pvt. Ltd. and its Accountant, setting aside the service tax demand of ₹2,21,87,867 along with equivalent penalty, holding that the incentives and discounts received from Maruti Suzuki India Ltd. (MSIL) were in the nature of trade discounts and not consideration for any taxable service.

The dispute arose after a Show Cause Notice (SCN) was issued proposing service tax demand for April 2015 to June 2017, alleging that the discounts and incentives received by the appellant under various MSIL schemes fell within the definition of “service” under Section 65B(44) of the Finance Act, 1994.The department also alleged suppression of facts.

The adjudicating authority confirmed the entire demand with interest and penalties and imposed a penalty of ₹1,00,000 on the Accountant, Sawai Singh Purohit.

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The appellant submitted that it was an authorised dealer of MSIL on a principal-to-principal basis and that MSIL was giving incentives and trade discounts on achieving wholesale, accessories and spare parts sales targets.

The appellant also contended that the issue was already settled in favour of assessees in decisions such as Rohan Motors Limited v. Commissioner of Central Excise (2021) and the Larger Bench decision in Kafila Hospitality and Travels Pvt. Ltd. v. CST (2021).

The Bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) examined these decisions and noted that all of them involved dealership agreements between motor vehicle manufacturers and their dealers, where the dealers purchased vehicles from the manufacturers and sold them independently.

The Tribunal observed that the dealers worked on a principal-to-principal basis and were not agents of the manufacturers. The agreements provided for certain sales promotion activities which were for the mutual benefit of both parties.

Referring to the Larger Bench ruling in Kafila Hospitality and Travels Pvt. Ltd. (2021), the Tribunal reiterated that incentives given for achieving targets cannot be treated as consideration for promoting the business of the manufacturer, and that achieving targets primarily promotes the dealer’s own business even if it incidentally benefits the manufacturer.

The bench further examined the dealership agreement between MSIL and the appellant and held that the relationship was one of buyer and seller. It found that the activity undertaken by the appellant related to the sale and purchase of vehicles and that the incentives were in the nature of trade discounts forming part of the sale price, having no correlation with any service to be rendered by the appellant.

The Tribunal also noted that the onward sale of vehicles involved transfer of property in goods, which is excluded from the definition of “service,” and that “trading of goods” appears in the negative list under Section 66D(e) of the Finance Act, 1994. On this ground also, the Tribunal held that the incentives were not leviable for service tax.

The Tribunal concluded that the incentives and discounts could not be treated as consideration for any service and set aside the impugned order and allowed the appeals. Having decided the matter on merits, it found no need to examine the issue of limitation.

The appellant was represented by J. Kainaat, while Jaya Kumari appeared for the Revenue.