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ST - Commission received from banks for arranging loan as DSA comes under BAS - commission received on account of sales of vehicles is in form of trade discounts and cannot be treated as BAS: CESTAT

By TIOL News Service

MUMBAI, SEPT 29, 2013: SAI Service Station Ltd. is an authorized dealer for cars manufactured and sold by Maruti Udyog Ltd. and also engaged in the activity of servicing, repairing the vehicles and selling spares for the vehicles.

For the period July, 2003 to March, 2006 the service station received monies on the following counts and on which the department wants to recover Service Tax:-

(a) Commission received from various banks and financial institutions through M/s. Maruti Udyog Ltd. for promoting, marketing and selling ‘Auto Finance' product under the mark ‘Maruti Finance'. [ST demanded - Rs. 61,82,304/-]

(b) Finance commission received from various banks and financial institutions for arranging ‘Auto Finance' loan to their prospective buyers, by acting as ‘Direct Sales Agent (DSA). [ST demanded - Rs.40,21,291/-]

(c) Commission received from M/s. Maruti Udyog Ltd. on account of sales/target incentive, incentive on sale of vehicles and incentive on sale spare parts for promoting and marketing the products of M/s. MUL. [ST demanded - Rs.47,32,807/-]

The CCE, Thane-II adjudicated the case thus -

+ In respect of commission received from various banks and institutions through MUL he confirmed the demand of Rs.41,46,054/- and dropped the demand of Rs.20,36,250/-.

+ In respect of commission received from the banks/finance institutions for arranging auto/finance loan to their prospective buyers by acting as Direct Sales Agents, an amount of Rs.40,21,291/- is confirmed.

+ In respect to commission received from MUL on account of sales/target incentive, incentive on sale of vehicles and incentive on sale of spare parts for promoting and marking the products of MUL, the adjudicating authority dropped the demand of Rs.47,32,807/-.

Penalties and interest were also imposed.

Sai Service Station Ltd. is before the CESTAT against the confirmed demands whereas the Revenue has filed appeal against dropping of demands.

The appellant submitted that the activity undertaken of ‘promotion and marketing' comes under ‘Business Support Service' which is made taxable with effect from 1.5.2006 and hence the demand is not sustainable. Due to confusion prevailing during the period in dispute as to whether the activity undertaken by the assessee comes under the scope of "business support service", the allegation of suppression with intent to evade payment of tax is not sustainable. Case laws of Bridgestone Financial Services - (2007-TIOL-810-CESTAT-BANG) and City Motors & Financial Services - (2012-TIOL-578-CESTAT-DEL) are relied upon.

The Revenue representative submitted that the Tribunal in case of Chambal Motors (P) Ltd. - (2008-TIOL-1277-CESTAT-DEL) and City Motors & Financial Services - (2012-TIOL-578-CESTAT-DEL) has held that car dealers promoting car loans of their client banks/financial institutions are covered under the definition of "business auxiliary service" under Section 65(19) of FA, 1994 and hence service tax is rightly demanded. As regards the plea of time bar, it is submitted that prior to 2004, MUL paid service tax on commission received from bank and financial institutions and subsequently advised the appellant to get registered with the Service Tax department as provider of Business Auxiliary Service and pay service tax in respect of commission received from MUL. However, although advised, the appellant did not pay Service Tax and hence the extended period is rightly invoked.

As regards the dropped portion of the demand, it is submitted that the demand of Rs. 20,36,250/- is in respect of commission received from MUL for promoting, marketing and selling auto finance under the mark "Maruti Finance" and as this activity falls under the business auxiliary service, the assessee is liable to pay service tax. Similarly, in respect of dropping of the demand of Rs.47,32,807/-it is submitted that as the appellant is receiving consideration on account of sales of vehicles and incentive on sale of spare parts for promoting and marketing the products, this activity being promoting and marketing of products of MUL, service tax is payable under the heading of business auxiliary service.

The respondent assessee submitted that since MUL has paid the service tax on the gross amount received from the bank/finance institutions including the commission passed on to the present assessee respondent, therefore, demanding service tax of Rs. 20,36,250/- on the same amount amounts to double taxation. In respect of the incentive on account of sales/target incentive, incentive on sale of vehicles and incentive on sale of spare parts for promoting and marketing the products of MUL, the contention is that these incentives are in the form of trade discounts and hence cannot be treated as business auxiliary service.

The Bench observed -

"15. We find in respect of the commission received from various banks/finance institutions for arranging auto finance loan to their prospective buyers or commission received from MUL where MUL are directly dealing with the bank/finance institutions, we find that the issue is settled in favour of the Revenue in the case of CCE, Jaipur vs. Chambal Motors (P) Ltd. In the above decision, the Tribunal held that commission received from various bank/finances institution for arranging loan to their prospective buyers comes under the business auxiliary service. In view of this we find no reason to interfere with the impugned order whereby the demand is confirmed by treating the activities undertaken by the assessee under Business Auxiliary Service.

16. In respect of time bar, the contention of the assessee is that there was a confusion in the Board's circular whether the activity comes under the business auxiliary service or not. We find that MUL was paying service tax on the commission received from various banks/finances institutions. MUL advised the assessee to get registered with the Service Tax department and to pay service tax on this activity. In spite of this, the assessee had not paid service tax though got registered with the Revenue as provider of taxable service in October, 2004. In view of this, we find no merit in the contention of the assessee that the extended period is not invokable.

17. In respect of the appeal filed by the Revenue, we find that MUL has already paid service tax of Rs.20,36,250/- on the gross amount received from various banks/finance institutions including the commission passed on to the assessee. This fact is not under challenge in the present appeal. We, therefore, agree with the assessee that demanding duty on the same amount again amounts to double taxation.

18. In respect of sales/target incentive, the revenue wants to tax this activity under the category of business auxiliary service. We have gone through the circular issued by MUL which provides certain incentives in respect of cars sold by the assessee respondent. These incentives are in the form of trade discount. In these circumstances, we find no infirmity in the adjudication order whereby the adjudicating authority dropped the demand. Hence, the appeal filed by the Revenue has no merit."

In fine, both the appeals, filed by the assessee as well as by Revenue, are dismissed.

(See 2013-TIOL-1436-CESTAT-MUM)


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Sub: Issue already placed before president for referring to larger bench

It is strange to observe that in the case of Pagariya Auto Center vs CCE [2013-TIOL-289-CESTAT-MUM] this issue has been placed before the President for referring to Larger Bench of the Tribunal and inspite of this, the same Mumbai CESTAT has passed the decision against the assessee in the above reported case.

Posted by Pradeep Jain Jain