ST - FIs offer commission to appellant on loan amount sanctioned, of which, portion is passed to customer as an up front subvention of total interest payable - manner in which FIs treats this outflow and inflow needs examination: CESTAT
By TIOL News Service
MUMBAI, DEC 06, 2016: THE appellant is a dealer of M/s Toyota Kirloskar Motor Ltd. and has executed a dealership agreement enumerating the various obligations and rights arising there from. Dealers procure vehicles on payment of cost and it is claimed that the earnings of the dealer arise from the difference between the discounted price at which vehicles are offered by the manufacturer and the price at which the appellant sells to customers.
Service Tax demands for the period from July 2004 to March 2007 and from April 2007 to March 2011 of Rs.1,58,69,430/- and Rs.1,57,12,236/- were confirmed holding the appellant liable to tax on commission earned on sale of cars, on facilitation charges collected from customers for registration of vehicles and commission foregone on loans marketed by appellant to customers.
It is the contention of the appellant that these are not considerations leviable to tax and that, even if these are, the adjudicating authority has erred in computing the tax liability; that depending on order quantity, the manufacturer raises invoices after according discounts which are designated as commission/incentive merely as a management terminology. Case laws were also cited in support.
In the matter of commission/incentive earned on sale of cars, the Bench extracted the decisions in Jaybharat Automobiles Limited - 2015-TIOL-1570-CESTAT-MUM, Sai Service Station Limited - 2013-TIOL-1436-CESTAT-MUM & in the matter of facilitation charges collected from customers for registration of vehicles, the Bench relied on the decision in Arpanna Automobiles - 2016-TIOL-1550-CESTAT-MUM and held that the demand on the above counts is not sustainable in view of the cited case laws.
As regards the demand on commission foregone on loans marketed by appellant to customers, the Bench observed -
+ Appellant, admittedly, assists customers who desire to have their vehicles financed by bringing financial institutions and buyers together. For this, financial institutions offer them a commission on the loan amount sanctioned of which a portion is passed on to the customer as an upfront subvention of the total interest payable. The appellant pays tax only on the actual commission received.
+ One of the essential requirements in taxing of services is the existence of 'service-provider' and 'recipient of service' with the latter making over the agreed upon consideration to the former. Appellant, admittedly, markets products of financial institutions for which they are entitled to a commission. There is common ground here on the taxability of commission as received. However, the appellant claims to have waived a portion of the commission, otherwise receivable, which the bank then uses to reduce the consideration that it receives for such financing from customers. It would appear that consideration not received by the appellant from the financial institutions for one service is adjusted to compensate for the reduced consideration received by the financial institution for another service rendered to another recipient.
+ The manner in which the financial institution treats these outflows of commission and inflow of interest would unlock the proper perspective of consideration in these transactions, particularly, the one between the appellant and the financial institution. This is an aspect that has not been attended to in the impugned order.
In fine, the Bench remanded the matter to enable the adjudicating authority to re-visit the taxability of sub vented amounts as well computing afresh the demand based on the debit/credit accounting entries mentioned.
(See 2016-TIOL-3152-CESTAT-MUM)
