Whether any Service tax is to be paid on dealer’s margin received from manufacturer for first three free services provided to buyers of vehicles?

PJ/Case Laws/2012-13/1357

Case:-PILLAI & SONS MOTOR CO. Versus COMMISSIONER OF C. EX., TRICHY

Citation:-2009 (14) S.T.R. 844 (Tri. - Chennai)

Brief facts:-The appellants M/s. Pillai & Sons Motor Company (P & SMC) are an authorised dealer of M/s. Maruti Udyog Ltd. (MUL) and sell various models of vehicles manufactured by MUL. During the periods 2002-03 to 2005-06 (up to Dec’05), the appellants were found to have rendered service falling under the category “Authorised Service Station” and did not pay tax due of Rs. 63,575/- on the said service. The impugned demand is relatable to the first three free services rendered in respect of new vehicles purchased from them. The demand is raised on the basis of Circular No. 87/05/06-ST dated 6-11-2006 issued by the CBEC.

Appellant Contentions:-The appellants have relied on several case laws which have held that service tax is not payable by the authorised service stations for free services rendered in respect of first three services of vehicles sold by them where no charges were collected on that account. It is argued that the tax is demanded on the margin earned by them on sale of the vehicles as they collected no charges for the first three services. As they had paid sales tax on this margin no service tax was leviable in addition. Appellants rely on the decision of the Tribunal in ASL Motors Pvt. Ltd. v. Commissioner of Central Excise and Service Tax, Patna reported in [2008 (9) S.T.R. 356 (Tri.-Kolkata)] in support of this plea.

Respondent Contentions:-Respondent said that the appellants were found to have rendered service falling under the category “Authorised Service Station” and did not pay tax due of Rs. 63,575/- on the said service. The impugned demand is relatable to the first three free services rendered in respect of new vehicles purchased from them. The demand is raised on the basis of Circular No. 87/05/06-ST dated 6-11-2006 issued by the CBEC. This circular had clarified that where service charges are reimbursed by the vehicle manufacturers, such reimbursement should be subject to service tax. The lower authorities had rejected the claim of the appellants that they were not paid any charges for the free services rendered either by the manufacturer of the vehicles or by the purchaser of the vehicles.

Reasoning of Judgement:-Heard both sides. There is no dispute that the subject demand is raised on dealer’s margin received by the appellants, relatable to free service rendered to buyers of vehicles. Tribunal finds that the issue involved is no longer res integra. The Tribunal had observed as follows in para 5 of its decision in ASL Motors Pvt. Ltd. (supra):
“We also find that in the constitutional scheme of things, there is mutual exclusivity between the taxability of sale of goods, which is charged to sales tax by the state; the excise duty on manufactured goods which is levied by the Centre; and the tax on services, which is also levied by the Centre. The impugned amount in question is a part of the dealers’ margin which has been recovered by the appellants as part of the sale value of the cars from the customers and the entire amount has been subjected to sales tax by the concerned State Government authorities. When the appellants sold the cars and recovered the amount including the dealers’ margin, the dominant intent, was to sell the goods, namely, cars and not to provide free after sales service. In our view, the entire amount including the dealer’s margin has been rightly taxed to sales tax representing the value of the cars. The provision of free servicing is merely incidental and intended to promote the sale of the cars. Hence, we are of the view that no service tax can be levied on the amount representing the dealers’ margin or any part of it which already has been subjected to sales tax. Consequently, we set aside the impugned order and allow the appeal.”

Decision:-Appeal Allowed.

Comment:- The analogy drawn from this case is that when an activity has been subjected to sales tax, then service tax cannot be demanded due to the fact that an activity can either be a sale or a service and cannot be levied to both of the taxes simultaneously.

Comments

PJ/Case Laws/2012-13/1357

Post a Comment

Query