Whether commission received for marketing auto loan products & incentives received for achieving sales targets leviable to service tax?

PJ/Case Law /2016-17/3300

Case-SHARYU MOTORS VERSUSCOMMISSIONER OF SERVICE TAX, MUMBAI

Citation- 2016 (43) S.T.R. 158 (Tri. - Mumbai)

Brief Facts:-This appeal is directed against Order-in-Original No. 04/STC/BR/09, dated 25-6-2009 passed by the Commissioner of Service Tax, Mumbai. The relevant facts that arise for consideration are that the appellant herein had received some amount from various financial institutions as commission for marketing of Auto Loan products and also an amount from manufacturers of car under the head Target Incentive Scheme. It was noticed that the appellant had not discharged the Service Tax liability on such amounts. Show cause notice was issued demanding the Service Tax liability along with interest thereof and also proposed for imposition of penalty for the extended period. Appellant contested the issue on merits as well as on limitation. The adjudicating authority after following the due process of law, confirmed the demand raised and also demanded interest, in addition imposed penalties.

Appellants Contention-The learned Counsel would submit that as regards the tax demand under Business Auxiliary Services for an amount received from manufacturers of car for achieving the target is now well settled by judgment of the Tribunal in the case of Commissioner of Service Taxv. Sai Service Station Ltd. - 2014 (35) S.T.R. 625. As regards the Service Tax liability in the category of Business Auxiliary Services for the amount received from financial institution is commission for promoting the Auto Loan, he fairly submits that the issue is now squarely covered against him by the decision of Larger Bench of the Tribunal in the case of Pagariya Auto Centrev. Commissioner of Central Excise, Aurangabad - 2014 (33) S.T.R. 506 (Tri.-LB). He would submit that penalties imposed on this count be set aside.

Respondents Contention:-Learned AR reiterates the findings of the lower authorities.

Reasoning Of Judgement:-On consideration of the submissions made by both sides and perusal of the records, tribunal find that the issue is regarding taxability of the amount received by the appellant from financial institution for promoting their products like auto loan. Appellant had received the amount as a commission from these financial institutions. They find that as correctly pointed out by the learned Counsel that the issue now squarely covered against them by the judgment of the Larger Bench of the Tribunal in the case of Pagariya Auto Centre (supra). On perusal of the said judgment and facts of the case in hand, they find that the issue is now squarely covered against the assessee. Accordingly, the confirmation of tax liability under this head is upheld along with interest. Since the issue of whether such amount received by an assessee from financial institution for promoting the products like auto loan, etc., would be taxable or not, has been settled by the Larger Bench, they find that the appellant could have entertained a bona fide impression that such amounts received as commission are not taxable. Accordingly, by invoking the provisions of Section 80 of the Finance Act, 1994, tribunal set aside the penalties that are leviable on this count.
As regards the Service Tax liability under the category of Business Auxiliary Services for the amount received and for achieving the target under Target Incentive Scheme, we find that the appellant had been given targets for specific quantum of sale by the manufacturers of the cars. As per the agreement, on achievement of such target and in excess of it, appellant was to receive some amount as an incentive. It is the case of the Revenue that such amount is taxable under Business Auxiliary Services, we find no substance in the arguments raised by the learned AR as well as the reasoning given by the adjudicating authority. The said amounts are incentive received for achieving the target of sales cannot be treated as Business Auxiliary Services, as incentive are only as trade discount which are extended to the appellant for achieving the targets. We find that this view has been taken by the Tribunal in the case of Sai Service Station (supra). With respect, we reproduce the relevant paragraphs :-
14. 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 discount. The assessee respondent is the authorized dealer of car manufactured by MUL and are getting certain incentives in respect of sale target set out by the manufacturer. These targets are as per the circular issued by MUL. Hence these cannot be treated as business auxiliary service.
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.
It can be seen from the above reproduced paragraphs that the issue is now squarely covered in favour of the assessee herein. Accordingly, we hold that the Service Tax liability confirmed against the appellant on the amount received as incentive for achieving the targets under Business Auxiliary Services is unsustainable and liable to be set aside and we do so. Since the tax liability on this account is set aside, the question of interest liability and penalty does not survive.
In short, the appeal is disposed of by upholding the tax liability with interest, under the Business Auxiliary Services for commission received from the financial institution, while the tax demand on amount received as target incentive is set aside. Interest liability on the tax confirmed is upheld while penalties are set aside. Appeal disposed of.

Decision:-Appeal partly allowed.

Comment:- The ratio of the case is that the amount received from the manufacturers of car for achieving sales targets cannot be held liable to be taxed under BAS as said incentive is only trade discount extended to assessee for achieving sale target. This view is backed by decision given in the case of Sai Service Station. However, as regards the issue where the assessee had received some amount from various financial institutions as commission for marketing of Auto Loan products, the issue is covered against the assessee by the judgment of the Larger Bench of the Tribunal in the case of Pagariya Auto Centre. Since in the given case, the assessee have entertained bona fide impression that service tax is not payable, penalties are set aside by invoking the provisions of Section 80 of the Finance Act, 1994.

Prepared By- Neelam Jain

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