- Bookmark
- Share
- CaseIQ
Commissioner of Service Tax, Mumbai-I v. Sai Service Station Ltd.
Factual and Procedural Background
Sai Service Station Ltd. (SSSL) is an authorized dealer for cars manufactured and sold by Maruti Udyog Ltd. (MUL) and is also engaged in servicing, repairing vehicles, and selling spares. Proceedings were initiated by issuing a show cause notice dated 13-12-2006 demanding Service Tax for the period July 2003 to March 2006 on three counts: (a) commission received from banks and financial institutions through MUL for promoting and marketing ‘auto Finance’ products under the mark ‘Maruti Finance’; (b) commission received for arranging auto finance loans as a Direct Sales Agent (DSA); and (c) commission from MUL on sales/target incentives and incentives on sale of vehicles and spare parts.
The adjudicating authority confirmed part of the demands relating to commissions from banks and financial institutions and as DSA, while dropping the demand related to sales/target incentives and incentives on sale of vehicles and spare parts. SSSL filed an appeal against confirmation of demands with interest and penalty, while the Revenue filed an appeal against the dropping of demands.
Legal Issues Presented
- Whether the commissions received by SSSL fall under the category of "business auxiliary service" taxable under Service Tax law or under "business support service" which became taxable only from 1-5-2006?
- Whether the demand for Service Tax for the period prior to 1-5-2006 is sustainable given the alleged confusion about the classification of the service?
- Whether the extended period for demanding Service Tax can be invoked given the prior advice to the assessee to register and pay Service Tax?
- Whether the incentives received by the assessee on sales targets and spare parts are taxable as business auxiliary services or are trade discounts exempt from Service Tax?
- Whether the demand for Service Tax on amounts already subjected to tax by MUL amounts to double taxation?
Arguments of the Parties
Assessee's Arguments
- The activity undertaken by the assessee falls under "Business Support Service," taxable only from 1-5-2006, not under "promotion or marketing" as business auxiliary service.
- There was confusion during the disputed period regarding classification, thus allegations of suppression and evasion are unsustainable.
- Relied on Tribunal decisions (Bridgestone Financial Services v. Commr. of Service Tax, City Motors & Financial Services v. CCE) where demands beyond the normal period and penalties were set aside.
- MUL has already paid Service Tax on the gross amount including commissions passed to the assessee, so further demand amounts to double taxation.
- Incentives received are trade discounts linked to sales targets and cannot be treated as business auxiliary services.
Revenue's Arguments
- Tribunal decisions (CCE Jaipur v. Chambal Motors, City Motors & Financial Services v. CCE Gurgaon, CCE Jaipur v. Ajmer Automobiles) establish that car dealers promoting car loans of banks/financial institutions provide business auxiliary services under Section 65(19) of the Finance Act, 1994, making Service Tax recoverable.
- Extended period is justified because MUL paid Service Tax earlier and advised the assessee to register and pay Service Tax, but the assessee failed to comply.
- Demand for Service Tax on commission received from MUL for promoting and marketing auto finance under "Maruti Finance" is valid as it falls under business auxiliary service.
- Commission on sales/target incentives and incentives on sale of vehicles and spare parts are liable to Service Tax as these promote and market MUL’s products.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bridgestone Financial Services v. Commr. of Service Tax, Bangalore (Tri.-Bang.) | Classification of services and treatment of demands beyond normal period and penalties. | Assessee relied on this decision to argue against penalty and extended period demands. |
| City Motors & Financial Services v. CCE, Gurgaon (Tri.-Del.) | Classification of services under business auxiliary service and treatment of penalties. | Both parties cited this decision; Revenue supports classification as business auxiliary service, assessee relies on it for limiting penalties. |
| CCE, Jaipur v. Chambal Motors (P) Ltd. (Tri.-Del.) | Commission received for arranging loans falls under business auxiliary service under Section 65(19) of Finance Act, 1994. | Court relied on this decision to confirm Service Tax demand on commissions related to auto finance loans. |
| CCE, Jaipur v. Ajmer Automobiles (P) Ltd. (Tri.-Del.) | Business auxiliary service classification for dealers promoting financial services. | Supports Revenue’s contention on taxability of commission as business auxiliary service. |
Court's Reasoning and Analysis
The court examined the nature of commissions received by SSSL and the relevant statutory definitions under Section 65(19) of the Finance Act, 1994. It found that commissions received from banks and financial institutions for arranging auto finance loans or through MUL are covered under business auxiliary services, as supported by Tribunal decisions cited by the Revenue.
The court rejected the assessee’s contention that the service fell under business support service taxable only from 1-5-2006, noting that MUL was paying Service Tax on commissions and had advised the assessee to register and pay tax. The assessee’s failure to comply justified invoking the extended period.
Regarding the alleged double taxation, the court accepted the assessee’s argument that MUL had already paid Service Tax on the gross amount including commissions passed to the assessee, and therefore, demand on the same amount again would be impermissible.
On the issue of sales/target incentives and incentives on sale of vehicles and spare parts, the court found these to be trade discounts as per MUL’s circular and not taxable business auxiliary services, supporting the adjudicating authority’s order to drop the demand.
Holding and Implications
The court dismissed both the appeals filed by the assessee and the Revenue.
The direct effect is that Service Tax demands confirmed by the adjudicating authority on commissions related to auto finance loans are upheld, while demands related to sales/target incentives and incentives on sale of vehicles and spare parts are set aside. The court acknowledged the principle against double taxation on amounts already subjected to Service Tax by MUL. No new precedent was set beyond affirming the application of existing Tribunal decisions.
[Order per : S.S. Kang, Vice-President]. - Heard both sides.
2. Sai Service Station Ltd. is an authorized dealer for cars manufactured and sold by Maruti Udyog Ltd. (MUL) and also engaged in the activity of servicing, repairing the vehicles and selling spares for the vehicles.
3. Proceedings were initiated by issuing show cause notice dated 13-12-2006 demanding Service Tax for the period July, 2003 to March, 2006 on the following counts :-
(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’. An amount of Rs. 61,82,304/- has been demanded on this count.
(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)’. An amount of Rs. 40,21,291/- has been demanded towards Service Tax on such commission.
(c) Commission received from M/s. Maruti Udyog Ltd. (M/s. MUL) 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. Rs. 47,32,807/- has been demanded towards this service.
4. The adjudicating authority in respect of commission received from various banks and institutions through MUL confirmed the demand of Rs. 41,46,054/- and dropped the demand of Rs. 20,36,250/-.
5. 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.
6. In respect of 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 marketing the products of MUL, the adjudicating authority dropped the demand of Rs. 47,32,807/-.
7. Sai Service Station Ltd. (SSSL) filed appeal against the confirmation of demands with interest and imposition of penalty whereas the Revenue filed appeal against dropping of demands.
8. The contention of the assessee is that the demand is confirmed on the ground that the assessee was providing business auxiliary services under the heading ‘promotion or marketing’. The contention is that in fact the activity undertaken by the assessee comes under the Business Support Service which becomes taxable with effect from 1-5-2006. Hence the demand is not sustainable. The assessee also submitted that as there was confusion during the period in dispute whether the activity undertaken by the assessee comes under the scope of business support service, therefore, the allegation of suppression with intent to evade payment of tax is not sustainable. The assessee relied on the decision in the case of Bridgestone Financial Services v. Commr. of Service Tax, Bangalore - (Tri.-Bang.) and in the case of City Motors & Financial Services v. CCE, Gurgaon - (Tri.-Del.) and other decisions whereby the Tribunal only confirmed the demand for the normal period and demand beyond the normal period and penalties were set aside.
9. The contention of the Revenue is that on merits, the issue is settled by the following decisions of the Tribunal in the case of -
(1) CCE, Jaipur v. Chambal Motors (P) Ltd. - (Tri.-Del.);
(2) City Motors & Financial Services v. CCE, Gurgaon - ;
(3) CCE, Jaipur v. Ajmer Automobiles (P) Ltd. - (Tri.-Del.).
The contention of the Revenue is that in the above decisions, the Tribunal had held that the car dealers promoting to car loans of their client banks/financial institutions are covered under the definition of “business auxiliary service” under Section 65(19) of Finance Act, 1994 and the assessees are promoting and marketing of services provided by the client, the Service Tax is recoverable from the assessees.
10. In respect of time-bar, the contention of Revenue is that prior to 2004, MUL paid Service Tax on commission received from bank and financial institutions and subsequently advised the assessee to get registered with the Service Tax department as provider of business auxiliary service and advised them to pay service tax in respect of commission received from MUL. The contention is that in spite of this advice, the assessee had not paid the Service Tax in respect of the activity which fall under Business Auxiliary service. Hence extended period is rightly invoked.
11. In respect of the appeal filed by the Revenue, the contention of the Revenue is that the adjudicating authority has already dropped the demand of Rs. 20,36,250/- in respect of commission received from MUL for promoting, marketing and selling auto finance under the mark “Maruti Finance”. The contention is that as the activity falls under the business auxiliary service, the assessee is liable to pay Service Tax.
12. In respect of dropping of Rs. 47,32,807/-, the contention is that as the assessees are receiving consideration on account of sales of vehicles and incentive on sale of spare parts for promoting and marketing the products, as these activities are for promoting and marketing of product of MUL, therefore, liable to Service Tax under the heading of business auxiliary service.
13. In reply to the contention raised in the Revenue’s appeal, the contention of the assessee respondent is that MUL has paid the Service Tax on the gross amount received from the bank/finance institutions including the commission passed on the present assessee respondent, therefore, demanding Service Tax on the same amount amounts to double taxation. The Revenue has not challenged the finding of the adjudicating authority that Maruti Finance has already paid Service Tax of Rs. 20,36,250/- on the gross amount received from Bank/finance institution including the commission passed on the present respondent.
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.
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 v. Chambal Motors (P) Ltd. In the above decision, the Tribunal held that commission received from various bank/finance 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/finance 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 invocable.
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.
19. Both the appeals, filed by the assessee as well as by Revenue, are dismissed.
(Dictated in Court)
Alert