Citation Codes

Equivalent Citations

citation codes

Case Number

ST/53344/2015

Disposition

allowed

Judges

DILIP GUPTA
C. L. MAHAR

Acts

SECTION 75 FINANCE ACT
section 78 of the Finance Act. 5

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The appellant is M/s Rohan Motors Limited, a dealer of Maruti Suzuki India Ltd. (MUL), operating under a dealership agreement dated 1 January 2013. Under the agreement the appellant purchased vehicles from MUL on a principal-to-principal basis and received various discounts described as "incentives" under MUL schemes. The Department issued a show cause notice (dated 9 May 2014) for the period April 2012 to March 2013, proposing service tax demands on: (i) incentive amounts as Business Auxiliary Service (BAS); (ii) registration and number plate charges collected from customers as BAS; (iii) miscellaneous income such as cheque-bouncing penalties and processing charges as BAS; and (iv) transportation charges under the "goods transport agency" (GTA) service. The demand confirmed by the Commissioner included BAS demand of Rs. 24,91,202 and GTA demand of Rs. 35,117, with interest under section 75 and penalty under section 78 of the Finance Act.

There were prior and overlapping proceedings: a show cause notice dated 9 October 2012 and an order dated 7 November 2013 which was set aside by the Tribunal on 29 June 2018 (Rohan Motors Ltd. vs. CCE, Meerut-I). For a subsequent period (October 2013 to March 2015) the Joint Commissioner, Central Excise, Dehradun dropped the demand by order dated 23 March 2017. The present appeal challenges the Commissioner’s order dated 18 June 2015 confirming a portion of the demand.

Legal Issues Presented

Whether service tax is leviable on incentives received by the dealer (appellant) from MUL for the period prior to July 2012.
Whether amounts collected by the appellant for registration and number plate charges and miscellaneous income (including cheque-bouncing penalties and processing charges) are exigible to service tax under BAS.
Whether freight/transportation charges paid by the appellant fall within GTA service and are leviable to service tax.
Whether a subordinate adjudicating authority (the Commissioner in this case) may refuse to follow Tribunal decisions binding on it.

Arguments of the Parties

Appellant's Arguments

The demand is not sustainable because obsolete provisions were invoked (as argued by the appellant).
Service tax is not leviable on incentives received from MUL.
Similar issues had been decided in favour of dealers by the Tribunal and by Commissioner/Commissioner (Appeals) in other matters; thus the demand should be set aside.
In the appellant's own subsequent period (Oct 2013–Mar 2015) the Joint Commissioner dropped the demand (order dated 23 March 2017).
For the previous period (2007–08 to 2011–12) the Tribunal set aside the demand by decision dated 29 June 2018.
Service tax on miscellaneous income and on registration and number plate charges is not sustainable.
Service tax on freight expenses under GTA is not sustainable, particularly where consignment notes are absent.

Respondent's (Department) Arguments

The Department supported the impugned order confirming the demand in part.
The Department relied on an advance ruling dated 14 March 2019 of the Appellate Authority for Advance Ruling, Maharashtra (in the matter of M/s Bajaj Finance Ltd.) to contend that cheque-bouncing charges would attract service tax.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Rohan Motors Ltd. (Tribunal decision; referenced decisions including June 29, 2018 and a 2019 entry)	Discounts/incentives received by a dealer from a manufacturer (where purchase and resale are on principal-to-principal basis) are not consideration for BAS and thus not taxable as BAS.	The Tribunal's earlier decisions in the appellant's own matters were followed: the court held incentives could not be treated as consideration for any service and therefore not leviable to service tax.
Tyota Lakozy Auto Pvt. Ltd. (as cited in the opinion)	Discounts/incentives received by dealers from manufacturers are not liable to service tax under BAS where the dealer purchases and resells on principal-to-principal basis.	The Tribunal's reasoning in this decision was relied upon to support the conclusion that incentives are not BAS consideration.
Commissioner of Service Tax, Mumbai-I vs. Sai Service Station Ltd.	Ratio that trade discounts/incentives given as per declared policy for achieving sales targets are not subject to service tax under BAS.	The court and the Joint Commissioner (in a later order dated 23 March 2017) applied this ratio and the Tribunal's reasoning to hold that incentives in form of trade discounts are not taxable.
Pagadiya Auto Centre (Larger Bench)	Activities such as facilitating accommodation for insurer representatives (for selling insurance policies) do not fall under BAS.	The Tribunal's view was applied to refuse BAS classification for commission income from facilitation of insurer representatives.
South Eastern Coal Fields Ltd. (as cited)	GTA service classification requires consignment notes; in absence of consignment notes, the activity cannot be classified as GTA.	The court set aside the demand under GTA where no consignment notes were issued and relied on this precedent.
Union of India vs. Kamlakshi Finance Corporation Ltd. (1991 (55) ELT 433 (SC))	Orders of appellate authorities (including the Tribunal) are binding on subordinate adjudicating officers; such officers must follow higher appellate decisions unless their operation is stayed by a competent court.	The court held that the Commissioner was bound by Tribunal decisions and could not lawfully differ from them; the Commissioner’s contrary view was rejected on this basis.
M/s Jaipur Jewellery Show vs. CCE & ST Jaipur	Penal amounts (such as penalties for cheque bouncing or cancellation) are penal in nature and not consideration for a service.	The court relied on this precedent to hold that cheque-bouncing and cancellation charges were not taxable as consideration for service.
M/s K. N. Food Industries Pvt. Ltd. vs. Commissioner of CGST & Central Excise, Kanpur	Supports the proposition that penal amounts are not consideration for a service.	The court relied on this decision alongside Jaipur Jewellery Show to conclude penal charges are not taxable.
M/s Automotive Manufacturers (P) Ltd. (interim order of the Tribunal)	Referenced by the Commissioner (interim Tribunal order relied upon by Commissioner in support of differing view).	The court noted the Commissioner placed reliance on this interim order but held that he remained bound by the Tribunal's established decisions and could not take a contrary view.
Appellate Authority for Advance Ruling, Maharashtra — M/s Bajaj Finance Ltd. (AAR dated 14 March 2019; later rectified order dated 12 December 2019)	The earlier AAR was relied upon by the Department to contend cheque-bouncing charges attract service tax; the rectified order held that additional/penal interest recovered would be exempt from GST under Notification No. 12/2017-C.T. (Rate) (as per the rectification dated 12 December 2019).	The Department relied on the March 2019 AAR; the appellant pointed out the subsequent rectification (December 2019) that held such penal interest exempt from GST, and the court treated the rectification as relevant to the issue of penal/interest amounts.

Court's Reasoning and Analysis

The court proceeded by addressing the primary issue (whether incentives prior to July 2012 are taxable). It noted the contractual relationship: the appellant purchased vehicles from MUL and resold them, operating on a principal-to-principal basis. The agreement required the appellant to undertake certain sales-promotion activities, which the court characterized as activities undertaken for the mutual business benefit of the appellant and MUL. On that factual basis the court concluded that the incentives paid by MUL could not be treated as consideration for any service.

The court relied on prior Tribunal decisions (including the appellant's own earlier Tribunal decisions and the decisions in Tyota Lakozy Auto, Sai Service Station, and Pagadiya Auto Centre) which held that discounts/incentives/trade discounts given to dealers under declared policies are not consideration for BAS where the dealer buys and resells on principal-to-principal terms. Applying those authorities, the court found no justification to levy service tax on the incentive amounts or on various miscellaneous receipts that were not consideration for a service.

On the GTA issue, the court noted that the appellant had not issued consignment notes necessary to identify the appellant as a goods transport agency; relying on the Tribunal's view (South Eastern Coal Fields Ltd.), the court concluded the activity could not be classified as GTA and set aside the demand under GTA.

Regarding amounts collected as cheque-bouncing charges or cancellation penalties, the court held these amounts to be penal in nature and not consideration for any service. It relied on Tribunal decisions such as Jaipur Jewellery Show and K. N. Food Industries Pvt. Ltd. to support the conclusion that penal charges are not taxable as services.

The court also addressed the Commissioner’s express disagreement with the Tribunal's findings. It held that the Commissioner was bound by Tribunal decisions and could not lawfully refuse to follow them, invoking the Supreme Court's decision in Union of India vs. Kamlakshi Finance Corporation Ltd. The court therefore rejected the Commissioner’s contrary view and emphasized the obligation of subordinate adjudicating authorities to follow higher appellate orders unless their operation has been suspended by a competent court.

Holding and Implications

Core Ruling: The impugned order dated 18 June 2015 passed by the Commissioner is set aside and the appeal is ALLOWED.

Implications and immediate effects:

The demands of service tax confirmed by the Commissioner on the incentive amounts (as BAS) were held unsustainable and therefore set aside.
Demands confirmed in respect of registration and number plate charges, miscellaneous income (including cheque-bouncing penalties and processing charges), and freight under GTA were found not leviable for the reasons stated (not consideration for BAS; absence of consignment notes for GTA; penal nature of certain charges) and thus could not be sustained.
The court emphasized that the Commissioner (an adjudicating authority) was bound to follow Tribunal decisions and could not lawfully take a contrary view; the Commissioner’s differing conclusion was rejected on that basis.
The decision resolves the appeal in favour of the appellant but does not purport to create a novel legal principle beyond applying and following existing Tribunal and Supreme Court authority cited in the opinion.

Note: This summary is based exclusively on the contents of the provided opinion and does not add or infer information beyond what appears in that text.

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ROHAN MOTORS LTD v. COMMISSIONER, CENTRAL EXCISE -DEHRADUN

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

NEW DELHI

PRINCIPAL BENCH - COURT NO. 1

SERVICE TAX Appeal No. 53344 of 2015

(Arising out of Order-in-Original No. 21/COMMR/DDN/2015 dated 18.06.2015 passed by Commissioner of Custom and Central Excise- Dehradun)

M/s. Rohan Motors Limited ...Appellant

1 30/1 , Chakrata Road, Yamuna Colony, Dehradun- 248001 (Uttarakhand) Versus Commissioner of Central Excise, ....Respondent Dehradun APPEARANCE: Mr. B.L.Narasimhan and Ms. Neha Choudhary, Advocates for the Appellant Mr. Arun Thaplial, Authorised Representative for the Respondent CORAM : HON'BLE MR.JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MR. C.L. MAHAR, MEMBER (TECHNICAL) Date of Hearing/ Decision: 05.10.2020

FINAL ORDER No.: __51620/2020_ JUSTICE DILIP GUPTA The order dated June 18, 2015 passed by the Commissioner of Central Excise, Dehradun ¹confirming a portion of the demand of service tax with penalty and interest has been assailed. The Commissioner has dropped certain demands of Rs.35,45,636/-.

2 . The appellant is a dealer of Maruti Udhyog Ltd.². The appellant buys vehicles from MUL for further sale to the buyers by 1. the Commissioner 2. MUL

virtue of a dealership agreement dated January 1, 2013 entered into between Maruti Suzuki India Ltd. and the appellant. Under the said agreement, the appellant receives discount from MUL, which are referred to as "incentives" under the schemes. The Department has sought to levy service tax on the incentives received by the appellant under the category of "business auxiliary service"³.

3 . The demand has been confirmed on the following: (i) The incentive amount received by the appellant under BAS. (ii) The registration and number plate charges received by the appellant from the customers for registration of the vehicles with the Regional Transport Authority under BAS; (iii) The miscellaneous income in the nature of penalty on bouncing of cheques and processing charges under BAS; and (iv) Transportation charges paid by the appellant under "goods transport agency" services⁴.

4 . The show cause notice dated May 9, 2014 is for the period April 2012 to March 2013. The total demand confirmed under BAS is Rs.24,91,202/-, while that under GTA is Rs.35,117/-. The demand has been confirmed with interest under section 75 of the Finance Act 1994⁵and penalty under section 78 of the Finance Act.

5 . It would be pertinent to state here that for the previous period from 2007-08 to 2011-12, a show cause notice dated 3. BAS 4. GTA 5. the Finance Act

October 9, 2012 was issued to the appellant on the same issues. The demand was confirmed by order dated November 7, 2013 but this order was set aside by the Tribunal on June 29, 2018 (Rohan Motors Ltd. vs. CCE, Meerut-I)⁶.

6 . Shri B.L. Narasimhan learned appearing for the appellant made the following submissions; (i) The demand is not sustainable as obsolete provisions have been invoked; (ii) service tax is not leviable on incentives; (iii) The same issue regarding leviability of service tax on the incentives received by vehicle dealers from vehicle manufacturers, apart from being settled by decisions of the Tribunal, also came up for consideration in matters of other similarly placed dealers, wherein demand was set aside by Commissioner/ Commissioner (Appeals); (iv) In the appellant's own case, for the subsequent period from October, 2013 to March, 2015, the Joint Commissioner, Central Excise, Dehradun dropped the demand by order dated March 23, 2017; (v) In the case of the appellant for previous period from 2007- 08 to 2011-12, the demand was set aside by the Tribunal by decision dated June 29, 2018; (vi) The demand of service tax on miscellaneous Income and registration and number plate charges is not sustainable; and (vii) The demand of service tax on freight expenses under GTA is not sustainable. 6. 2018 (7) TMI 29-CESTAT New Delhi

7 . Learned Authorized Representative of the department has, however, supported the impugned order and also placed reliance on an advance ruling dated March 14, 2019 passed by the Appellate Authority for Advance Ruling, Maharashtra in the matter of M/s Bajaj Finance Ltd⁷. to contend that the cheque bouncing charges would attract service tax. 8. The submissions advanced by learned Counsel for the appellant and Shri Arun Thapliyal, learned Authorized Representative of the Department have been considered. 9. The first issue that arises for consideration is whether service tax would be leviable on incentives prior to July, 2012. 10. As noticed above, the appellant purchases vehicles from MUL and sells the same to the buyers. It is clear from the agreement that the appellant works on a principal to principal basis and not as an agent of MUL. This is for the reason that the agreement itself provides that the appellant has to undertake certain sales promotion activities as well. The carrying out of such activities by the appellant is for the mutual benefit of the business of the appellant as well as the business of MUL. The amount of incentives received on such account cannot, therefore, be treated as consideration for any service. The incentives received by the appellant cannot, therefore, be leviable to service tax. 11. In this connection, reference needs to be made to the decision of the Tribunal in Rohan Motors Ltd., which is a case 7. 2019(8) TMI 116

relating to the appellant, but for a period prior to July, 2012. The Tribunal observed as follows:

"As per the agreement with MUL, the appellant has received various incentives/ discounts / bonus etc. from MUL from time to time. The income received under these heads was accounted by the appellant in their books of accounts as "miscellaneous income". During the course of audit of the books of accounts of the appellant, the Department noticed such Misc. income and took the view that such amounts received by the appellant from MUL are consideration towards promotion and marketing of the vehicles manufactured by MUL and such consideration is liable for payment of Service Tax under the category of Business Auxiliary Service. By taking the above view, show cause notice dated 17.10.2011 was issued covering the period 01.04.2006 to 31.03.2011. Further, show cause notice dated 09.10.2012 was issued covering the period 01.04.2007 to 31.03.2012. The proceedings initiated under the above show cause notices resulted in the issue of two impugned orders, which are under challenge in the present appeals. Since the issue involved is common, these appeals are disposing of with this common order.

3. The demands have been raised by Revenue through the two impugned orders covering overlapping periods. Demand has been made under the category of Business Auxiliary Service for the amounts received by the appellant from M/s. MUL. Such amounts have been received towards incentives/discounts in connection with the sale of the vehicles manufactured by MUL. In addition, certain amounts have also been received by the appellant towards Registration/ Number Plate etc. to facilitate the buyers of vehicles. All the above amounts have been charged under BAS. Certain amount of Service Tax has also been demanded under the category of GTA in respect of freight paid by the appellant towards transport of vehicles from their dealership to the customers' premises."

12. The Tribunal placed reliance on an earlier decision of the Tribunal in Tyota Lakozy Auto Pvt. Ltd.⁸ and observed.

"4. From a perusal of various case laws relied by the appellant, we note that the discounts/incentives received by the appellant from MUL cannot be made liable for payment of Service Tax under BAS, since the appellant is purchasing the cars from MUL on principal to principal basis and subsequently, reselling the same.

5. Revenue has ordered for payment of Service Tax under various receipts recorded under miscellaneous income.

8. 2017 (52) STR 299 (Tri.- Mumbai)

These include loading/unloading charges, Pollution Check- up charges, penalty-cum processing charges etc. It is obvious that these amounts have been received not towards provision of any service on behalf of MUL or anybody else. Consequently, there is no justification for levying Service Tax under BAS.

6. In miscellaneous income, commission amounts received from ICICI have also been included. This commission has been received for provision of furniture to ICICI for facilitation of accommodating representatives in the premises of the appellant for selling insurance policies for cars. Such an activity cannot be considered under BAS as has been held by the Larger Bench in the case of Pagadiya Auto Centre (supra). Consequently, we set aside the demand of Service Tax on such commission received.

7. A portion of the demand also has been raised under the category of GTA. The appellant has paid the freight expenses in connection with transportation of Cars to their customers. However, they have not issued any consignment notes which are necessary to identify the appellant as a goods transport agency. As per the views expressed by the Tribunal in the case of South Eastern Coal Fields Ltd. (supra), in the absence of consignment notes, the activity of the appellant cannot be classified under GTA service. Consequently, we set aside the demand under GTA service."

13. The same view was taken by the Tribunal in Commissioner of Service Tax, Mumbai-I Vs. Sai Service Station Ltd.⁹

14. In regard to the period post July, 2012, reliance has been placed by the learned Counsel for the appellant on an order dated March 23, 2017 passed by the Joint Commissioner, Central Excise in the matter of M/s Rohan Motors Ltd. The period involved was from October, 2013 to March, 2014 and 2014-15. The Joint Commissioner, after placing reliance upon the decision of the Tribunal in Sai Service Station Ltd., observed as follows:

"I also find that the ratio of the aforesaid case of CCE, Mumbai-I Vs. Sai Service Station is squarely applicable to the facts of the present case and hold that no service tax can be demanded on the incentive which was in form of trade discounts, extended to the party in terms of a declared policy for achieving sales target. Accordingly, I find that the demand of service tax raised on this count is unsustainable. Thus demand of interest under section 75 of the Act is also no sustainable."

9. 2013(10) TMI 1155-CESTAT Mumbai

15. The Department, in the present cannot be permitted to take a different view. The service tax on the amount received form incentives could not, therefore, have been levied to service tax.

16. What needs to be noted is that the Commissioner, in the impugned order, while rejecting the contention of the appellant that there was no consideration received by the appellant for the incentives, even went to the extent of stating that he differed from the finding of the Tribunal. The relevant observations of the Commissioner are as follows:

"In this context, with due respect I differ from Hon'ble Tribunal findings as the decision was based on circular issued by MUL whereas there is not mention of such incentives in their agreement which is the bible for execution of the said agreement. The circulars issued by MUL in respect of incentives is nothing but to cover up the payments made for promotion or marketing of the goods produced/manufactured by M/s MUL." "

17. In fact, the Commissioner, after differing from the decision of the Tribunal, went on to place reliance upon an interim order passed by the Tribunal in M/s Automotive Manufacturers (P) Ltd.

18. The Commissioner was bound by the decision of the Tribunal and he could not have differed from the decision of the Tribunal. The adjudicating authority needs to be reminded of the decision of the Supreme Court in Union of India Vs. Kamlakshi Finance Corporation Ltd.¹⁰

"The Supreme Court noticed that the order passed by the Assistant Collector not only ignored the order of the Collector (Appeals) remanding the matter, but also distinguished the decision of the Tribunal by observing that the decision of the Tribunal had not been agreed to by the Department as an Appeal had been filed in the

10 1991 (55) ELT 433 (SC)

Supreme Court. The assessee filed a writ petition in the Bombay High Court to challenge the said order of the Assistant Collector. The High Court not only quashed the order passed by the Assistant Collector but also directed the Department to allocate the matter to a competent officer for passing a proper order. It is against this decision of the Bombay High Court that the Union of India preferred an Appeal before the Supreme Court. The Supreme Court observed as follows:-

The High Court has, in our view, rightly criticized this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasized that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the department - in itself an objectionable phrase - and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws. "

(emphasis supplied)

19. The demand of service tax in respect of the amount collected on account of bouncing of cheques and cancellation of orders is also not sustainable. These amount are penal in nature and not towards consideration for any service. In this connection reliance can be placed on the decisions of the Tribunal in M/s Jaipur Jewellery Show Vs. C.C.E & S.T. Jaipur¹¹ and M/s K. N. Food Industries Pvt. Ltd. Vs. The Commissioner of CGST & Central Excise, Kanpur¹².

20. The issue relating to demand of service tax on income earned by the appellant from registration charges and number 11. 2016(12) TMI 344 - CESTAT New Delhi 12. 2019-TIOL-3651-CESTAT-ALL

plate charges under BAS and freight expenses under GTA has also been decided in favour of the appellant in Rohan Motors Ltd.

21. The learned Authorized Representative of the Department has, however, placed reliance upon a ruling dated March, 2019 of the Appellate Authority for Advance Ruling Maharashtra to contend that the amount collected towards bouncing of cheque charges amounts to supply of service, but learned Counsel for the appellant has pointed out that the said order was rectified subsequently by the Appellate Authority for Advance Ruling Maharashtra in its order dated December 12, 2019 and it was held

"We hereby hold that the additional/Penal interest recovered by the Applicant from their customers against the delayed payment of monthly instalments of the load extended to such customers, would be exempt from GST in terms of Sl. 27 of the Notification No. 12\2017-C.T. (Rate) dated 28.06.2017."

22. Thus, for all the reasons stated above, it is not possible to sustain the impugned order dated June 18, 2015 passed by Commissioner. It is, accordingly, set aside and the appeal is

allowed.

(JUSTICE DILIP GUPTA)

PRESIDENT

(C L MAHAR)

MEMBER (TECHNICAL)

Babita

ROHAN MOTORS LTD v. COMMISSIONER, CENTRAL EXCISE -DEHRADUN

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's (Department) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

ROHAN MOTORS LTD v. COMMISSIONER, CENTRAL EXCISE -DEHRADUN

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