CESTAT Mumbai Quashes ₹17.39 Cr. Service Tax Demand Against Navnit Motors, Says Incentives Not Taxable
The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 22 September set aside a Rs. 17.39 crore service tax demand against Navnit Motors, an authorised dealer of Maruti Suzuki, BMW and Jaguar Land Rover vehicles, on incentives, discounts and reimbursements received from vehicle manufacturers.
A Bench comprising Judicial Member Ajay Sharma and Technical Member M.M. Parthiban held that the receipts could not be treated as consideration for a taxable service merely because Navnit Motors was required to meet sales targets or undertake related activities. It observed:
“From the above instructions of CBIC, it clearly transpires that in the absence of any contractual obligation or flow of consideration for the specific act of doing an act or tolerating an act etc., it cannot be said that such receipt of discounts, incentives etc. could be said to be a service under the category of declared service for the purpose of levy of service tax.”
Navnit Motors received various incentives, bonuses, discounts and reimbursements from the manufacturers between July 2012 and March 2017.
The Department alleged that these amounts constituted consideration for activities undertaken by the dealer, including achieving sales targets and passing discounts to customers, and were therefore liable to service tax.
A show cause notice dated 23 April 2018 proposed a service tax demand of Rs. 17,39,42,899, along with interest and penalties. The Commissioner of CGST, Mumbai West, confirmed the entire demand by an order dated 27 November 2020.
The Tribunal referred to the Central Board of Indirect Taxes and Customs (CBIC) Circular dated 28 February 2023, which clarified that a service under Section 66E(e) requires an agreement specifically providing for an obligation to do, refrain from doing, or tolerate an act, along with a flow of consideration for that specific activity.
It observed that the incentives and discounts in the present case were related to the sale of cars or services provided by Navnit Motors as an authorised dealer and service centre. In the absence of a specific contractual obligation to perform an activity in return for consideration, the receipts could not be treated as consideration for a declared service.
The Bench also relied on its earlier decisions in Sai Service Station Ltd., Jaybharat Automobiles Ltd. and Autobahn Enterprises Pvt. Ltd., noting that the issue of service tax on incentives and discounts received by car dealers from manufacturers had already been settled.
It noted that the relationship between the manufacturers and Navnit Motors was on a principal-to-principal basis. Merely receiving incentives or discounts under manufacturer schemes did not establish that the amounts constituted consideration for promotion or marketing services.
Accordingly, the CESTAT set aside the Commissioner's order confirming the Rs. 17.39 crore service tax demand, along with the consequential interest and penalties, and allowed Navnit Motors' appeal.
For Appellant: Advocate Puloma Dalal
For Respondent: Authorized Representative S.K. Yadav