CESTAT: Authorised Dealer Not Liable To Pay Service Tax On Incentives Out Of Dealership Agreement

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal in the case M/s Veer Prabhu Marketing Ltd. Versus Commissioner of Central Excise observed and has held that the authorized dealer was not liable to pay service tax on various incentives that is received by him from Tata as per the dealership agreement.
In the present case, the two-member bench comprising of Justice Dilip Gupta and the Technical Member, P.V. Subba Rao in the case observed that as per the dealership agreement, the appellant or dealer has to purchase vehicles from Tata Motors and then sell them. Thus, it gets additional incentives, if it meets the targets. The said incentive are being in the form of a trade discount. Therefore, the trade discounts can take many forms, such as cash discounts, quantity discounts, year-end discounts, etc. the said incentives are in the form of year-end discounts. This being an incentive to encourage the dealer to buy and sell a larger number of vehicles. It being not a payment for any service rendered to the manufacturer. Thus, in the market, the buyers are the ones who purchase larger quantities of any good often get a better price.
However, the appellant or dealer was registered with the Service Tax Department under the categories of business auxiliary services, Authorized Service Station Services, and Renting of immovable property. The Tata Motors Ltd being an authorised dealer for the sale, service, and supply of spare parts for medium and heavy commercial vehicles in five districts of Rajasthan.
In the said case, the appellant was purchasing vehicles from Tata on its own account and thereafter selling them to the customers. The appellant was paying value-added tax, on sales. As per the appellant, the dealings between Tata and itself were being on principal-to-principal basis. Thus, if the appellant met specific sales targets, various incentives were available to the appellant as per the policy of the Tata Group.
It has also been submitted by the appellant that the incentives received by dealers from automobile manufacturers for meeting sales targets are in the nature of trade discounts and are not eligible to service tax.
Before the Court, the main issue raised was whether the appellant was liable to pay service tax on various incentives, which is being received from Tata as per the dealership agreement.
It has also been held by the tribunal that the demand on the incentives received by the appellant is not eligible to the service tax.