Service Tax not payable on discounts and incentives received by dealers of automobile companies | Represented by NITYA Tax Associates

by | Oct 10, 2020 | Insight | 0 comments

We are pleased to inform that we have successfully represented case before Commissioner, GST and Central Excise (Appeals), Vadodara (‘Appellate Authority’) on levy of Service Tax on discounts and incentives received by dealers of automobile companies.

Brief facts:

The Appellant was dealer of automobile company. During the period April 2014 to June 2017 (Negative List regime), it receives following discounts and incentives from automobile company:

  • Incentives for achieving sales target,
  • Reimbursement of discounts passed on to end customers,
  • Corporate discounts given on sale to specific class of customers, and
  • Incentives for purchase of spare parts from automobile company.

The revenue contended that the aforesaid discounts and incentives are consideration of sales promotion & marketing services rendered by the Appellant to automobile company. The revenue also contended that these amounts are towards ‘declared service’ under category ‘agree to do an act’ by the Appellant for automobile company. Hence, such amounts are subject to Service Tax.

Decision of Appellate Authority:

The Appellate Authority noted that discounts and incentives given by automobile company does not qualify as consideration for any service rendered by the Appellant. These related to transaction of sale and purchase of goods between automobile company and the Appellant. Thus, discounts and incentives are not exigible to service tax.

NITYA Comments:

The decision of Appellate Authority is one of the first rulings in Service Tax Negative List regime and will hold relevance under GST law as well.

We have shared our view in detail in our earlier update NITYA’s Insight | Issue 3 | Investigations regarding levy of service tax on incentives/discounts received by the dealers of the vehicle manufacturers, FMCG companies shared vide trailing mail. Notably, the authorities have investigating and raising Show Cause Notices against dealers of not only automobile companies but also FMCG, Consumer Durable, Pharmaceutical industries as well. Further, the authorities are raising this dispute both under Service Tax and GST regime. The companies and dealers facing such investigations should analyze their transactions and appropriately represent the issue before authorities.

Trust you find this an informative read! In case of any clarifications, please feel free to contact.


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