The Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) ruled that incentives and discounts received by the dealer from the manufacturer are not taxable as services as they should be treated as principal-to-principal transactions. Comet Car Sales, RB Cars Private Limited, and Nanavati Cars Private Limited, the appellants authorized vehicle dealers for Maruti Suzuki India Ltd. (MSIL) and Renault India Pvt. Ltd. (RIPL), received incentives and discounts from manufacturers. Appellants I & II entered agreements with MSIL on January 1, 2019, and January 1, 2016, respectively. Appellant III executed an agreement with RIPL on October 1, 2020. Vehicles were purchased by appellants from MSIL/RIPL on a principal-to-principal basis for onward sale. The manufacturers provided incentives and discounts based on pre-notified conditions credited as ledger entries.

Get a Copy of Master GST – Expert-Led Courses for Ambitious Professionals, Click here The department used an extended period and issued a notice stating that the incentives and discounts received by the appellants should have been declared as taxable services under “Business Auxiliary Services” Aggrieved, the appellants appealed before the CESTAT arguing that the dealerships operated independently and not as agents of the manufacturers as stated in dealership agreements.

The appellant’s counsel argued that incentives were trade or volume discounts linked to sales forming part of the transaction value and were not service-related. The two-member bench comprising Ramesh Nair (Judicial Member) And C L Mahar (Technical Member) observed that the manufacturers and dealers operated independently, and the discounts were performance-based incentives linked to trade. Get a Copy of Master GST – Expert-Led Courses for Ambitious Professionals, Click here The tribunal also observed that no service element was involved, and the incentives were not provided in return for any specific promotional activities by the dealers.

The tribunal referred cases such as M. Autolink, Rohan Motors, and Toyota Lakozy Auto, which held that similar discounts and incentives were not liable for service tax. So, the tribunal rejected the application of extended limitation stating no evidence of fraud or suppression by the appellants. The tribunal held that incentives and discounts were not taxable as services. The tribunal set aside the impugned order and appeal was allowed with consequential relief.