CESTAT, KOLKATA BENCH

ASL Motors Pvt Ltd

Vs

Commissioner of Central Excise & Service Tax, Patna

Dr. Chittaranjan Satapathy, Technical Member and D N Panda, Judicial Member

Final Order No. A/1876 (KOL) of 2007 in Appeal No. ST/8 of 2006

November 21, 2007

 
Cases referred to: (i) Idea Mobile Communications Vs CCE (2006) - (Bangalore - CESTAT) - para 2; (ii) Gujarat Ambuja Cements Ltd Vs Union of India (2005) - SC - para 2

Section 65 of the Finance Act, 1994 - Authorized service station's services - Assessee was an automobile dealer -It recovered full value of vehicle including dealer's margin from customers and paid sales tax thereon - In respect of vehicles sold, it also provided free after-sales service to customers - Revenue Dept demanded service tax from assessee on those services in the category of 'Authorised service station's services' - Admittedly, cost of free service was not reimbursed by vehicle manufacturer - Issue - Since dealer's margin was part of cost of vehicle which had already been subjected to sales tax, the same could not be brought under service tax net - Held Yes

Result: Appeal allowed

Facts

The assessee was an authorized dealer of Tata Motors. It sold cars to the customers at the full price and paid sales tax on such price. It also provided free after-sales service to the customers by charging only the material cost. Service tax was demanded from the assessee in respect of said free servicing provided by it. On appeal, the Commissioner (Appeals) confirmed the said demand.

In second appeal, the assessee submitted that, admittedly, there was no reimbursement by Tata Motors of the cost of free after-sales service provided by it; however, the dealer's margin available to it was adequate to meet the expenses towards free servicing but since the full value including the dealers' margin was recovered from the customers towards sale price of the cars and sales tax was paid thereon, no service tax could be charged from it either on the amount representing the dealer's margin or on a part of it.

Held

The Ministry in its Circular No. 87/05/2006 - ST dated 6-11-2006 has clarified that where service charges are reimbursed by the vehicle manufacturer, such reimbursement should be subjected to service tax. However, it is well-known that free servicing is normally provided by the dealers in the vehicle trade, meeting the expenses from the dealer's margin, yet the Ministry has chosen to keep silent regarding taxability of such free services provided by the dealers, for which no reimbursements are made by the vehicle manufacturers. It appears that such silence about the dominant practice of providing free servicing has resulted in some field officials taking unilateral action as in the instant case, while majority of the dealers were not taxed on free servicing provided by them.

In the constitutional scheme of things, there is a mutual exclusivity between the taxability of sale of goods, which is charged to sales tax by the State, the excise duty on manufactured goods which is levied by the Centre, and the tax on services, which is also levied by the Centre. The impugned amount in question was a part of the dealer's margin which had been recovered by the assessee as a part of the sale value of the cars from the customers and the entire amount had been subjected to sales tax by the concerned State Government authorities. When the assessee sold the cars and recovered the amount including the dealer's margin, the dominant intent was to sell the goods, namely, cars and not to provide free after-sales service. Therefore, the entire amount including the dealer's margin had been rightly taxed to sales tax representing the value of the cars. The provision of free servicing was merely incidental and intended to promote the sale of the cars. Hence, no service tax could be levied on the amount representing the dealer's margin or any part of it, which already had been subjected to sales tax. Consequently, the impugned order was liable to be set aside.

Order

Chittaranjan Satapathy, Technical Member - Heard both sides. The Appellants are authorized dealers of Tata Motors. In respect of cars sold by the Appellants, the excise duty is paid by Tata Motors on the value of cars less the dealer's discount. The Appellants sell the cars at the full price to the customers and pay sales tax on such price. They also provide free after-sales service to the customers by charging only the material cost and not labour charges. Shri Amalendu Chakraborty, Ld Consultant appearing for the Appellants states that it is an admitted fact that Tata Motors does not reimburse the cost of free after-sales services provided by the Appellants in respect of cars sold by them. He states that the Ministry issued a Circular No. 62/11/2003, dated 21-8-2003 under which it was clarified that if the value of service provided free of charges is zero, the tax will also be zero even though the service is taxable. He further states that under Circular No. 28/2006 - Cus. (Sic) (Circular No. 87/05/2006 - ST) dated 6-11-2006, it was clarified as under:

"3. As regards 'free servicing' (where the customer does not pay any charges) of the motor vehicles, normally the service charges are reimbursement by the vehicle manufacturers, who promises such a facility to attract customer. As the law does not in any way restrict the levy of service tax only on the service charges received from the recipient of the service, therefore, such reimbursements are subject to service tax."

Shri Amalendu Chakraborty, Ld Counsel states that it is an admitted fact that in the case of the Appellants, there was no reimbursement by the manufacturers. He also fairly states that the dealer's margin available to the Appellants is adequate to meet the expenses towards free servicing. Since the full value including the dealer's margin is recovered from the customer towards sale price of the cars and sales tax is paid thereon, no service tax can be charged either on the amount representing the dealer's margin or any part of it.

2.	Shri Chakraborty further states that there are several dealers of automobile manufacturers in the country and the sales pattern is the same, as also the pattern of providing free servicing, but only in the case of the Appellants, the Department has demanded the impugned amount towards service tax and in no other case such demands have been made on any other dealers. He further refers to the decision of Bangalore Bench of the Tribunal in the case of Idea Mobile Communications Ltd v. CCE [2006] 5 STT 352 (Bang. - CESTAT), which has held that the service tax is not leviable when sales tax has been paid. He further points out that the Bangalore Bench has relied on an observation of the Hon'ble Supreme Court in the case of Gujarat Ambuja Cements Ltd Vs Union of India [2005] 1 STT 41, which reads as under: ". ..This mutual exclusivity which has been reflected in article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject matter, which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, by any principle of interpretation allow a statute not covered by it to intrude upon this field."
3.	We have heard the Ld JDR for the revenue who supports the order passed by the authorities below.
4.	We find that the Ministry in its Circular No. 28/2006 - Cus. (sic) (Circular No. 87/05/12006-ST), dated 6-11-2006 has clarified that where service charges are reimbursed by the vehicle manufacturers, such reimbursement should be subjected to service tax. However, it is well-known that free servicing is normally provided by the dealers in the vehicle trade meeting the expenses from the dealer's margin, yet the Ministry has chosen to keep silent regarding taxability of such free servicing provided by the dealers for which no reimbursements are made by the vehicle manufacturers. It appears to us that such silence about the dominant practice of providing free servicing has resulted in some field officials taking unilateral action as in this case, while majority of the dealers are not taxed on free servicing provided by them.
5.	We also find that in the constitutional scheme of things, there is mutual exclusivity between the taxability of sale of goods, excise duty on manufactured goods, and the tax on services. The impugned amount in question is a part of the dealer's margin which has been recovered by the Appellants as a part of the sale value of the cars from the customers and the entire amount has been subjected to sales tax by the concerned State Government authorities. When the Appellants sold the cars and recovered the amount including the dealer's margin, the dominant intent was to sell the goods, namely, cars and not to provide free after-sales service. In our view, the entire amount including the dealer's margin has been rightly taxed to sales tax representing the value of the cars. The provision of free servicing is merely incidental and intended to promote the sale of the cars. Hence, we are of the view that no service tax can be levied on the amount representing the dealer's margin or any part of it, which has already been subjected to sales tax. Consequently, we set aside the impugned order and allow the appeal.