No Service Tax on Vehicle Sale's Handling Charges if VAT Applied

Court Name : CESTAT Ahmedabad

Parties : Jivan Jyot Motors Pvt Limited Vs Commissioner of Central Excise & ST 

Decision Date : 24 July 2023

Judgement ref : Service Tax Appeal No. 13811 of 2014-DB

You're Jivan Jyot Motors Pvt Limited, an automobile dealer. You purchase vehicles and resell them to individual customers. While selling the vehicle, you charge some handling and forwarding charges in your sale bill. However, you've paid VAT on the total value of the invoice, including these charges.

The department argues that these handling and forwarding charges collected from your customers are liable to service tax under the head of Business Support Service/ Business Auxiliary Service. You're left wondering, "Isn't this double taxation?"

You decide to fight this in court. The case goes to the CESTAT Ahmedabad. You argue that the handling and forwarding charges are part of the total sale value of the goods on which VAT was paid. Therefore, service tax cannot be charged on this activity.

The Tribunal agrees with you. They conclude that the handling and forwarding charges are an integral part of the sale price, which is subjected to VAT. Once VAT is paid on the total value, service tax cannot be demanded on any part of such value.

The Tribunal refers to previous decisions by the Supreme Court and the Tribunals, including CST vs. UFO Moviez India Limited – 2022-VIL-07-SC-ST, CST vs. UFO Moviez India Limited – 2021-VIL-11-SC-ST, and UFO Moviez India Limited vs. CST 2017-VIL-774-CESTAT-ST.

The Tribunal sets aside the impugned order, thus allowing your appeal. You breathe a sigh of relief. The ruling underlines the importance of understanding the interplay between VAT and service tax, and how it can impact your business operations.

FINAL ORDER NO. 11565/2023

RAMESH NAIR :

The brief facts of the case are that appellant is automobile dealer who

purchase vehicles and resale to the individual customer. While selling the

vehicle to the customer, in their sale bill they charge some handling and

forwarding charges. However, VAT was paid on the total value of the invoice

including charges of handling and forwarding. The case of the department is

that handling and forwarding charges collected by the appellant from their

customers is liable to service tax under the head of Business Support

Service/ Business Auxiliary Service.

2. Shri Jigar Shah, learned Counsel appearing on behalf of the appellant

submits that firstly, the show cause notice is confusing inasmuch as that it

could not conclude that whether the activity handling and forwarding

charges is falling under the category of Business Auxiliary Service or

Business Support Service, for this reason itself the show cause notice is abinitio void and not legal hence, the demand is not sustainable. Without

prejudice, he further submits that handling and forwarding charges is part of the total sale value of the goods on which VAT was paid by the appellant,

therefore any element which is part of the sale on which VAT is paid, service tax cannot be charged on the said activity. He placed reliance on the following judgments:-

(a) CST vs. UFO Moviez India Limited - 2022-VIL-07-SC-ST

(b) CST vs. UFO Moviez India Limited - 2021-VIL-11-SC-ST

(c) UFO Moviez India Limited vs. CST 2017-VIL-774-CESTAT-ST

(d) Ketan Motors Limited vs. CCE - 2014 (33) STR 165 (Tri.)

(e) Automotive Manufacturers Pvt. Limited vs. CCE 2015 (38) STR

1191 (Tri.)

(f) CCE vs. Seva Automotive Pvt. Limited - 2016 (46) STR 428 (Tri.)

3. He further submits that in the case of Automotive Manufacturers Pvt.

Limited (supra), the dealer provided various service centre service for

maintenance of vehicles along with service. They also used parts during

repairs and maintenance on which they paid VAT. The Tribunal held that

even though the parts were used for providing authorised service of the

vehicle, the same will not be chargeable to service tax since the parts were

sold and suffered VAT.

4. Shri Kalpesh P Shah, learned Asst. Commissioner (AR) appearing on

behalf of the Revenue reiterates the findings of the impugned order.

5. On careful consideration of the submissions made by both the sides

and perusal of record, without going into issue of classification, we find that there is no dispute that handling and forwarding charges which was charged by the appellant from customers is undisputedly a part of sale price. For ease of reference, sample copy of the sale invoice is scanned below:-

6. From the above invoice it can be seen that VAT 12.5% was calculated

on the total value i.e. basic price plus handling and forwarding charges and

paid to the concerned State authorities. In this fact, as per the above

invoice, handling and forwarding charges nothing but part of the sale value

of the vehicle sold by the appellant to their customer. It is obvious that sale value consists of various elements and the same cannot be vivisected to

contend that some part of the value represent to the sale of goods and some

part towards service. Once on total value the VAT is paid then on any part

of such value service tax cannot be demanded. This legal proposition

affirmed by Hon’ble Supreme Court in the case of CST vs. UFO Moviez India

Limited - 2022-VIL-07-SC-ST (in Civil Appeal No. 181 of 2022 dated

06.01.2022) wherein the Hon’ble Supreme Court has passed the following

order:-

“In the facts of the present case as it is not disputed that the respondent had regularly paid amount towards VAT liability in respect of the subject goods during the relevant period, the question of claiming service tax thereon does not arise.

Accordingly, in the facts of the present case, the civil appeal is dismissed.”

From the principle laid-down by Hon’ble Supreme Court in the above

decision, it is settled that when VAT has been paid on the sale of goods, the question to claim service tax thereon does not arise.

7. We further find that even in the worse situation in various cases where

the parts and components were used in repair and maintenance of motor

vehicle even then merely because the part so used in repairs and

maintenance were separately billed and VAT was paid thereon, the Tribunal

held that on value of such parts, though used for repair and maintenance

service of the vehicle will not be liable to service tax as the same was

suffered VAT. In this regard the following judgments are reproduced:-

(a) In Ketan Motors Limited the Tribunal held as under

“5. We have carefully considered the rival submissions. As the issue lies in a narrow compass, after dispensing with the requirement of pre-deposit, we take up the appeal itself for consideration.

5.1 In para 3.2 of the impugned order it is stated that the appellant had furnished the following information and documents vide letter dated 21-9-2011 :

(i) Year wise details of value of spare parts used during the course of servicing of motor vehicles for the period 2006-07 to 2010-11;

(ii) Copy of Balance Sheet, Profit & Loss Account for the year 2006-07 to 2009-10; and

(iii) Copy of ST-3 returns for the period 2006-07 to 2010-11.

5.2 However, while confirming the demand, the learned Commissioner has taken the value of sale of spare parts as reflected in the balance sheets. This is incorrect. If a transaction involves only sale of spare parts, the question of levying service tax would not arise at all and therefore, the Commissioner should have excluded those transactions involving pure sale of spare parts. As regards levy of service tax on transactions involving both sale of spare parts as also rendering of service in the Master Circular dated 23-8-2007, it is stated that “service tax is not leviable on a transaction treated as sale of goods and subjected to levy of sales tax/VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/sales tax on a transaction indicates that the said transaction is treated as sale of goods”.

5.3 From the reading of the above circular, it would appear that even in a case of composite transaction involving sale of goods and rendering of service, if the bill/invoices issued clearly shows payment of sales tax/VAT on the spare parts, then the value of such spare parts would not be includible in the gross consideration received for rendering of service. The Commissioner has not considered these submissions made by the appellant and also the clarifications issued on the matter. Therefore, we are of the

considered view that the matter has to go back to the adjudicating authority for fresh consideration. First of all, all the transactions involving only sale of spare parts should be excluded for the purpose of computation of service tax demand. Secondly, even in a case where the transaction involves both sale of spare parts and also rendering of service, the value of sale of spare parts should be excluded if sales tax/VAT liability has been discharged on such sales as is evident from the invoices/bills issued in this regard.

The appellant is directed to produce before the adjudicating authority all the evidences they would like to rely upon in support of their above contention.”

(b) In Automotive Manufacturers P. Limited the Tribunal passed the

following order:-

“5. We have carefully considered he submissions made by both the sides. We notice that the appellant are charging handling charges whenever automobile parts are sold either independently or part of the service and repair of automobiles. In both the situations, invoice are issued for the sale of the goods as well as for collection of service charges for the services rendered. Handling charges were incurred in connection with the procurement of the goods and are included in the value of the goods sold and sales

tax/VAT liability is discharged on the value inclusive of the handling charges. Therefore, we do not understand how service tax levy would apply especially when the goods are subject to sales tax/VAT on a value inclusive of handling charges. It is not in dispute that the handling charges are incurred in connection with the procurement of the parts. If that be so, they will obviously form part of the value of the goods when they are

subsequently sold.

5.1 Section 67 of the Finance Act, 1994 mandate levy of service tax on a value or consideration received for rendering the services. Therefore, any consideration received for supply of goods is not covered within the scope of Section 67. The decisions of the Tribunal in the case of Ketan Motors Ltd. and Dynamic Motors, cited supra, also support this view.

6. Accordingly, the impugned order is clearly unsustainable in law and therefore, the same is set aside with consequential relief, if any, in accordance with law.”

(c) in the case of CCE vs. Seva Automotive Pvt. Limited the Tribunal

held as under:-

“2. The respondent, M/s. Seva Automotive Pvt. Ltd. Nagpur, is registered as an “authorised service station” and rendering services as such and discharging service tax liability on their activities. While rendering the said services, the recipient also sells spare parts of automobiles. The spare parts were received from the manufacturers and the respondent charges handling charges for handling of these spare parts at their service stations. The Revenue was of the view that the handling charges for the spare parts should form part of the taxable value of the service rendered by the appellants.

Accordingly, a notice dated 16-2-2005 was issued demanding service tax of Rs.2,52,543/- for the period July, 2001 to February, 2004. The said demand was confirmed vide order dated 18-5-2006. Against this, the respondent preferred an appeal before the lower appellate authority. The lower appellate authority noted that in the case of authorised service stations, the cost of the spare parts are not to be included in the value of the services rendered as per Section 67 of the Finance Act, 1994, as it stood at

the relevant time, since the cost of spare parts itself is not includible; therefore, handling charges incurred in respect of such spare parts also will not form part of the taxable value of the service rendered. Accordingly, he dropped the demand. The Revenue is aggrieved of the same and is before us.

3. The Revenue reiterates the grounds urged in the show cause notice that

handling charges incurred for the spare parts should form part of the taxable value of the services rendered.

4. The ld. Counsel for the respondent reiterates the conclusions drawn in the appellate authoritie’s order.

5. We have carefully considered the submissions made by both the sides.

5.1 Section 67 as stood in the relevant time provided for exclusion of cost of spare parts sold while rendering repair services of automobiles. If that be so, the cost of handling of such spare parts incurred by the respondent would also not form part of the taxable value of the service rendered. Therefore, we do not find any infirmity in the reasoning adopted by the lower appellate authority. Accordingly, we dismiss the appeal filed by the Revenue as devoid of merits.”

8. From the above decision, the conclusion drawn is that when there is

sale of goods and VAT is paid no service tax can be demanded. In the

present case, it is undisputed that the element i.e. amount towards Handling

and Forwarding charges, the appellant have shown as part of the sale value

of the goods and VAT was paid. Therefore, following the above principle of

law laid-down by Hon’ble Supreme Court and by Tribunals, in the present

case the demand is not sustainable. Hence the impugned order is set-aside

and the appeal is allowed.

(Pronounced in the open court on 24.07.2023)

(Ramesh Nair)

Member (Judicial)

(C L Mahar)

Member (Technical)

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CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,

WEST ZONAL BENCH : AHMEDABAD

REGIONAL BENCH - COURT NO. 3

SERVICE TAX Appeal No. 13811 of 2014-DB

[Arising out of Order-in-Original/Appeal No SUR-EXCUS-001-APP-101-2014-15 dated

28.08.2014 passed by Commissioner of Central Excise, Customs and Service Tax-SURAT-I]

Jivan Jyot Motors Pvt Limited …. Appellant

9/a, Jivan Ganga Nagar, Jivan Jyot Theater, Udhna,

SURAT, GUJARAT-394210

VERSUS

Commissioner of Central Excise & ST, Surat .... Respondent

New Building, Opp. Gandhi Baug,

Chowk Bazar, Surat, Gujarat-395001

APPEARANCE :

Shri Jigar Shah, Advocate for the Appellant

Shri Kalpesh P Shah, Asst. Commissioner (AR) for the Respondent

CORAM: HON’BLE MR. RAMESH NAIR, MEMBER (JUDICIAL)

HON’BLE MR. C.L. MAHAR, MEMBER (TECHNICAL)

DATE OF HEARING : 16.06.2023

DATE OF DECISION: 24.07.2023