The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Honda is not liable to pay service tax on excess transportation charges recovered from buyers.
The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that the activity of arranging transportation of goods till the dealers premises cannot be classified under „Business Auxiliary Service‟ and, therefore, no service tax is payable on transportation related expenses recovered in excess by the appellant from their buyers.
The appellant/assessee, M/s. Honda Motorcycle and Scooter India Pvt. Ltd. are engaged in the manufacturing and supply of motorcycle and scooters and also parts thereof.
The appellant had executed a Standard Dealership Agreement with all its dealers whereby they were providing services for delivery of finished goods upto the premises of their buyers or dealers for which they were collecting certain charges at a fixed percentage of the price or value of their finished goods from the buyers or dealers, which was decided on the basis of cost of transportation and insurance. For the same, the appellant was responsible for engaging the services of transporters for transportation of two wheelers till the premises of the dealers and entered into a Standard Transportation Agreement.
The appellant was also responsible for obtaining insurance of two wheelers during transit and for which they availed an Open Marine Policy. The appellant recovered the freight and insurance charges from its dealers and disclosed the charges separately on the sale invoices.
The appellant made payment to the transporters and insurers from the amount received from the dealers and retained the balance amount with themselves. The excess freight and insurance charges retained by the appellant were treated as “profit‟ for the service. On the basis of the enquiry initiated by the Department, details were sought from the appellant with respect to excess receipts of freight and insurance which were duly submitted.
A Show cause notice was issued raising the demand of Rs.16,93,14,862/- on the freight and insurance charges realised from the dealers in excess during the period June 2011 to March 2016. In addition, show cause notice sought to impose penalty on Shri Naveen Kumar and Shri Sunil Gupta under Section 78A of the Finance Act, 1994.
For the subsequent period from April 2016, to June 2017, a statement of demand dated 25.04.2018 was also issued proposing to recover service tax amounting to Rs.3,64,76,441 along with interest and penalty. On adjudication, the entire demand has been confirmed by the impugned order.
The issue raised was whether the transportation or insurance related expenses recovered in excess from the buyers is chargeable to service tax.
The tribunal held that transportation or insurance is an activity which is directly related to the supply of goods on which excise duty has been paid by the appellant and once the excise duty has been paid, no service tax is leviable on the said transaction.
Case Details
Case Title: M/s. Honda Motorcycle and Scooter India Pvt. Ltd. Versus Commissioner of Service Tax
Case No.: Service Tax Appeal No.51587 of 2017
Date: 18.03.2025
Counsel For Appellant: B.L. Narsimhan
Counsel For Respondent: Jaya Kumari
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