The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, has set aside a service tax demand of ₹92.61 lakh against an authorised Chevrolet dealer, holding that the taxability of target-based and non-target-based incentives stood settled by earlier decisions treating such receipts as trade discounts and sales claim reimbursements.
The bench of Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) also quashed a ₹1 lakh penalty imposed on the company’s general manager. It held that when the company itself was not liable to pay the disputed service tax, the employee could not be held responsible for violations on that account.
Buy Now: Indirect Tax Judgments E-Compilation – October 2026
The appellant/assessee is an authorised dealer of Chevrolet Sales India Pvt. Ltd. in Surat, was investigated by the Directorate General of GST Intelligence (DGGI), Surat, over incentives, bonuses, claims and discounts received from the manufacturer.
The department alleged that these amounts were consideration for sales-related services and attracted service tax as declared services under Section 66E(e) of the Finance Act, 1994.
During the investigation, the general manager explained the basis of the incentive and claim receipts and identified the services on which the company was paying service tax. He stated that service tax had not been paid on incentives and claims received from the original equipment manufacturer or incentives relating to spares and oil.
A show cause notice dated October 3, 2019, proposed recovery of ₹92,60,575 on receipts aggregating ₹663.96 lakh, covering financial year 2014–15 to June 2017.
The notice invoked the extended limitation period under the proviso to Section 73(1), sought interest under Section 75 and proposed penalties under Sections 77 and 78. It also proposed a personal penalty against the general manager under Section 78A.
The Joint Commissioner, by an order confirmed the entire tax demand with interest.
The adjudicating authority imposed a penalty equal to the tax demand under Section 78, a further penalty of ₹10,000 under Section 77 and a ₹1 lakh penalty on the general manager under Section 78A.
The Commissioner (Appeals) upheld the adjudication through an order dated October 7, 2020. The company and its general manager then approached CESTAT.
The dealer contended that the disputed receipts arose from the purchase and sale of cars and did not constitute consideration for providing a service to Chevrolet.
Its counsel argued that the incentives rewarded sales performance and were calculated after vehicle sales. Such receipts, according to the dealer, could not be treated as payment for a taxable service merely because they were described as incentives or claims.
The company relied on earlier tribunal decisions involving automobile dealerships, including Comet Car Sales Pvt. Ltd., Shri Ambica Auto Sales & Services and Down Town Motors Pvt. Ltd.
It separately challenged the invocation of the extended limitation period, submitting that departmental auditors had regularly examined its records without raising any objection on the issue.
The dealer produced an audit report dated March 18, 2019, covering April 2015 to June 2017, and pointed out that its records up to March 2015 had also been audited.
Alternatively, it sought treatment of the receipts as inclusive of service tax and contested the penalty, arguing that the transactions were reflected in its specified records.
The Revenue maintained that the dealer had performed services for which it received incentives, bonuses and discounts.
It argued that the dealership agreement required the company to provide certain services on the manufacturer’s behalf to customers. Consequently, the department contended, the amounts could not be characterised merely as receipts from the purchase and sale of cars.
The departmental representative also sought retention of the penalty against the general manager.
CESTAT found that the taxability of both target-based and non-target-based incentives had already been addressed in a series of decisions.
The bench principally relied on its March 2, 2026 decision in Down Town Motors Pvt. Ltd., which held that trade discounts and sales claim reimbursements were not liable to service tax.
That precedent considered two broad categories of receipts: discounts first passed on to customers and subsequently reimbursed by the manufacturer, and quantity discounts or incentives linked to purchase or sales targets.
The earlier ruling explained that quantity incentives effectively reduced the purchase price. A discount did not cease to be a discount merely because it was determined or paid after the sale.
It also rejected the proposition that an authorised dealer’s obligation to offer manufacturer-announced discounts to customers automatically constituted a taxable sales promotion service.
The purchase and sale transactions in that case were treated as dealings on a principal-to-principal basis without a separate service element.
The authorities discussed in the precedent included Rohan Motors Ltd., Infinium Motors Gujarat Pvt. Ltd. and the larger bench ruling in Kafila Hospitality & Travels Pvt. Ltd. The reasoning distinguished general performance incentives from consideration attributable to a service transaction.
The tribunal separately examined the ₹1 lakh penalty imposed on Ankket Shah.
It held that when the company itself was not liable to pay the disputed service tax, the employee could not be faulted for violations or contraventions of the Finance Act on that basis.
His appeal was therefore allowed and the penalty order against him was set aside.
The tribunal granted relief on the merits of taxability. It did not separately adjudicate the dealer’s alternative arguments concerning limitation, tax-inclusive valuation or reduction of penalty.
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