No Service Tax on Incentives Received by Car Dealers from Manufacturers: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore Bench, has held that incentives received by an authorized automobile dealer from a manufacturer for achieving sales targets are not liable to service tax under the category of Business Auxiliary Service. The bench of Dr. D.M. Misra (Judicial Member) and R. Bhagya Devi (Technical Member) set aside service tax demands raised against the dealer, concluding that such incentives are in the nature of trade discounts and arise from principal-to-principal transactions rather than service arrangements. The appeals were filed by Sai Service Station Private Limited (now Sai Service Private Limited), an authorized dealer of vehicles manufactured by Maruti Suzuki India Limited. The dispute concerned service tax demands for the periods 2005–10 and 2011–13 on incentives received from the manufacturer upon achieving specified sales targets. The tax department alleged that these incentives constituted consideration for promotional and marketing activities carried out on behalf of the manufacturer and were therefore taxable as Business Auxiliary Service. Show-cause notices invoking the extended limitation period demanded service tax along with interest and penalties, and the adjudicating authority confirmed the demands. The central issue before the Tribunal was whether target-based incentives received by an automobile dealer from a manufacturer for achieving sales targets could be treated as consideration for services and taxed under Business Auxiliary Service. The dealer argued that its relationship with the manufacturer was on a principal-to-principal basis. It purchased vehicles from the manufacturer and sold them to customers independently, earning incentives based on sales performance. According to the dealer, no service was rendered to the manufacturer; rather, the activities undertaken were part of its own trading operations. The dealer also relied on earlier decisions, including its own cases and judicial precedents, which had held that such incentives are essentially trade discounts and not consideration for services. The Tribunal observed that the issue was no longer res integra and had already been settled in several earlier decisions involving automobile dealers. It noted that incentives paid for achieving sales targets are linked to overall business performance and not to any specific service rendered to the manufacturer. The tribunal held that the dealer purchased vehicles and sold them on a principal-to-principal basis. Incentives were in the nature of trade discounts tied to sales performance. The transactions primarily involved trading in goods, which is excluded from the scope of taxable services. Promotional activities undertaken by dealers benefited both the dealer and the manufacturer and did not constitute a service to the manufacturer.Sai Service Station Private Ltd. The Tribunal emphasized that incentives are generally meant to encourage performance and are not linked to any specific service transaction. Therefore, they cannot be treated as consideration for taxable services. In reaching its decision, the Tribunal relied on several earlier rulings that consistently held that incentives received by automobile dealers are not taxable as services when transactions are conducted on a principal-to-principal basis. It also noted that similar demands had been set aside in the dealer’s own cases for earlier periods and in other Tribunal decisions involving identical facts. The Tribunal concluded that there was no element of service in the transactions between the dealer and the manufacturer and therefore no liability to service tax arose. The impugned orders confirming the demands were set aside, and the appeals were allowed with consequential relief. Case Details Case Title: M/s. Sai Service Station Private Ltd. Versus Commissioner of Central Excise, Customs and Service Tax Citation: JURISHOUR-98-CESTAT-2026(Bang) Case No.: Service Tax Appeal No.1137 of 2012 Date: 24.02.2026 Counsel For Appellant: Puloma Dalal, Advocate Counsel For Respondent: Maneesh Akhoury, Asst. Commissioner (AR) Click Here To Read Order Read More: Interest on Refund of Deposit Paid Under Protest Payable from Date of Deposit at 12%: CESTAT

No Service Tax on Incentives Received by Car Dealers from Manufacturers: CESTAT

Membership Required

Latest articles

Verification Reports Must Be Shared Before Adjudication: Bombay High Court Quashes GST Order Against Pidilite

GST Penalty For Wrongful ITC Claims Can’t Be Imposed on Company Employees: Bombay HC

Average Sale Price Can’t Be Basis for Alleging Undervaluation: CESTAT

Service Tax Demand on Electricity Distribution Utility Quashed; CESTAT Holds Ancillary Services Exempt

More like this

Verification Reports Must Be Shared Before Adjudication: Bombay High Court Quashes GST Order Against Pidilite

GST Penalty For Wrongful ITC Claims Can’t Be Imposed on Company Employees: Bombay HC

Average Sale Price Can’t Be Basis for Alleging Undervaluation: CESTAT

About us

Company

Categories

No Service Tax on Incentives Received by Car Dealers from Manufacturers: CESTAT

Membership Required

Latest articles

Verification Reports Must Be Shared Before Adjudication: Bombay High Court Quashes GST Order Against Pidilite

GST Penalty For Wrongful ITC Claims Can’t Be Imposed on Company Employees: Bombay HC

Average Sale Price Can’t Be Basis for Alleging Undervaluation: CESTAT

Service Tax Demand on Electricity Distribution Utility Quashed; CESTAT Holds Ancillary Services Exempt

More like this

Verification Reports Must Be Shared Before Adjudication: Bombay High Court Quashes GST Order Against Pidilite

GST Penalty For Wrongful ITC Claims Can’t Be Imposed on Company Employees: Bombay HC

Average Sale Price Can’t Be Basis for Alleging Undervaluation: CESTAT

About us

Join Our Newsletter

Company

Categories