CESTAT Allahabad set aside a ₹1.18 crore service tax demand on a Honda dealer, holding that target-linked incentives and customer-scheme reimbursements from the manufacturer arise from trading goods, not a service under Section 66E(e).
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, has held that incentives, discounts and reimbursements a car dealer receives from the manufacturer under its dealership arrangement are not consideration for a declared service of agreeing to do an act under Section 66E(e) of the Finance Act, 1994 [Smart Cars Limited v. Commissioner of C.G.S.T. and Central Excise, Kanpur, 2026-juristway.com-3347-CESTAT(Allahabad)-ST].
The Bench of P.K. Choudhary, Member (Judicial), and K. Anpazhakan, Member (Technical), heard the appeal; the order was written by Mr. Anpazhakan. The appellant, an authorised dealer of Honda Cars India Limited, buys cars, spare parts and accessories and resells them. The Department demanded ₹1,18,40,547 for 2014-15 to June 2017 on incentives and reimbursements, with penalties under Sections 77 and 78, and the Commissioner (Appeals) upheld it on 12 Jan 2023.
The Tribunal found that the dealership is a sale and purchase of goods on a principal-to-principal basis. Section 65B(44) excludes a mere transfer of title in goods from “service”, and trading was in the Negative List under Section 66D(e). Incentives under the wholesale, retail and accessories target schemes are commercial discounts linked to the dealer’s own trading, not payment for a separate activity done for the manufacturer. A dealer’s promise of best efforts to meet targets does not create an obligation to do an act.
Consumer scheme amounts, which the dealer passes on to buyers and the manufacturer reimburses through credit notes, also remain part of the sale of the vehicle. Selling below the maximum price allowed is ordinary commercial conduct. The Tribunal referred to Maya Appliances (P) Ltd. v. Addl. Commissioner of Commercial taxes (2018) on discounts allowed in trade.
On limitation, the Tribunal held the extended period could not be invoked. The appellant filed ST-3 returns and furnished records, the investigation at the manufacturer’s end found nothing suggesting suppression, and the dispute was one of interpretation. Mere non-payment of a disputed tax is not suppression.
The demand and the penalties under Sections 77 and 78 were set aside and the appeal was allowed.
2026-juristway.com-3347-CESTAT(Allahabad)-ST
