No Service Tax applicable on additional Interest recovered from Customers against delayed payment of monthly instalments: CESTAT [Read Order]

The Customs, Excise, Service Tax Appellate Tribunal (CESTAT), Delhi Bench held that service tax is not applicable on additional interest recovered from customers against delayed payment of monthly instalments.

The appellant, M/s. Rohan Motors Limited is a dealer of Maruti Udhyog Ltd. The appellant buys vehicles from MUL for further sale to the buyers by virtue of a dealership agreement dated January 1, 2013 entered into between Maruti Suzuki India Ltd. and the appellant. Under the said agreement, the appellant receives a discount from MUL, which are referred to as “incentives” under the schemes. The Department has sought to levy service tax on the incentives received by the appellant under the category of “business auxiliary service”.

The demand has been confirmed on the the incentive amount received by the appellant under BAS; the registration and number plate charges received by the appellant from the customers for registration of the vehicles with the Regional Transport Authority under BAS; the miscellaneous income in the nature of penalty on bouncing of cheques and processing charges under BAS; and transportation charges paid by the appellant under “goods transport agency” services.

The show cause notice wherein total demand confirmed under BAS is Rs. 24,91,202, while that under GTA is Rs. 35,117. The demand has been confirmed with interest under section 75 of the Finance Act 1994 and penalty under section 78 of the Finance Act.

The Coram headed by the President Dilip Gupta held that the additional/Penal interest recovered by the Applicant from their customers against the delayed payment of monthly instalments of the load extended to such customers, would be exempt from GST in terms of Sl. 27 of the Notification No. 12\2017-C.T. (Rate) dated June 28, 2017.

The ITAT while answering the issue whether service tax would be leviable on incentives prior to July, 2012 held, “the service tax on the amount received form incentives could not, therefore, have been levied to service tax.”