Honda Not Liable To Pay Service Tax On Excess Transportation Charges Recovered From Buyers: CESTAT
Pranav B Prem
In a significant ruling, the Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that M/s. Honda Motorcycle and Scooter India Pvt. Ltd. is not liable to pay service tax on excess transportation charges recovered from its buyers. The decision, delivered by a bench comprising Hon'ble Ms. Binu Tamta (Judicial Member) and Hon'ble Mr. P.V. Subba Rao (Technical Member), categorically stated that the activity of arranging the transportation of goods to the dealers' premises cannot be classified under 'Business Auxiliary Service.' Therefore, no service tax is payable on transportation-related expenses recovered in excess by the appellant from their buyers.
Background of the Case
M/s. Honda Motorcycle and Scooter India Pvt. Ltd. (hereinafter referred to as 'the appellant') is engaged in the manufacturing and supply of motorcycles, scooters, and their parts. The appellant had entered into a Standard Dealership Agreement with all its dealers. Under this agreement, the appellant provided delivery services for finished goods to the buyers' or dealers' premises, charging a fixed percentage of the value of the finished goods, based on the transportation and insurance costs.
To facilitate the transportation of vehicles, the appellant entered into a Standard Transportation Agreement with third-party transporters. The appellant was also responsible for obtaining insurance coverage during transit through an Open Marine Policy. The freight and insurance charges were collected from the dealers and disclosed separately in the sale invoices. Any excess amount retained after paying the transporters and insurers was treated as "profit" by the appellant. The Department initiated an inquiry and sought details from the appellant regarding the excess freight and insurance receipts, which the appellant duly submitted.
Show Cause Notice and Demand
A show cause notice dated December 16, 2016, was issued by the Department demanding service tax of Rs.16,93,14,862/- on the excess transportation and insurance charges collected during the period from June 2011 to March 2016. Additionally, a statement of demand dated April 25, 2018, was issued for the subsequent period from April 2016 to June 2017, seeking to recover Rs.3,64,76,441/- in service tax along with applicable interest and penalties. The show cause notice also proposed penalties under Section 78A of the Finance Act, 1994, against two individuals: Shri Naveen Kumar and Shri Sunil Gupta. The adjudicating authority confirmed the entire demand in the impugned order.
Key Issue Before the Tribunal
The primary issue for consideration was whether the transportation and insurance-related expenses recovered in excess from the buyers were chargeable to service tax.
Tribunal's Observations and Ruling
The Tribunal, after analyzing the facts and legal provisions, ruled in favor of the appellant. It held that the transportation and insurance expenses are directly linked to the supply of goods on which excise duty has already been paid. The Tribunal emphasized that once excise duty has been discharged, no service tax is leviable on the same transaction.
Referring to previous decisions, the Tribunal relied on Pushpak Steel Industries Pvt. Ltd. v. CCE & ST, Pune-III, 2019 (20) GSTL 88 (Tri.-Mumbai), which established that no service tax is payable when excise duty liability has already been discharged on goods, and there is no independent service agreement between the buyer and the seller. Similarly, the ruling in Gokulanand Texturisers Pvt. Ltd. & Anr. v. CCE & ST, Surat-II, Final Order No.10857-10860/2024 dated 9.4.2024 reinforced that transportation related to delivery of goods does not qualify as a taxable service.
The Tribunal noted: "The activities of transportation were just to facilitate delivery of the duty-paid excisable goods at the buyers' premises and do not conform to the definition of taxable service." The Tribunal also referred to Tiger Logistics (India) Limited v. Commissioner of Service Tax-II, Delhi, 2022 (63) GSTL 337 (Tri.-Del.), where it was held that profit earned from business transactions cannot be considered as consideration for service.
Reliance on Precedent and Finality of Decisions
The Tribunal further relied on its previous orders in the appellant's own case related to their Manesar unit. In Order-in-Original No.18/SA/CCE/ST/2014 dated 7.05.2014 and Order-in-Original No. DLI–SVTAX–004–COM–026–16–17 dated 29.07.2016, the demand was dropped as excise duty had already been paid on the additional freight and insurance recoveries. The Tribunal highlighted the binding nature of these previous orders, noting that the Department cannot take a contradictory stance in subsequent cases.
Referring to Commissioner of C. EX., Hyderabad v. Novapan Industries Ltd., 2007 (209) ELT 161 (S.C.), the Tribunal reiterated: "It is settled law that the department having accepted the principles laid down in the earlier case cannot be permitted to take a contra stand in the subsequent cases."
Based on the above observations, the Tribunal set aside the impugned order and allowed the appeals filed by M/s. Honda Motorcycle and Scooter India Pvt. Ltd. The penalties imposed on Shri Sunil Gupta and Shri Naveen Kumar were also quashed.
Appearance
Shri B.L. Narsimhan, Shri Shivam Bansal and Shri Dhruv Anand, Advocates for the appellant.
Ms. Jaya Kumari, Authorised Representative for the respondent.
Cause Title: M/s. Honda Motorcycle and Scooter India Pvt. Ltd. V. Commissioner of Service Tax
Case No: Service Tax Appeal No.51587 of 2017
Coram: Hon’ble Ms. Binu Tamta [Member (Judicial)], Hon’ble Mr. P.V. Subba Rao [Member (Technical)]
[Read/Download order]
