Madras High Court: TVS Finance and Services Ltd. providing Vehicle financing services for vehicles manufactured by TVS Motors is taxable under 'Business Auxiliary Service'
The Madras High Court (HC) in the case titled the Commissioner of GST & Central Excise (Appellant/ Revenue) v. M/s. TVS Motor Co. Ltd. (Respondent/ Assessee) granted relief to TVS Motors and ruled that the Services related to the financing of the vehicles manufactured by TVS Motors are taxable under Business Auxiliary Service.
The HC division bench comprising Justices T.S. Sivagnanam and R.N. Manjula observed that there is direct nexus between the activity of TVS Finance and Services Limited (TVSFS) with that of the activity of the assessee because of the exclusive arrangement between the assessee and TVSFS.
The factual background of the case is that the assessee has been engaged in the manufacture of motorcycles, parts, and engines covered under Chapter heading 87.11, 87.14, and 87.08 of the Schedule to the Central Excise Tariff Act, 1985 (Act) and are availing Cenvat Credit on input services in terms of the Cenvat Credit Rules, 2004.
The assessee had entered into an agreement with TVSFS to provide finance facilities to customers, who purchase two-wheelers manufactured by the respondent/assessee.
According to the said agreement, the assessee, apart from providing financial services, has entered into an arrangement with the respective authorized dealers to give sufficient space and facility in the dealership outlet to provide financial services to the customers, who come to purchase vehicles manufactured by the assessee.
During the period under consideration, i.e. 2005-06 to 2008-09, TVSFS raised invoices on the respondent/assessee under the head "Business Auxiliary Services" including service tax at appropriate rates and the assessee availed credit of the service tax paid to TVSFS being input services provided to them.
The Commissioner of Central Excise, Chennai – III (Adjudicating Authority), by order, though referred to various contentions raised, held that the input services should have some nexus to the manufacture of excisable goods and since TVSFS was engaged in financing and the same did not have any nexus to the manufacturing activity of the assessee. Accordingly, the proposal in the show cause notice was confirmed.
The assessee preferred an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT/ Tribunal), which has been allowed by the Tribunal by the impugned order. The revenue has challenged the order of the Tribunal before the HC.
The Court noted in its order that the Memorandum of Understanding (MOU) and the various agreements demonstrate that the assessee has made necessary facilities for TVSFS by allotting spaces in the outlets of their authorized dealers for the purpose of marketing the sale of the vehicles and financing of the vehicles and also providing finances to TVSFS for the purpose of rendering such services.
It further observed that the assessee and TVSFS have, in their reply to the show-cause notice, placed materials to show that by virtue of this arrangement, they were able to penetrate into semi urban areas, thereby increasing the sale of two-wheelers manufactured by the respondent/ assessee.
It upheld the decision of the CESTAT and stated that the services of TVSFS regarding the financing of the vehicles manufactured by the assessee promote the sale of vehicles manufactured by the assessee; such service is taxable under Business Auxiliary Services.