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2017 Supreme(Ker) 774
IN THE HIGH COURT OF KERALA AT ERNAKULAM
ANTONY DOMINIC, DAMA SESHADRI NAIDU, JJ.
The Commissioner of Central Excise - Appellant
Versus
M/s. Sai Service Station Ltd. - Respondents
C.E. Appeal Nos. 14 & 15 of 2014
Decided On : 07-07-2017
For the Appellant : John Varghese, P.R. Srejith
For the Respondent: K. Latha
The main legal point established in the judgment is that the sale of a motor vehicle is governed by the Sale of Goods Act, and its use by the Motor Vehicles Act. The intention of the contracting parties and the legal effect of the transaction are crucial in determining the sale of a motor vehicle.
Headnote:
SALE - USED CARS - Motor Vehicles Act, 1988, Sale of Goods Act, 1930 - Section 19 of the Sale of Goods Act, Section 50 of the Motor Vehicles Act - The court discussed the essence of the legal framework applied by the court in reaching its decision. It highlighted the distinction between the sale and use of a motor vehicle, the intention of the contracting parties, and the legal effect of a transaction. The court concluded that the sale of a motor vehicle is governed by the Sale of Goods Act, and its use by the Motor Vehicles Act.
Fact of the Case:
The case concerned the sale of used cars by authorized dealers for a car manufacturer. The dealers were issued show cause notices demanding service tax for their used car transactions. The dealers contended that they legally purchased the used vehicles, refurbished and sold them, and reflected the transactions in their account books as sales.
Finding of the Court:
The court found that the sale of a motor vehicle is governed by the Sale of Goods Act, and its use by the Motor Vehicles Act. It emphasized the intention of the contracting parties and the legal effect of the transaction. The court dismissed the appeals, holding that the orders suffered no legal infirmity.
Issues: The issues revolved around the distinction between the sale and use of a motor vehicle, the intention of the contracting parties, and the legal effect of the transaction. The court also addressed the applicability of the Sale of Goods Act and the Motor Vehicles Act to the dealers' used car transactions.
Ratio Decidendi: The court's decision was based on the legal framework provided by the Sale of Goods Act and the Motor Vehicles Act. It emphasized the importance of the intention of the contracting parties and the legal effect of the transaction in determining the sale of a motor vehicle. The court also highlighted the distinction between the sale and use of a motor vehicle.
Final Decision: The court dismissed the appeals, holding that the orders suffered no legal infirmity. No order on costs was made.
Dama Seshadri Naidu, J.
1. The question concerns the “sale” of used cars. The Motor Vehicles Act, 1988, does not directly deal with the sale of a motor vehicle, a movable property; but the Sale of Goods Act, 1930, does. The Motor Vehicles Act, though, deals with the procedure post-sale. Here, a motor vehicle dealer is dealing in used cars. Is its transaction a sale in the conventional sense attracting the sales tax, or a service—as an intermediary, agent, or broker—to the true owner attracting service tax? The question is simple, but the answer is not.
C.E. Appeal No.14 of 2014:
2. The respondent-Sai Service Station Ltd., (“Sai”) is an authorised dealer for the cars made by M/s. Maruti Udyog Limited. Besides selling the new cars, Sai services and repairs the motor vehicles it sells. To this extent its business is conventional. But it also sells or deals in used or pre-owned cars through its “True Value Division”—the very expression “sale” being contested. It holds Service Tax Registration Certificate under the categories of the authorised service centre, Input-service distributor, and Business Auxiliary Services provider.
3. Taking a view that the activity undertaken by Sai’s True Value Division—exchange of old cars for new ones—amounts to business auxiliary service and the difference between the sale price for the old cars and the purchased price of the new ones has to be treated as remuneration for the service rendered by Sai, the appellant-Department issued a show cause notice on 10.04.2012 why the Department should not collect from Sai service tax of Rs.53,76,644/- with interest and penalty for the period from 01.10.2006 to 30.09.2011.
4. After hearing Sai, the Commissioner of Central Excise and Customs at Cochin, the adjudicating authority, through his order-in-original, dated 20.09.2013, confirmed the demand. Aggrieved, Sai filed an appeal before the CESTAT, Bangalore, which allowed it through its Order, dt.13.02.2014. So, the Commissioner of Central Excise is before this Court.
C.E. Appeal No.15 of 2014:
5. The respondent-Indus Motor Company (“Indus”) is an authorised dealer for the cars made by M/s. Maruti Udyog Limited. It carries on similar business as Sai does. With its corporate office at Ernakulam, Indus has more than 40 branches with service facility, four dealerships (showrooms), and 9 used car showrooms in the state of Kerala. Indus holds Service Tax Registration Certificate, too, like Sai.
6. The appellant-Department issued two show-cause notices:
one on 12.04.2012 demanding service tax of Rs.98,66,785/- for the period from 01.10.2006 to 31.03.2011, and another on 15.04.2013 for Rs.44,09,962/-, the period being 2011-2012.
7. After hearing Indus, the same adjudicating authority, through his order-in-original, dated 05.09.2013, confirmed the demand. Aggrieved, Indus filed an appeal before the CESTAT, Bangalore, which allowed it through its Order, dt.19.02.2014. So, the Commissioner of Central Excise is before this Court.
The Commissioner’s Findings:
8. The transaction of sale takes place only between the registered owner and the purchaser, for which Sai or Indus “acts as a mediator/intermediary by obtaining blank sale letters signed from the RC owner.” So the services rendered by Sai or Indus by selling “the vehicles provided by or belonging to their clients/customers would fall under subordinators clause (i) Section 65 (19) of the Finance Act of 1994 (as amended).”
The Appellate Tribunal’s Findings:
9. The owner of the vehicle delivers the property and receives the sale price from the dealer. So the transaction is a sale. There is no doubt about the second transaction: the dealer sells it to another person after refurbishing it. In other words, “it becomes totally a transaction of purchase and sale of old vehicles.” The dealer refurbishing, repairing the vehicle as its owner is not a service rendered by it to any other person.
Common Cause and Identity of Issues:
10. In both Sai and Indus, identical issues have been
