2015 (5) TMI 66 - AT - Service Tax

Demand of service tax - amount received towards cost of the packing materials - Business Auxiliary Service - Held that - Appellant is undertaking two functions - one as a sole selling agent promoting the sale of the country liquor manufactured for which he receives incentives @ ₹ 5/- per box on which service tax liability is discharged. The second transaction which the appellant undertakes is procuring raw materials and packing materials for the country liquor manufacturer on which he has discharged VAT liability; thereafter, he has sold these packing materials and raw materials to the country liquor manufacturer on a profit, again discharging VAT liability on the sale price. We have perused both the purchase invoices and also the sale invoices in respect of these transactions and these documents clearly shows payment of VAT /sales tax. Thus, the profit earned is in respect of a trading transaction in respect of packing materials and raw materials and has nothing to do with the activity of sole selling agent. In fact, these two transactions could have been performed by two separate entities. Merely because one entity has performed both transactions, the distinct and different nature of the transactions does not get obliterated. Therefore, the profit earned in purchase/sale transactions cannot be subject to service tax in respect of a service rendered as a sole selling agent for the goods manufactured by the liquor manufacturer. - impugned demands are clearly unsustainable in law - Decided in favour of assessee.

Summary

Issues:
Confirmation of service tax demand on the amount received towards cost of packing materials as consideration for services rendered by the appellant as a sole selling agent and the incentive received under 'Business Auxiliary Service'.

Analysis:
The appeal originated from an Order-in-Appeal passed by the Commissioner of Central Excise (Appeals), Pune-II, confirming the service tax demand on the amount received for packing materials as consideration for services rendered by the appellant. The lower appellate authority upheld the confirmation of the demand but remanded the matter for re-computation of tax liability. The appellant, working as a sole selling agent, received incentives for selling liquor and discharged service tax liability. The appellant also procured raw materials for the liquor manufacturer, discharging VAT liability on purchase and subsequent sale to the manufacturer, earning a profit. The department contended that the profit made on trading transactions is subject to service tax liability. The appellant argued that the profit from purchase and sale transactions of raw materials is not a consideration for services rendered as a sole selling agent, thus no service tax liability should apply. The Revenue argued that the difference in procurement and sale price of raw materials constitutes consideration for services rendered as a sole selling agent.

Upon careful consideration, the Tribunal found the charge against the appellant regarding profit generated from sale of packaging and raw materials as absurd. The relevant provisions did not provide for charging service tax on gross profit from sale and purchase transactions. The appellant undertook two distinct functions: acting as a sole selling agent and trading raw materials, each with separate tax liabilities. The profit earned from purchase/sale transactions was unrelated to the services rendered as a sole selling agent. The Tribunal reviewed purchase and sale invoices, confirming VAT payments, and concluded that the profit earned from trading transactions should not be subject to service tax related to services as a sole selling agent. The Tribunal held the demands as unsustainable in law and set them aside, allowing the appeal with any consequential relief as per law.