2015 (11) TMI 230 - AT - Service Tax

Waiver of pre deposit - business auxiliary service - reverse charge mechanism - Held that - Licensor acted on behalf of the appellant and undertook activity relating to sale of the appellant s goods for which the licensor was paid commission based upon the value of exports. Although the appellant has also tried to make an arguable case that the licensor did not act as an agent of the appellant and therefore was not falling in the category of commission agent. Prima facie, it is an arguable case on either side. The appellant has also argued that there was no need for it to indulge in any suppression as any service tax paid by it would have been available as Cenvat credit. Prima facie it is a fair argument in favour of non-invocability of the extended period. In these circumstances it is fair to order pre-deposit of approximately 50% of the impugned demand pertaining to the normal period in respect of both the show cause notices. Accordingly, we order pre-deposit of ₹ 1.25 crores with proportionate interest within four weeks - Partial stay granted.

Summary

Issues:
1. Whether the service provided by Honda Motor Co. falls under business auxiliary service.
2. Whether Honda Motor Co. acted as a commission agent of the appellant.
3. Whether the appellant is liable to pay service tax demands.

Analysis:
The judgment pertains to stay applications and appeals filed against orders confirming service tax demands of significant amounts against show cause notices issued for the period 18.4.2006 to 31.1.2009. The appellant argued that it had a license and technical assistance agreement with Honda Motors Co. Ltd., granting it rights to manufacture, sell, and distribute products within a designated territory. The agreements allowed the appellant to utilize Honda Motor Co.'s distribution network for sales outside the territory. The key contention was whether Honda Motor Co. acted as a commission agent of the appellant, thus determining the applicability of business auxiliary service under the Finance Act, 1994.

The tribunal analyzed the agreements between the parties, noting that Honda Motors consented to the export and sale of goods by the appellant in designated countries using its distribution network. The agreements outlined responsibilities and payment terms, with the appellant required to pay a percentage of the FOB value to Honda Motors. The definition of a commission agent under Section 65(19) was considered, which includes a person acting on behalf of another in sale or purchase of goods or services for a consideration. The tribunal found arguments on both sides to be arguable, with the appellant contending that Honda Motors did not act as its agent, while the details suggested otherwise.

The tribunal acknowledged the appellant's argument that any service tax paid would be available as Cenvat credit, supporting the non-invocability of the extended period. Consequently, a pre-deposit of approximately 50% of the demanded amount was ordered within four weeks, with compliance to be reported by a specified date. The remaining adjudicated liability recovery was stayed pending the appeal, subject to compliance. Failure to make the pre-deposit would result in the dismissal of the appeal for non-compliance. The judgment carefully considered the contractual arrangements, definitions under the law, and the appellant's arguments to arrive at a decision regarding the liability for service tax demands.