2016 (2) TMI 656 - AT - Service Tax

Receipt of incentive and commission from the Maruti Udyog Limited while providing providing authorised service station and business auxiliary service - commission /remuneration received by the appellant from the financial companies. - Held that - It is seen that the records do not indicate that the claim of the appellant that they are mere provider of table space and that these receipts are in the nature of consideration for such allocation can be controverted. Therefore, the tax levied on such remuneration is liable to be set aside. The commission paid through the appellant to their executives is, admittedly, remuneration for the efforts made by the employees of the appellant to promote the products of the finance companies. Admittedly, they are employees of the appellant and, thereby, not free agents. Their promotional efforts cannot be delinked from that of the appellant; the fact that payments are made over to the appellant is sufficient to deduce so. That the appellant chooses not to retain any of the commission and instead passes them on to the executives is an internal policy of the appellant that need not concern the tax authority. Processing fees are the consideration for handling the loan applications and it is, undoubtedly, incidental to promotion of the service that is offered by the finance companies. Decided partly in favor of assessee.

Summary

Issues:
1. Taxability of commission and incentives received by the appellant.
2. Disallowance of CENVAT credit on "demo" cars.
3. Imposition of penalties under sections 76 and 78 of the Finance Act, 1994.

Analysis:
1. The appellant, engaged in providing authorized service station and business auxiliary service, received commission and incentives from various companies. The original authority confirmed a demand for the short-paid amount, disallowed CENVAT credit on "demo" cars, and imposed penalties under sections 76 and 78 of the Finance Act, 1994. The first appellate authority reduced the total demand, upheld penalties, and specified taxable receipts as commission, remuneration, incentives, and processing fees from finance and insurance companies. The Tribunal referred to a precedent stating that consideration for allocating "table space" does not fall under business auxiliary service, setting aside tax on such remuneration.

2. The commission paid to the appellant's executives was deemed remuneration for their promotional efforts for finance companies. The nature of transactions determined tax liability, with processing fees considered incidental to promoting services. Following the precedent, the dividing line between taxability and non-taxability relied on the nature of transactions. Thus, the tribunal modified the order, setting aside the demand on commission/remuneration and reducing penalties due to the mistaken CENVAT credit claim on "demo" cars.

3. The CENVAT credit on "demo" cars was reversed, and the penalty for this mistake was considered unduly harsh. The penalty was restricted to the surviving tax demand, resulting in a reduction of penalties imposed. The tribunal disposed of the appeal accordingly, pronouncing the judgment in court.