2016 (8) TMI 497 - AT - Service Tax

Classification commission received early payment incentive received whether to be classified under business auxillary service requantification of demand imposition of penalty Held that - early payment discount in this case are cash discount and received in view of early payments made to the principles and are linked to the number of days by which payment is made early and has no relation with the consideration received for rendering the service in the form of commission under the category of Business Auxiliary Services appeal allowed decided in favor of appellant.

Summary

Issues: Classification of early payment incentive under Service Tax; Applicability of Business Auxiliary Service; Interpretation of cash incentive as consideration for taxable service

In the present case, the issue revolved around the classification of the early payment incentive received by the appellants under Service Tax regulations. The appellants, acting as selling agents for specific companies, received commission and additional amounts as incentives and early payment incentives. The department issued a show cause notice demanding Service Tax on the early payment incentive received by the appellants, arguing that it fell under "Business Auxiliary Service." The Order-in-Original confirmed the demand and imposed a penalty, which was subsequently modified by the Commissioner (Appeals) directing re-quantification of the demand. The appellant challenged this decision before the Appellate Tribunal CESTAT ALLAHABAD.

During the proceedings, the appellant's counsel highlighted that the appellants were "Del-Credere" agents as per the agreement, responsible for both sales and payment recovery. The terms of payment included an early payment incentive for purchasers making payments within 14 days. The appellant made payments to the companies from their own funds before receiving payments from purchasers, receiving cash incentives in return. The department argued that these cash incentives were covered under "Business Auxiliary Services" and attracted Service Tax, citing a previous case as precedent. The Tribunal examined the contentions and agreed with the finding in the previous case, determining that the early payment discounts were cash discounts linked to the timeliness of payments and not directly related to the consideration received for providing services in the form of commission under "Business Auxiliary Services." Consequently, the appeal was allowed, providing consequential relief to the appellants.

In conclusion, the Tribunal's decision clarified the interpretation of cash incentives as consideration for taxable services, emphasizing the distinction between early payment discounts and commission under the category of "Business Auxiliary Services." The judgment provided a nuanced analysis of the specific circumstances and payment structures involved in determining the applicability of Service Tax to the incentives received by the appellants, ultimately ruling in favor of the appellants based on the nature of the early payment discounts as cash incentives rather than consideration for services rendered.