2016 (12) TMI 230 - AT - Service Tax

Import of services - reverse charge mechanism - Business Auxiliary Service - amount paid to their purchaser situated abroad as deduction / commission on the sale of goods - Held that - There is nothing on record to show that the said DEL was appointed as commission agent for the sale of the goods of the appellant to third parties. It may be that DEL might purchase the goods from the appellant and sells the same in Europe. The reliance placed by learned D.R. and adjudicating authority on the clause of agreement that DEL shall increase the market share of appellant s products to conclude that DEL was a commission agent, seems to be erratic reading of the clauses of agreement and this itself does not amount DEL has been appointed as commission agent . The amount indicated on the invoice and recorded in the accounts as commission, in our view, will not attract tax under reverse charge mechanism. We also find strong force in the contentions raised by learned Counsel that in order to tax this account as a commission, there has to be necessarily three parties, seller, purchaser and a person who negotiates such transaction. From the records it is very clear that DEL had not negotiated purchase or sale on behalf of appellant or their customers; to our mind the deduction/commission is nothing but trade discount. In view of the factual position as ascertained from the records, we hold that the impugned orders demanding service tax under reverse charge mechanism from appellant are unsustainable and liable to be set aside. Appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
Whether the appellant is required to discharge service tax liability under "Business Auxiliary Service" on the amount paid to their purchaser abroad as deduction/commission on the sale of goods.

Analysis:
The issue in consideration is whether the appellant is liable to pay service tax under the category of "Business Auxiliary Service" on the commission paid to their overseas purchaser. The lower authorities confirmed the demands against the appellant, relying on the definition of "Commission Agent" under "Business Auxiliary Service." The appellant argued that the payments made were not commission but a discount given to the purchaser. The appellant contended that the agreement clearly stated the deduction/commission of 8% on the invoice value to the purchaser, which was a direct sale without involving a third party mediator. The appellant also cited a notification excluding commission up to 1% of the FOB value from service tax. The Department argued that the commission paid to the overseas agent was taxable under reverse charge mechanism.

The Tribunal examined the agreement between the appellant and the overseas purchaser to determine if the sales were direct or based on commission. The agreement specified the sale of goods by the appellant to the purchaser, with a flat deduction/commission of 8% on the invoice value. The invoices reflected the deduction of 8% as commission on the total invoice value. The Tribunal agreed with the appellant's argument that the purchaser cannot be considered a commission agent as the deduction/commission was for the goods sold directly. There was no evidence that the purchaser acted as a commission agent for sales to third parties. The Tribunal concluded that the amount recorded as commission was, in fact, a trade discount and not subject to tax under the reverse charge mechanism. Therefore, the demands for service tax were deemed unsustainable, and the orders were set aside, allowing the appeals in favor of the appellant.