2017 (7) TMI 407 - AT - Service Tax

Business Auxiliary Services - Subvention charges - taxability - Held that - the appellant had received the full commission amount from the bank for providing the business auxiliary service and that the subvention charges were debited by the bank from the appellant s account in order to pay the same to its customers. Such subvention charges collected are part of the commission, which falls under the taxable category of business auxiliary service - the Tribunal in the case of Commissioner of Service Tax, Mumbai Vs. J.M.D. Marketing Pvt. Ltd. 2013 (10) TMI 1446 - CESTAT MUMBAI has held that the assessee would be liable to pay service tax on gross amount of commission received from banks for marketing of products - for computation of the service tax liability within the normal period, the matter is remanded back to the adjudicating authority for quantifying the service tax demand - appeal allowed by way of remand.

Summary

Issues:
Service tax liability on subvention charges passed on to customers; Bar on limitation period for issuing show cause notices.

Analysis:
The case involves an appeal against an order passed by the Commissioner (Appeals) regarding the imposition of service tax on subvention charges passed on by the appellant to its customers. The appellant, engaged in promoting and marketing bank loans, received commission from banks, part of which was directly passed on to customers as subvention charges. The Department demanded service tax on these charges under Business Auxiliary Service. The appellant argued that it was unaware of these payments and that the proceedings were time-barred. The Department contended that the charges were part of the commission and fell under taxable business auxiliary service.

Upon review, the Tribunal noted that the appellant received the full commission amount and that the subvention charges were collected as part of the commission, making it taxable. Referring to precedent, the Tribunal held that the appellant was liable to pay service tax on the gross commission received. The argument that tax deduction at source by the bank should exempt the commission from service tax computation was dismissed, as income tax provisions differ from service tax laws. The Tribunal upheld the service tax demand based on the merits of the case.

Regarding the limitation period for issuing show cause notices, the Tribunal found that while the initial notice for the period 2003-04 to 2007-08 was valid, the subsequent notice for April 2008 to March 2009 was partly time-barred. As a result, the matter was remanded to the adjudicating authority for quantifying the service tax demand within the normal period. Since the extended period of limitation could not be invoked, the penalty under Section 78 of the Finance Act was set aside. The appeals were disposed of accordingly.