2017 (9) TMI 234 - AT - Service Tax

Commission - includibility - pure agent - the department was of the view that the appellant does not satisfy the conditions prescribed under Rule 5(2) of the Service Tax Rules to justify such exclusion as pure agent - Held that - Rule 5(2) of the Service Tax (Determination of Value) Rules, specifies the conditions which are required to be satisfied for excluding certain expenditures or costs incurred by the service provider as a Pure agent of recipient of service - there is no justification for excluding 80% of commission from payment of service tax. Time limitation - Held that - from the fact that the appellant wrote several letters explaining their stand and asking for clarification reflects upon the bonafide of the appellant, that they entertained a belief that 80% of the commission can be excluded - Department is not justified in invoking the extended period of limitation under section 73 for demand of Service Tax in the present case - The Show cause notice which has been issued on 15.4.2011 for demand of service tax for the period 2006-07 to 2008-09 is time barred and hence the demand is required to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Entitlement to exclude 80% of commission received from ICICI Bank while paying service tax.
2. Whether the demand for service tax is time-barred.

Entitlement to Exclude 80% of Commission:
The appellant, a recovery agent for ICICI Bank, claimed that 80% of the commission received should be deductible as expenses under Rule 5(2) of the Service Tax Rules. However, the department contended that the appellant did not meet the conditions to be considered a pure agent. The Tribunal analyzed the agreement between the appellant and ICICI Bank and found that it did not establish that the appellant was acting on behalf of the bank. The agreement did not specify that payments were made on behalf of the service recipient, and this information was not reflected in the invoices. The Tribunal concluded that the appellant failed to satisfy the conditions for excluding 80% of the commission from service tax payment.

Time-Barred Demand for Service Tax:
The appellant argued that the demand for service tax was time-barred since they had consistently reflected in their ST 3 returns that service tax was paid only on 20% of the commission. They had also sought clarification from the jurisdictional Commissioner regarding the deduction of 80% towards expenses. The Tribunal noted that the appellant's returns clearly indicated their position as a pure agent and that they had corresponded with the authorities seeking clarification. The Tribunal found the department unjustified in invoking the extended period of limitation under section 73 for demanding service tax. Consequently, the Tribunal held that the show cause notice issued in 2011 for the period 2006-07 to 2008-09 was time-barred, and the demand for service tax was set aside.

In conclusion, the Tribunal allowed the appeal, emphasizing that the appellant was not entitled to exclude 80% of the commission from service tax payment and that the demand for service tax was time-barred. The decision was pronounced in open court on 04.08.2017.