2017 (11) TMI 1277 - AT - Service Tax

Business Auxiliary services - commission and incentive received for business brought in by the appellant for transport of cargo - Held that - the commission agents are shown in the inclusive part of the definition such agents are not to be treated as only involved in promotion and marketing. Though commission agents do end up promoting or marketing the services the arrangement and manner of payment of consideration decides their scope of activities and brings them under the category of commission agent - In the present case, there is no sale or purchase of goods on behalf of clients. It is the service which the appellant are dealing with - the appellants are liable to service tax under BAS w.e.f. 16/06/2005 only. Regarding the contention of the appellant that incentives are to be treated separately, we note that the same is not a tenable position. Valuation - reimbursement of expenses on actual basis - Held that - When the expenditure is incurred on behalf of the client and reimbursed on actual basis the same are to be excluded from the taxable value. Penalties - Held that - this is a fit case for invoking provision of Section 80 for setting aside the penalty on appellant - penalties set aside. Appeal allowed in part.

Summary

Issues:
1. Taxability of commission and incentives received by the appellant under business auxiliary service.
2. Valuation of taxable service and treatment of reimbursable expenditures.
3. Applicability of the definition of "commission agent" under the Finance Act, 1994.
4. Tax liability of the appellant pre and post the explanation inserted in the tax entry.
5. Treatment of incentives separately from commission.
6. Exclusion of reimbursable expenditures from the taxable value based on documentary evidence.
7. Penalty imposition under Section 80.

Analysis:

1. The appeal addressed the taxability of commission and incentives received by the appellant under business auxiliary service. The Revenue contended that these considerations are taxable under Section 65(19) of the Finance Act, 1994. The Original Authority held the appellant liable for service tax on these considerations. The appellant argued that prior to a certain date, commission agents were restricted to those dealing with goods, not services, and relied on exemption Notification 13/2003-ST. The Tribunal held the appellant liable for service tax only from 16/06/2005 onwards.

2. The dispute also involved the valuation of the taxable service and treatment of reimbursable expenditures. The Original Authority rejected the appellant's claim for deduction of certain expenses incurred on a reimbursement basis. The Tribunal agreed with the appellant that where expenditures are reimbursed without any mark-up, they should be excluded from the taxable value. This exclusion was contingent on documentary evidence supporting the reimbursement arrangement.

3. The interpretation of the term "commission agent" under the Finance Act, 1994 was crucial. The Tribunal analyzed the statutory definition and the explanation inserted w.e.f. 16/06/2005. It concluded that the appellant, as a commission agent for services, became liable for service tax only from the said date. The Tribunal referenced the Hon'ble Supreme Court's decision in Union of India Vs. Martin Lottery Agencies Ltd. to support the prospective application of the explanation.

4. The issue of treating incentives separately from commission was deliberated upon. The Tribunal determined that incentives, although based on threshold turnover, were of the same nature as commission and thus liable to be taxed under the same category of business auxiliary service. Consequently, incentives were deemed taxable from 16/06/2005 onwards.

5. Lastly, the Tribunal addressed the imposition of penalties under Section 80. Considering the complexity of the issues involved and the appellant's arguments, the Tribunal found it appropriate to set aside the penalties imposed on the appellant. The appeals were disposed of accordingly, with the appellant being held liable for service tax from 16/06/2005 onwards and reimbursable expenditures excluded from the taxable value based on documentary evidence.