2018 (2) TMI 1614 - AT - Service Tax

Business Auxiliary Services - Discounts - case of the department is that the said discount is nothing but a sales commission which is liable to service tax under the category of Business Auxiliary Service - Held that - the transaction between the manufacturer M/s. Gunaji and the appellant is clearly of sale. In the invoice the manufacturer has charged 20% VAT the transaction is clearly at arms length hence sale transaction on principle to principle basis. From the invoice, it is also observed that a trade discount was passed on by the manufacturer to the appellant - As per this undisputed fact once, the transaction is of sale there is no relationship of service provider and service recipient between the manufacturer and the buyer (the present appellant). Accordingly, the discount passed on by the manufacturer to the appellant cannot be construed as a commission and the same is not the subject matter of levy of service tax. A trading margin cannot be subject matter of levy of service tax. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of trade discount as commission for service tax liability under Business Auxiliary Service.

Analysis:
The case involved a dispute regarding the classification of a discount given by a manufacturer to a wholesale dealer as a trade discount or a commission liable for service tax under Business Auxiliary Service. The appellant, a wholesale dealer, argued that the discount was a trade discount and not a commission, hence not subject to service tax. The department contended that the discount constituted a commission attracting service tax liability.

The appellant's counsel emphasized that the transaction between the manufacturer and the appellant was purely a sale, supported by the agreement terms and sales invoices. They argued that the discount was a trade discount and not a commission, hence not liable for service tax. The appellant presented evidence from the agreement and invoices to support their stance.

On the other hand, the Revenue representative reiterated the findings of the impugned order, maintaining that the discount should be treated as a commission attracting service tax liability.

Upon careful consideration of the submissions and perusal of records, the tribunal analyzed the agreement clause stating the transfer of ownership to the wholesale distributor post-supply. The tribunal also examined the sales invoices, which indicated a sale transaction with VAT charged. It was observed that the transaction was at arm's length, indicating a sale on a principle-to-principle basis. The tribunal concluded that the discount passed on by the manufacturer to the appellant could not be construed as a commission, as there was no service provider-service recipient relationship. The tribunal further noted that the subsequent sale by the appellant to traders was also a sale transaction, confirming no involvement of service. Consequently, the tribunal set aside the impugned order and allowed the appeal.

In conclusion, the judgment clarified the distinction between a trade discount and a commission for service tax liability under Business Auxiliary Service, emphasizing the importance of analyzing the nature of transactions and ownership transfer to determine the taxability of discounts in sale transactions.