2018 (11) TMI 1468 - AT - Service Tax

Business Auxiliary Service - respondents as distributors were receiving 1% volume discount on the total turnover - liability of service tax - Held that - The important takeaway from the discussions on the differing nature of assessable value, one for the purpose of levy of Central Excise duty and the other for levy of service tax, is that they are two different and distinct entities. This indeed has to be so, since the purpose of levy of central excise duty is to levy tax on production or manufacture of excisable goods in India whereas service tax is a levy on service, which by its very intrinsic nature cannot then be an activity amounting to manufacture and subject to Central Excise levy. A value or consideration undisputedly forming part of assessable value for purposes of levy of central excise duty cannot then be also considered as part of the value of taxable service for levy of service tax. This is in keeping with the fundamental principle that the same activity cannot be considered as manufacture and subjected to excise levy and at the same time considered to be a service and subjected to service tax. In fact, the process amounting to manufacture is kept specifically out of the scope of Section 65 (19) of Finance Act, 1994 which prescribes service tax liability on processing of goods not amounting to manufacture. It has been consistently laid down by the Tribunal, in a plethora of decisions, that consideration which is subject to payment of excise duty is not liable for payment of service tax liability. No suppression of facts - Held that - There does not appear to be any dispute or allegation that the respondents were not filing the prescribed statutory returns with the department - in the process of auditing, all the transactions were duly and properly audited by the Department; that such neither any attempt was made to conceal the facts nor to hide any information and the respondent had acted diligently in accordance with the provisions of law - there is no suppression of any information or facts. The Commissioner has correctly applied the law after appreciating the facts of the case - appeal dismissed.

Issues Involved:
1. Whether the 1% volume discount received by the respondent from HP constitutes a commission for providing Business Auxiliary Service and is subject to service tax.
2. Whether the activities performed by the respondent fall under the definition of Business Auxiliary Service as per Section 65(19) of the Finance Act, 1994.
3. Whether the 1% discount should be included in the assessable value for the purpose of Central Excise duty or Service Tax.
4. Whether the relationship between the respondent and HP is that of principal-to-principal or principal-agent.

Issue-Wise Detailed Analysis:

1. Whether the 1% volume discount received by the respondent from HP constitutes a commission for providing Business Auxiliary Service and is subject to service tax:

The department argued that the 1% volume discount provided to the respondent for furnishing strategic inventory reports to HP constitutes a commission for providing Business Auxiliary Service. The department issued a Show Cause Notice demanding service tax on this discount, asserting that it was not a trade or sales discount but a commission for providing market intelligence to HP. The original authority, however, dropped the proceedings, holding that the 1% discount was not consideration for rendering services and hence not taxable. The Tribunal upheld this view, concluding that there was no quid pro quo between the respondent and HP that would make the activity exigible to service tax under Business Auxiliary Service.

2. Whether the activities performed by the respondent fall under the definition of Business Auxiliary Service as per Section 65(19) of the Finance Act, 1994:

The department contended that the activities performed by the respondent, such as providing reseller sell-through and inventory reports, fall under the definition of Business Auxiliary Service, which includes services related to the promotion or marketing or sale of goods produced by the client. The Tribunal, however, found that the activities did not meet the criteria for Business Auxiliary Service. The relationship between the respondent and HP was determined to be on a principal-to-principal basis, not a principal-agent basis. Therefore, the 1% discount could not be regarded as commission earned in the transaction.

3. Whether the 1% discount should be included in the assessable value for the purpose of Central Excise duty or Service Tax:

The Tribunal emphasized that the same activity cannot be subjected to both Central Excise duty and Service Tax. The 1% discount had already been included in the assessable value for the purpose of Central Excise duty, as upheld by the Supreme Court in a previous case involving HP. The Tribunal reiterated that a value forming part of the assessable value for Central Excise duty cannot be considered part of the value of taxable service for Service Tax. This principle is based on the fundamental difference between the nature of excise duty (tax on production or manufacture) and service tax (tax on service).

4. Whether the relationship between the respondent and HP is that of principal-to-principal or principal-agent:

The Tribunal concluded that the relationship between the respondent and HP was that of principal-to-principal. The respondent was not acting as a commission agent or providing Business Auxiliary Service. The activities performed by the respondent, such as providing inventory reports, were part of their role as a distributor and did not constitute services rendered to HP. The Tribunal supported this conclusion by referencing previous decisions, including the case of M/s. Pratap Singh & Sons Vs Commissioner of Central Excise, Mumbai-I, which held that discounts given by the manufacturer to the distributor could not be treated as service charges.

Conclusion:

The Tribunal dismissed the department's appeal and upheld the original order, finding no grounds to interfere. The 1% volume discount received by the respondent from HP was not considered a commission for providing Business Auxiliary Service and was not subject to service tax. The relationship between the respondent and HP was determined to be on a principal-to-principal basis, and the 1% discount was included in the assessable value for Central Excise duty, not Service Tax.

← Previous Next →