2023 (7) TMI 200 - AT - Service Tax

Levy of Service Tax - business auxiliary service (BAS) - whether the amount paid by the respondents to overseas companies situated in Dubai and shown as commission in the shipping documents in relation to export of readymade garments by the respondents is liable to be taxed under business auxiliary service (BAS), as defined under section 65(19) of the Finance Act, 1994? - reverse charge mechanism. HELD THAT - A conjoint reading of all the clauses of the agreement leaves no manner of doubt that it is the overseas expenses incurred by the buyer that have to be deducted from the payment to be made by the buyer to the seller and this is limited to 12.5% of the invoice value. Wrong use of the word commission in the contract, particularly when the said amount has also been referred to as expenses in the same contract will not mean that commission has been paid by the seller. It is apparent from a conjoint reading of the various clauses of the aforesaid contract dated 15.04.2007 executed between Super Almas Trading and M/s. Sidh Designers Pvt. Ltd. that M/s. Sidh Designers, as seller, had agreed to sell the goods to Super Almas Trading, which has been described as the buyer, after deduction of expenses incurred by the buyer. Mere use of the word commission in the clause dealing with terms of payment would not mean that commission was paid by the seller. There is no third person who can be said to be acting an agent and the goods were undoubtedly sold on a principal to principal basis. What was actually deducted from the payment to be made by the buyer was the expenses incurred by the overseas buyer and not commission. The Commissioner, therefore, committed no error in concluding that commission was not paid by the foreign entity to the respondents. What was necessary was an examination of the terms of the contract and it was immaterial whether the contract was placed by the respondents during the course of investigation or in the reply filed to the show cause notices, for nothing turns on this, unless it was established by the department that the contract did not exist at all. The Commissioner was justified in dropping the demand proposed in the show cause notices - Appeal dismissed.

Summary

Issues Involved:
1. Taxability of amounts shown as "commission" in shipping documents under "business auxiliary service" (BAS).
2. Authenticity and interpretation of contracts between respondents and overseas entities.
3. Admissibility and impact of retracted statements.
4. Refund claims and the applicability of Section 11B of the Central Excise Act, 1944.

Summary:

1. Taxability of Amounts Shown as "Commission" Under BAS:
The core issue in all appeals was whether the amounts paid by the respondents to overseas companies in Dubai, labeled as "commission" in shipping documents, were taxable under "business auxiliary service" (BAS) as defined under Section 65(19) of the Finance Act, 1994. The show cause notices alleged that the respondents availed services of foreign commission agents who procured orders and ensured payments after deducting their commissions, which was reflected in the export invoices and shipping bills.

2. Authenticity and Interpretation of Contracts:
The respondents argued that the overseas entities were buyers, not commission agents, and the expenses incurred by these buyers were reimbursed, incorrectly termed as 'commission' in the show cause notices. The Commissioner examined the contracts and concluded that the overseas entities were buyers, not commission agents, and the relationship was on a principal-to-principal basis. The Commissioner found that the term 'commission' was used incorrectly in the documents, and these were actually reimbursements for post-shipment activities.

3. Admissibility and Impact of Retracted Statements:
The Commissioner also considered the retraction of a statement made by Sahdev Gupta, which was initially recorded under pressure. The retraction was found to be genuine and aligned with the terms of the contract. The Commissioner placed reliance on this retraction, noting that the statement made under duress should not hold evidentiary value.

4. Refund Claims and Section 11B of the Central Excise Act:
The respondents had previously filed Writ Petitions in the Delhi High Court for refund of amounts deposited under protest. The High Court allowed the refund, noting that the amounts were collected illegally as the transactions were not subject to service tax. The Supreme Court later remitted the matter to the Tribunal for reconsideration on merits, uninfluenced by the High Court's observations.

Conclusion:
The Tribunal, after reconsidering the appeals, upheld the Commissioner's orders, concluding that the amounts labeled as "commission" were actually reimbursements for post-shipment expenses and not subject to BAS. The Tribunal found no reason to interfere with the Commissioner's orders, dismissing the Department's appeals. The contracts and retracted statements were crucial in determining the nature of the transactions, leading to the conclusion that the overseas entities were buyers, not commission agents.