2024 (8) TMI 908 - AT - Service Tax

Liability to pay service tax under Reverse Charge mechansim - commission paid to foreign commission agents - case of the department is that appellant have made the payment of commission to foreign buyer against service of Commission Agent of foreign based service provider - HELD THAT - As per the documentary evidence such as invoice, it is clear that appellant has not made any payment directly to any commission agent whereas deduction was provided from the total value of the bill raised to foreign buyer of the goods. In these facts, it is nothing but discount extended by the appellant to the buyer of the goods. Even though some service provider is involved there is no relationship between the appellant and any foreign based service provider as there is no direct transaction made by the appellant with any of the commission agent. It is also a fact that there is no contract between the appellant and the foreign based service provider even if any arrangement of payment is there between the buyer of the goods and so called commission agent in the foreign country. For this reason, the demand of service tax on the commission shown in the invoice raised to the buyer cannot be made. Reliance placed in the case of Laxmi Exports vs. CCE ST 2020 (9) TMI 838 - CESTAT AHMEDABAD where it was held that ' since no service exists, the entire demand would not stand. Accordingly, the impugned orders are set-aside and the appeals are allowed with consequential relief, if any, in accordance with law.' Reliance placed in the case of Aquamarine Exports 2022 (2) TMI 361 - CESTAT AHMEDABAD , where it was held that ' the commission deducted by the appellant in the present case in the invoice is nothing but a trade discount and same is not subjected to service tax.' Thus, the issue is no longer res-integra and settled in favour of the assessee. Accordingly the demand of service tax on the commission deducted in the sale invoice of the appellant to their foreign buyer is not chargeable to service tax. Accordingly, the impugned order is set-aside. Appeal allowed.

Summary

Issues Involved:
1. Liability of service tax on commission paid to foreign commission agents under the reverse charge mechanism.
2. Nature of the commission shown in the invoices - whether it is a trade discount or commission subject to service tax.
3. Applicability of various judgments to the present case.
4. Limitation and suppression of facts.

Detailed Analysis:

1. Liability of Service Tax on Commission Paid to Foreign Commission Agents:

The appellant, a merchant exporter, was engaged in exporting textile goods and paid commission to foreign commission agents, claiming export incentives under the DEPB/duty drawback scheme. The department contended that service tax was payable under the reverse charge mechanism as per Section 66A of the Finance Act, 1994, on the commission amount shown in the invoices.

2. Nature of the Commission Shown in the Invoices:

The appellant argued that no payment was made to any commission agent and that the amount shown as commission in the invoices was actually a discount extended to the foreign buyer. The Tribunal found that the appellant did not make any direct payment to a commission agent; instead, the deduction was provided from the total value of the bill raised to the foreign buyer. This deduction was deemed to be a discount rather than a commission, and no service tax could be demanded on this amount.

3. Applicability of Various Judgments:

The Tribunal referred to several judgments to support its decision:
- Laxmi Exports vs. CCE&ST: The Tribunal held that the deduction shown as commission in the invoice was actually a trade discount and not subject to service tax. The department failed to provide evidence of a commission agent's existence or payment.
- Aquamarine Exports vs. CCE&ST: Similarly, the Tribunal found no commission agent involved and deemed the deduction a discount given to the foreign buyer.
- Duflon Industries Pvt. Limited vs. CCE, Raigad: The Tribunal held that the purchaser of goods could not be considered a commission agent and that the deduction was a trade discount.
- Hindustan Petroleum Corporation Limited: The Tribunal ruled that the relationship between the parties was on a principal-to-principal basis, and the discount was not subject to service tax.
- Prabhakar Marotrao Thaokar & Sons vs. CCE, Nagpur: The Tribunal found that the transaction was a sale on a principal-to-principal basis, and the discount could not be construed as a commission.

4. Limitation and Suppression of Facts:

The appellant argued that there was no suppression of facts as all figures were disclosed in the documents. The Tribunal agreed, stating that there was no malafide intent, and the extended period of demand could not be invoked. The judgments in J.P.P. Mills Pvt. Limited vs. CCE, Salem and Texyard International vs. CCE, Trichy supported this view.

Conclusion:

The Tribunal concluded that since no service existed, the demand for service tax could not be sustained. The deductions shown in the invoices were trade discounts, not commissions, and thus not subject to service tax. The impugned orders were set aside, and the appeals were allowed with consequential relief.