2010 (5) TMI 231 - AT - Service Tax

Stay- Business Auxiliary Service- The appellants M/s. AIA Engineering Ltd. are engaged in manufacture of castings and other articles of iron and steel. Demand under Business Auxiliary Services on difference in price in invoice raised by group company on appellant and higher value adopted for sale by appellant. Excise duty paid by group company adopting value at which goods sold by appellant to buyer. Sale value of appellant taken for excise duty purpose. Held that- profit made by appellant on sale of goods cannot be termed as commission or discount to make it liable to service tax. Prima facie service tax not demandable when excise duty paid on full value. pre-deposit waived.

Summary

Issues:
Prayer to dispense with pre-deposit of service tax and penalty under Finance Act, 1994.

Analysis:
The appellant, engaged in manufacturing, placed an order with a group company for goods due to inability to meet product demands. The group company supplied goods directly to the appellant's customers under a Central Excise invoice, with the duty paid based on the value charged by the appellant to customers. However, the group company invoiced the appellant at a lower price than what the goods were sold for, leading to proceedings alleging the price difference as commission subject to service tax. The Commissioner's order highlighted discrepancies in the transaction, indicating a direct sale from the group company to customers, not involving the appellant. Despite this, the Revenue did not dispute that the goods were sold to the appellant, and the group company paid Central Excise duty based on the appellant's sale value. The Tribunal found that since excise duty was paid on the full transaction value, the profit made by the appellant could not be considered commission or discount for service tax liability. Consequently, the Tribunal dispensed with the pre-deposit condition of duty and penalty, staying their recovery during the appeal.

This judgment primarily revolves around the interpretation of the transaction between the appellant and a group company supplying goods directly to the appellant's customers. The key contention was whether the profit earned by the appellant from selling these goods could be classified as commission subject to service tax. The Tribunal analyzed the transaction details, including invoicing discrepancies and Central Excise duty payment, to determine the nature of the sale. The decision to dispense with the pre-deposit condition was based on the finding that the excise duty paid on the full transaction value precluded the imposition of service tax on the appellant's profit margin. The judgment clarifies the tax liability in complex business arrangements involving multiple entities and the importance of accurate documentation and duty payment in determining tax obligations.