2012 (9) TMI 491 - AT - Service Tax

Commission agent - service tax demand and equivalent amount of penalty imposed u/s 78 - Held that - Considering the agreement entered between company and applicant it is concluded the applicant was appointed as a sole distributor for marketing the products in the state of Sikkim on behalf of them. From a conjoint reading of clause 11 and 12 along with clause 7 of the said agreement, prima facie, it would be difficult to appreciate that the relations between M/s.YBL and the applicant are that of a seller and purchaser as if the beer is sold at a price to the applicant and the applicant ultimately sales to retailers, then in that event, the applicant is eligible to a discount on the invoice itself or on some conditions subsequent to the event of sale. Besides, clause 12 indicates that the applicant is required to collect the sale proceeds from the retail sale of the goods and to deposit the same to company s Bank account Scrutinizing the balance sheet and ledger maintained by company wherein the amount had been paid to applicant was shown as commissions on sales and sales promotion expenses, a fact not controverted by the applicant. In these circumstances, the applicant could not able to make out a prima facie case for waiver of entire amount of duty and penalty - assessee not pleading on financial hardship direction to deposit 25% of the Service Tax involved in this case within a period of 8(eight) weeks from the date of communication of this order.

Summary

Issues:
Application for waiver of Service Tax and penalty under the Finance Act, 1994 due to alleged failure to discharge Service Tax on commissions received from a company.

Analysis:
The case involved an application seeking waiver of Service Tax and penalty imposed under the Finance Act, 1994, amounting to Rs.1,01,52,033 and Rs.5,000 respectively, based on the allegation that the applicant failed to discharge Service Tax on commissions received from a company over a specific period. The applicant argued that they were appointed as distributors on a principal to principal basis and were not commission agents for the company. They claimed that they had discharged sales tax and were not required to pay VAT. The applicant also contended that the demand was time-barred as all relevant facts were known to the department. On the other hand, the Revenue argued that the commissions received were for sales, not purchases, as evidenced by the agreement terms and the flow of funds. The Revenue highlighted discrepancies in the transactions and lack of evidence of sales tax payment by the applicant to establish retail sales. The Tribunal examined the agreement between the parties, which indicated that the applicant was appointed as a sole distributor without a profit margin, and was required to deposit sale proceeds directly into the company's bank account. The Tribunal found that the relationship between the parties was not that of a seller and purchaser, considering the terms of the agreement and the flow of funds. The Tribunal noted a significant difference in cash flow between the parties, supporting the Revenue's argument that the applicant acted as a commission agent. The Tribunal emphasized the importance of maintaining the interest of Revenue and cited relevant legal precedents in directing the applicant to deposit 25% of the Service Tax within a specified period, failing which the appeal would be dismissed. The Tribunal granted a waiver for the balance amount of Service Tax and penalties subject to compliance with the deposit requirement.

This detailed analysis of the judgment provides an overview of the issues involved, the arguments presented by both parties, the Tribunal's examination of the agreement terms, the findings regarding the nature of the relationship between the parties, the significance of cash flow analysis, and the Tribunal's decision to direct the applicant to deposit a portion of the Service Tax while waiving the remaining amount.