2014 (9) TMI 386 - AT - Service Tax

Business support services - nature of trade discount of 3% when goods are supplied by the seller to the purchaser directly - they purchase the goods from the village industry units and supply the same to the PSUs. However, the goods are directly consigned by the village industrial units directly to the PSUs so as to minimize the cost of transportation. However, the village industrial units raise the bill on the appellant and the appellant in turn raises the bill on the PSUs. The appellant gets the trade discount of 3% of the values of their purchase. The said discount is for the purpose of meeting the operational costs of the appellant which is a non-profit organization. Held that - Nevertheless the transaction undertaken by the appellant is one of purchase and sale of goods; in other words it is simple trading. Therefore, the trade margin obtained by the appellant is not in the nature of a commission. Therefore, we are of the view that the activity undertaken by the appellant cannot be classified as business support services attracting levy of service tax. However, as contended by the appellant that they were not able to produce before the adjudicating authority, the documentary evidences (purchase and sales invoices) in support of their claim that the activity undertaken was trading. Therefore, the matter has to go back to the adjudicating authority for fresh consideration. - matter remanded back.

Summary

Issues involved:
Service tax demand confirmation against the appellant by the adjudicating authority under Sections 70 & 77 of the Finance Act, 1994 for trade margins collected on goods sold to public sector undertakings.

Analysis:
The appellant, M/s. Khadi & Village Industries Commission (KVIC), challenged the Order-in-Original confirming a service tax demand of Rs. 59,97,592/- along with penalties. The appellant purchases goods from village industries and sells them through retail outlets and to public sector undertakings. The dispute arose regarding the trade margins collected by the appellant on sales to PSUs, which the department considered as falling under 'support service of business or commerce' liable for service tax. The appellant contended that they are not providing business support services but are engaged in trading activities to promote Khadi and Village Industries. They argued that the trade margins were part of purchase and sales transactions and not taxable services.

The appellant, being a non-profit organization, purchases goods from village industrial units and sells them without acting as a commission agent. The trade discount of 3% received by the appellant is utilized to cover operational costs. The Tribunal found that the appellant's activities were primarily trading and not business support services subject to service tax. However, since the appellant failed to provide documentary evidence during the adjudication process to support their trading claim, the matter was remanded back to the adjudicating authority for reconsideration. The appellant was directed to present purchase and sales invoices to establish that their transactions were indeed trading activities and not taxable services.

The Tribunal disposed of the appeal by remanding the matter for fresh consideration, allowing the appellant to produce necessary documentary evidence to support their contention that the trade margins were part of trading activities and not subject to service tax. The stay petition was also disposed of accordingly.