2015 (12) TMI 84 - AT - Service Tax

Demand of service tax - returned / rejected services - In respect of the Commission, originally received and subsequently rejected, the appellant did not pay any service tax - Business Auxiliary service - Commission agent franchisee service - Held that - assessee was initially paid the commission and the subsequent rejection of the said commission has to be treated as penal in character in which case it has to be held as if the appellant has received the service consideration. However, we find no merit in the above contention of the Revenue. The said rejection of commission is only in respect of those services which were not fully completed by the appellant. The Commission is to be received by the assessee only on full completion of the services. There is also no indication in the agreement so as to show that the rejection commission is penal in character. At this stage, we also take note of the Hon ble Punjab & Haryana High Court decision in the case of Commissioner of Central Excise and Service Tax, Jallandhar v. Janta Travels Pvt. Ltd. reported in 2008 (8) TMI 187 - PUNJAB AND HARYANA HIGH COURT wherein it was held that the service of air travel agent having been provided but consequently ticket having been cancelled and the Commission returned, is required to be treated as if no service was rendered. The ratio of the above decision is fully applicable to the facts of the present case - Decided in favour of assessee.

Summary

Issues:
1. Liability to pay service tax on rejected commission for services not fully completed.

Analysis:
The judgment revolves around the issue of whether the appellant, a commission agent franchisee, is liable to pay service tax on the rejected commission for services not fully completed. The appellant was registered with the Service Tax Department for payment of service tax under the category of business auxiliary service. The appellant was paid commission on the value of services at the initial stage, but if subsequent steps were not completed or did not result in a deal, the commission was rejected. The Revenue initiated service tax proceedings against the appellant, claiming that the rejected commission should be taxed, resulting in the demand of duty, interest, and penalties.

The Tribunal analyzed the situation and observed that the rejection of commission was only for services not fully completed by the appellant. The commission was to be received only upon full completion of services, indicating that no consideration was received for incomplete services. The Tribunal referred to a decision of the Hon'ble Punjab & Haryana High Court, which held that when a service is provided but subsequently canceled, the commission returned should be treated as if no service was rendered. Applying this principle to the case at hand, the Tribunal found no merit in the Revenue's argument that the rejected commission should be treated as penal in character. Consequently, the impugned order demanding service tax, interest, and penalties was set aside, and the appeal was allowed in favor of the appellant, granting consequential relief.

In conclusion, the Tribunal ruled that the appellant was not liable to pay service tax on the rejected commission for services not fully completed, as no consideration was received for incomplete services. The decision was supported by the interpretation of relevant legal principles and a precedent from the Hon'ble Punjab & Haryana High Court, emphasizing that the commission for incomplete services should not be treated as if the service was provided.