2020 (9) TMI 838 - AT - Service Tax

Reverse Charge mechanism - Business Auxiliary Service - Foreign Commission Agent Service - allegation that appellant neither obtained service tax registration nor paid the service tax on the services received by them from their foreign commission agent to whom commission of 11%-12.5% was passed on - whether there is any commission paid by the appellant to Commission Agent in relation to export of their goods exists and whether that commission is liable to service tax under the head Business Auxiliary Service? - time limitation. HELD THAT - It is seen that against the C F value shown is sales value in the invoice, the amount equivalent to 11%-12.5% was shown as deduction under the head commission and therefore, the net invoice value is the value after deduction of said 11%-12.5%. As per the invoice, 11%-12.5% commission was extended to the foreign buyer of the goods. Since there is transaction of sale and purchase between the appellant and buyer of the goods, whatever value shown in the invoice is a sale value and the deduction shown is nothing but discount given by the exporter to the foreign buyer. As per the bank realization certificate of exporter, in appendix 22A, the amount after deduction of 11%-12.5% which was shown in column 12. Admittedly, in the entire transaction only two persons are involved, one the appellant as exporter of the goods and second the buyer of the goods. In the sale of goods, in case of service of commission agent, if involved, there has to be third person as service provider to facilitate and promote the sale of exporter to a different foreign buyer. In the present case, there is absolutely no evidence that this 11% is paid to some third person as commission. There is no contract of commission agent service with any of the commission agent, there is no person to whom payment of commission was made therefore, it is clear that no service provider i.e. foreign commission agent exists in the present case and no service was provided by any person to the appellant. In the absence of any provision of service, no service tax can be demanded. The trade discount even though in the name of commission agent was given by the appellant to the foreign buyer, by any stretch of imagination cannot be considered as commission paid towards commission agent service, hence cannot be taxable. Time Limitation - HELD THAT - On merit itself as no service exists, and secondly, the appellant have shown all the figures and data in the documents and 11%-12.5% commission in the invoice, shipping bills and bank realization certificate, therefore, there is absolutely no suppression of facts on their part - Since undisputedly, the amount of commission considered by the Revenue as against Business Auxiliary Service is related to export of goods, the same in any case will not be taxable. For this reason also no malafide can be attributed to the appellant. Hence longer period of demand shall not be invoked. Since no service exists, the entire demand would not stand - Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the 11%-12.5% commission shown in the invoice is a trade discount or a commission paid to a commission agent.
2. Whether the commission, if considered as such, is liable to service tax under the Business Auxiliary Service.
3. Applicability of exemption under Notification Nos. 41/2007-ST and 18/2009-ST.
4. Limitation period for raising the demand.

Detailed Analysis:

1. Nature of the 11%-12.5% Deduction:
The appellants argued that the 11%-12.5% deduction shown in the invoices is a trade discount given to the buyers and not a commission paid to a commission agent. They asserted that no third party was involved in the transaction, and thus, no service of a commission agent was availed. The Tribunal examined the export documents, including shipping bills, export invoices, and bank realization certificates, and found that the deduction was indeed a trade discount. The Tribunal noted that there was no evidence of a commission agent's involvement, as no third party facilitated the sale. The deduction was merely a discount extended to the foreign buyer, not a commission for services rendered by a commission agent.

2. Liability to Service Tax:
The Revenue contended that the 11%-12.5% deduction was a commission liable to service tax under the Business Auxiliary Service, taxable under the reverse charge mechanism per Section 66A of the Finance Act, 1994. However, the Tribunal concluded that since no commission agent was involved and no service was provided by any third party, the deduction could not be considered a commission subject to service tax. The Tribunal cited previous judgments, including Duflon Industries Pvt. Limited vs. CCE, Raigad, which supported the view that such deductions are trade discounts and not commissions.

3. Exemption under Notification Nos. 41/2007-ST and 18/2009-ST:
The appellants alternatively argued that even if the deduction was considered a commission, it would be exempt from service tax under the mentioned notifications. The Adjudicating Authority had denied this exemption due to procedural lapses. However, since the Tribunal determined that the deduction was a trade discount and not a service charge, the question of exemption under these notifications did not arise, and thus, this issue was not further discussed.

4. Limitation Period:
The appellants argued that the demand was time-barred as there was no suppression of facts. They had disclosed all relevant details in their documents, including invoices, shipping bills, and bank realization certificates. The Tribunal agreed, noting that the appellants had transparently shown the deductions and there was no intent to evade tax. Consequently, the extended period for raising the demand was not applicable. The Tribunal cited judgments in J.P.P. Mills Pvt. Limited vs. CCE, Salem, and Texyard International vs. CCE, Trichy, which supported the appellants' case on the limitation issue.

Conclusion:
The Tribunal concluded that no service existed warranting the demand for service tax. The entire demand was set aside, and the appeals were allowed with consequential relief in accordance with the law. The order was pronounced on 22.09.2020.

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