2023 (10) TMI 810 - AT - Service Tax

Non-payment of service tax - business auxiliary service - receipt of sales commission in the guise of dealer incentives - agreement was on a principal to principal basis or not - HELD THAT - For both the pre-negative period and the post negative period the issue stands decided in favour of the appellant by decision of the Tribunal in Rohan Motors 2020 (12) TMI 1014 - CESTAT NEW DELHI - the appellant cannot be termed as an agent of the company. The Commissioner was, therefore, not justified in holding that the appellant had received commission which would be subject to the levy of service tax. Thus, the incentives received by the appellant from the company cannot be termed as commission. The impugned order dated 05.01.2015 passed by the Commissioner would, therefore, have to be set aside and is set aside - appeal allowed.

Issues Involved:
1. Nature of the relationship between the appellant and the company.
2. Classification of the received amount as sales commission or dealer incentives.
3. Applicability of service tax on the received amount under "business auxiliary service".

Summary:

1. Nature of the Relationship:
The appellant claimed to be an authorized dealer of Tractors and Farms Equipment Ltd., selling products on a principal to principal basis. The Commissioner concluded otherwise, suggesting a principal-agent relationship based on the agreement terms, particularly Clause 16. However, the Tribunal found that a conjoint reading of all the clauses of the agreement revealed it to be a dealership agreement. The agreement granted the dealer a non-exclusive right to purchase for resale within a specified territory, with the dealer required to make applicable payments of sales tax CST/VST/VAT. The duties described did not indicate that the appellant was rendering service as an agent of the company nor "business auxiliary service" u/s 65 (19) (i) of the Finance Act.

2. Classification of Received Amount:
The audit noted that the appellant received Rs. 5,03,25,491/- from the company through credit notes for sales of tractors, which the department alleged was sales commission disguised as dealer incentives. The appellant contended it was dealer incentives, not sales commission. The Tribunal supported this view, citing the Rohan Motors case, where it was held that incentives received under similar circumstances could not be treated as consideration for any service. The Tribunal emphasized that the agreement indicated a principal to principal basis relationship, not that of an agent.

3. Applicability of Service Tax:
The Commissioner confirmed the demand for service tax under "business auxiliary service." However, the Tribunal found this conclusion erroneous, noting the absence of reasoning for classifying the relationship as principal-agent. For the post-negative list period, the Tribunal observed that the show cause notice did not mention section 65B(44) of the Finance Act, making the demand unsustainable. The Tribunal reiterated that incentives received could not be subject to service tax, aligning with previous decisions in Rohan Motors and other relevant case law, such as Ahmedabad Stamp Vendors Association vs. Union of India, which distinguished between 'commission' and 'discount.'

Conclusion:
The Tribunal concluded that the incentives received by the appellant from the company could not be termed as commission and were not subject to service tax under "business auxiliary service." The impugned order dated 05.01.2015 was set aside, and the appeal was allowed.

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