2023 (10) TMI 997 - AT - Service Tax

Nature of Activity - Payment of 'Address Commission' against 'Chartering of Ships' - Business Auxiliary Service (BAS) or Discount - Amount paid to foreign companies as per Section 66A of the Finance Act. The argument of the Department is that the discounts from the Hire Charges were allowed by the Appellant only to promote their business and therefore, it should be treated as a commission and leviable to service tax under the category of Business Auxiliary Service (BAS). HELD THAT - It is observed that in chartering business as a normal trade practice, the charterer is allowed a discount from the hire charges payable by them and the net hire charges is received by the ship owner. Thus, for all practical purposes, the charter is given a discount by the owner on the hire charges and no remittance is being made by owner of the ship i.e. ASL to charters. As the Address Commission was not paid towards rendering of any taxable service, no service tax is payable on Address Commission as the same is in the nature of discount and not a payment for provision of any taxable service. It is a settled principle of law that service tax is leviable only on consideration received for provision of service. When there is no evidence to substantiate the allegation that the discount was offered towards rendering of any service, no service tax is payable on those discounts - the demand is not sustainable and set aside the same. As the demand itself is not sustainable, the question of charging interest or imposing penalty does not arise. Appeal allowed.

Issues involved:
The issues involved in the judgment are the liability of the Appellant to pay service tax on the 'Address Commission' paid to foreign companies under the category of 'Business Auxiliary Service' (BAS) and whether such commission should be treated as a discount or a payment for provision of taxable service.

Summary:

Issue 1: Liability to pay service tax on 'Address Commission' paid to foreign companies
The Appellant, owners of ships engaged in providing ships on hire basis, were issued a show cause notice demanding service tax on the 'Address Commission' paid to foreign companies. The Commissioner Service Tax confirmed the demand, alleging non-payment of service tax as per Section 66A of the Finance Act. The Appellant contended that the 'Address Commission' is a discount customary in the shipping industry and not a payment for any specific service. They argued that no remittance was made outside India for the 'Address Commission', hence, no liability for service tax arises as per Section 66A.

Issue 2: Treatment of 'Address Commission' as discount or payment for taxable service
The dispute centered around the nature of the 'Address Commission' paid to charterers of ships. The Appellant claimed it to be a discount passed on to charterers to promote their business, while the Adjudicating Authority viewed it as an incentive taxable under 'Business Auxiliary Service' (BAS). The Tribunal observed that 'Address Commission' is a payment made by vessel owners to charterers, not for any specific service but as a reduction in freight rate. As no remittance was made to foreign charterers, the Tribunal held that no service tax is payable on 'Address Commission' as it is a discount, not a payment for a taxable service.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal of the Appellant, as the demand for service tax on 'Address Commission' was deemed unsustainable. It was held that since the 'Address Commission' was not paid towards any taxable service provision, no service tax liability arises. Therefore, the question of charging interest or imposing penalties did not arise. The judgment was pronounced on 19th October 2023.

This summary provides a detailed overview of the judgment, highlighting the key issues involved and the Tribunal's decision on each issue.

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