Laxmi Exports Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)
Facts-
The appellant is a merchant exporter engaged in the export of goods such as fabrics, sarees, dress material etc. to various countries.
During refund audit, it was observed that the appellant reflected commission amount ranging from 11% to 12.5% paid to commission agent located outside India, which is above 1% of the FOB value of the export goods. It was alleged that the foreign commission is chargeable to service tax under ‘Business Auxiliary Service’.
Appellant submitted that commission is nothing but the trade discount given to the buyer. No third person, as commission agent is involved in the transaction, therefore no service of commission agent is involved.
Conclusion-
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.
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, hence cannot be taxable.
The commission deducted by the appellant in the present case in the invoice is nothing but a trade discount and the same is not subjected to service tax.
FULL TEXT OF THE CESTAT JUDGEMENT
The brief facts of the case are that the appellants are merchant exporters and engaged in the export of goods such as fabrics, scarves, sarees, dress material etc to various countries. During the audit of the refund claims filed by the exporters, it was observed that in some of the shipping bills, the appellant have shown the commission amount to the tune ranging from 11% to 12.5% paid to the commission agent located outside India which is in excess of one percent of the FOB value of their export goods for which the said service has been used as stipulated under Notification No. 18/2009-ST dated 07.07.2009. Therefore, the enquiry has been initiated against the appellant on the ground that they have 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. During the enquiry, the enquiry officers have collected copies of shipping bills, bank realization certificates, balance sheets, copies of contract/ agreement made with their foreign commission agent, for the period of 2007-08 to 2011-12. The case of the department is that, 11% commission shown in the invoice which was deducted from the invoice value is nothing but commission paid to the commission agent towards export of goods therefore, the said 11%-12.5% commission is chargeable to service tax under the head ‘Business Auxiliary Service’-Foreign Commission Agent in terms of Section 65(19) of the Finance Act, 1994 and is taxable service vide Section 65(105) (zzb) of Finance Act, 1994 read with section 66A of the said Act under reverse charge mechanism. Accordingly, show cause notices were issued and the Adjudicating Authority confirmed the demand along with penalty and interest. Therefore, the appellants filed the present appeals. The issue in all the appeals is common.
2. Shri K.I. Vyas, learned Counsel appearing through video conference on behalf of the appellants at the outset submits that they have not appointed any commission agent for promotion of sale of goods exported by them. The goods were directly exported to foreign buyers and in the export invoices on FOB/CIF value, the amount equal to 11%-12.5% was shown as deduction under the head of commission. He submits that this commission is nothing but trade discount given to the buyer. No third person, as commission agent is involved in the transaction, therefore no service of commission agent is involved. There is no evidence that there is any commission agent exists and any commission is paid to him. Therefore, since no commission agent is involved, the appellant have not availed any service of commission agent. Accordingly, the amount of 11%-12.5% deducted in the invoice being sales discount, is not towards any service charge, hence, the entire demand is not tenable. In support of his submission, he placed reliance on the following judgments:-
(a) Duflon Industries Pvt. Limited vs. CCE, Raigad – 2017 (47) STR 335 (Tri. Mumbai)
(b) Wanbury Limited vs. CCE & ST, Raigad – 2019 (21) GSTL 154 (Tri. Mumbai)
3. He alternatively submits that even if the contention of the Revenue is accepted that 11%-12.5% deduction shown in the invoice, if at all treated as commission, even then no service tax is payable as the service tax if any payable is refundable in terms of Notification No. 41/2007-ST dated 06.10.2007 and 18/2009-ST dated 07.07.2009. The Adjudicating Authority has denied this exemption on the ground that the condition prescribed for allowing exemption has not been fulfilled by the appellants. He submits that there is no dispute that the goods have been exported and so called condition related to the export goods which has been established on the basis of sales invoice, shipping bills, appellant’s bank realization certificates therefore, the major criteria for allowing the exemption has been fulfilled. Since the exemption was claimed subsequent to the export goods, only due to this reason the department has raised demand. There may be some technical or procedural lapse, however for that lapse, exemption cannot be denied. He placed reliance on the following judgments:-
(a) CC (Prev.) Amritsar vs. Malwa Industries Limited 2009 (235) ELT 214 (SC)
(b) Sambhaji vs. Gangabai – 2009 (240) ELT 161 (SC)
(c) CC (Prev.) Mumbai vs. M. Ambalal & Company – 2010 (260) ELT 487 (SC)
(d) Share Medical Care vs. UOI – 2007 (209) ELT 321 (SC)
4. Learned Counsel further submits that since commission is related to
export of goods and same is in any case not taxable or even if taxable, the same is refundable therefore, the entire exercise is Revenue neutral. Since there is clearly a Revenue neutrality in the present case, the demand raised invoking extended period will not survive as there is no malafide intention to evade payment of service tax. In his support he placed reliance on the judgment in the case of P.P. Mills Pvt. Limited vs. CCE, Salem – 2016 (46) STR 317 (Tri. Chennai) and Texyard International vs. CCE, Trichy – 2015 (40) STR 322 (Tri. Chennai).
5. Shri H.K. Jain, learned Assistant Commissioner (Authorised Representative) appearing on behalf of the Revenue reiterates the findings of the impugned order. He submits that in the invoice, the appellant have clearly mentioned 11% commission therefore, the same falls under the category of Business Auxiliary Service and the same is taxable under reverse charge mechanism under Section 66A of the Finance Act, 1994. He placed reliance on the following judgments:-
(a) Sulax Corporation vs. CCE, Bangalore – 2003 (160) ELT 443 (Tri. Bang.)
(b) CCE, Surat vs. Holy Creations Pvt. Limited – 2011 (263) ELT 158 (Tri. Ahmd.)
(c) Prannoy Roy vs. The Deputy Commissioner of Income Tax & Ors. – dated 04 May 2018 (Hon’ble High Court of Delhi)
(d) Olympia Paper & Stationery Stores vs. Assistant Commissioner of Income Tax, ITAT – 24 March 1997.
6. We have heard both sides and perused the record. The issue involved is that 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. In this regard, we carefully gone through the export documents such as shipping bills, export invoice of appellant, bank realization certificate. The sample copies of all the three documents are scanned below:-
