Deduction given in sales invoice being discount not taxable under Business Auxiliary Service

J B Exports Vs C.C.E. & S.T. (CESTAT Ahmedabad)

CESTAT Ahmedabad held that deduction given in sales invoice being discount, even though under nomenclature of commission, cannot be treated as commission for the purpose of levy of Service Tax under ‘business Auxiliary Service’.

Facts- The appellant are engaged in export of goods to foreign buyers. While raising the invoices in the sale invoice the appellant have deducted 10%/12.5% as commission and after deduction of the said commission the amount was realized against the exports proceeds. The case of the department is that since the deduction from the invoice value was made in the nomenclature of commission. It is a commission paid to the foreign buyer and which is chargeable to Service Tax as commission agent service under ‘Business Auxiliary Service’. In appeal No.ST/11773/2016 apart from the above common issue in all the appeals, one more issue is involved i.e. whether the appellant is liable to pay service tax on the GTA service availed in respect of goods actually exported.

Conclusion- In the present case no independent sales commission agent is involved. Therefore, even though the deduction was made in the invoice under nomenclature of commission but the same is not in the nature of commission, but it is only a discount and the sales discount cannot be termed as a service charge.

Held that merely by mention of commission or any other term, whereby the deduction was given in the sale invoice, the same cannot be treated as commission for the purpose of levy of Service Tax under ‘business Auxiliary Service’. Accordingly, the demand of service tax on the commission shall not sustain.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The brief facts of the case are that the appellant are engaged in export of goods to foreign buyers. While raising the invoices in the sale invoice the appellant have deducted 10%/12.5% as commission and after deduction of the said commission the amount was realized against the exports proceeds. The case of the department is that since the deduction from the invoice value was made in the nomenclature of commission. It is a commission paid to the foreign buyer and which is chargeable to Service Tax as commission agent service under ‘Business Auxiliary Service’. In appeal No.ST/11773/2016 apart from the above common issue in all the appeals, one more issue is involved i.e. whether the appellant is liable to pay service tax on the GTA service availed in respect of goods actually exported.

2. Shri H.D. Dave, Learned Counsel appearing on behalf of the appellant submits that on the identical facts this Tribunal has passed various judgments that merely by mentioning commission in the sales invoices. It does not amount to commission chargeable to service tax, whereas, the same is sales discount, therefore, the same is not chargeable to Service Tax. As regard the service tax demand on GTA in respect of appeal No.ST/11773/2016, he submits that since the GTA service was used for export of goods, the said service even though taxable at the initial stage of availing the service but used for export of goods and eligible for exemption under Notifications 18/2009-ST & 31/2012-ST therefore, the demand is not sustainable on this ground.

2.1 Without prejudice he further submits that the demand was raised by invoking extended period. But since the appellant have been declaring commission in the sales invoices which is meant for export the same was known to the department while processing the export consignment. Therefore, there is no suppression of the fact on the part of the appellant. Hence, the demand is also not sustainable on ground of time bar. In support of his above submissions, he placed reliance on the following judgments:

• Laxmi Exports Vs. CCE 2021 (44) GSTL 284 (T)
• Aquamarine Exports Vs. CCE&ST 2022 (2) TMI 361 – CESTAT
• Duflon Industries Pvt. Ltd. Vs. CCE 2017 (47) STR 335 (T)
• Hindustan Petroleum Corporation Ltd. Vs. CCE 2019 (24) GSTL 569 (T)
• Prabhakar Marotrao Thaokar & Sons Vs. CCE 2019 (20) GSTL 294 (T)
• Balaji Enterprises Vs. CCE 2020 (33) GSTL 97 (T)
• CCE Vs. Swapnil Asnodkar 2018 (10) GSTL 479 (T)
• United Telecoms Ltd. Vs. CST 2011 (22) STR 571 (T)
• Wanbury Ltd. Vs. CCE 2019 (21) GSTL 154 (T)
• Prudential Process Mgmt. Service (I) (P) Ltd. Vs. CST
• Texyard International Vs. CCE 2015 (40) STR 322 (T)
• Chiripal Polyfilms Ltd. Vs. Commr. of C. Ex. & S.T. Vadodara-I 2022 (67) GSTL 454 (Tri.-Ahmd.)
• Calibre Chemicals Pvt. Ltd. Vs. Commr. of C. Ex. & S.T., Daman 2021 (52) GSTL 618 (Tri.-Ahmd.)
• Commr of Cus. & C.Ex., Hyderabad-iv Vs. Pokarna Ltd. 2013 (292) ELT 316 (Tri.-Bang.)
• T.V. Sundram Iyengar& Sons Pvt. Ltd. Vs. Commr. of CGST & C. Ex. Madurai 2021 (55) GSTL 144 (Mad.)
• Monnet Ispat & Energy Ltd. Vs. Commr. of C.Ex. Cus. & S.T. Raipur 2015 (39) STR 434 (Chattisgarh)

3. Shri Tara Prakash, Learned Deputy commissioner (AR) appearing on behalf of the revenue reiterates the findings of the impugned order.

4. We have carefully considered the submission made by both the sides and perused the records. We find that the appellant while issuing the sales invoices for export of goods shown 10%/12.5% as commission in the invoice, which was deducted from the gross sale price of the goods Since this 10%/12.5% was shown as commission in the invoice, department has contended that the same is a commission paid to the foreign buyer. Hence, the appellant is liable to pay the service tax on the commission under ‘Business Auxiliary Service’ under reverse charge mechanism in terms of Section 66A read with Rule 2(1)(d)(iv) of Service Tax Rules, 1994. To understand the transactions, we have perused the invoice, some sample export invoices are scanned below:

From the above sample invoices, it can be seen that the invoice was raised to the buyer of the goods and in that invoice the appellant have deducted 10%/12.5% showing it as a commission.

4.1 In our considered view, if any amount in the sale invoice is deducted by whatever name, the same is nothing but discount given during the course of sale of goods. In the present transaction only appellant being a seller of the goods and foreign buyer of the goods are involved. Therefore, relationship between the appellant and the foreign buyer is of seller and buyer of the goods and the transaction is purely of sale of goods. Even, though the word ‘commission’ is mentioned in invoice and the same was deducted from the sale price, it is nothing but extended the discount to the buyer. The commission shall be chargeable to the Service Tax only in case, if there is a third party who has independently provided the commission agent service in relation to sales promotion and related service. In the present case no independent sales commission agent is involved. Therefore, even though the deduction was made in the invoice under nomenclature of commission but the same is not in the nature of commission, but it is only a discount and the sales discount cannot be termed as a service charge. This issue has been considered in various judgments by this Tribunal some of the judgments are reproduced below:

• In the case of Laxmi Exports (Supra) this Tribunal on the absolutely identical issue decided matter as under:

“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:-

7. From the above invoice, Shipping Bill and Bank Certificate, 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 (scanned above), the amount after deduction of 11%-12.5% which was shown in column 12. The heading of column is ‘commission/discount paid to foreign buyer, agent’. In the entire enquiry, the department has not brought any tip of evidence to show that there is a commission agent exists in this transaction and any amount of commission is paid to such person. 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. This issue has been considered time and again by this Tribunal. In the case of Duflon Industries Pvt. Limited v. CCE, Raigad (supra) and the Tribunal held as under :

“6. The entire issue revolves around the fact whether clearances effected by appellant on goods which exported by them to DEL is of actual sale or sale based on commission basis. If it is direct sale to DEL then appellant has case and if it is held that it is not direct sale, but the sale based on commission basis then appellant has no case. For this we have to examine the agreement dated 16-5-2001 entered between appellant and DEL. The agreement is enclosed to the appeal memorandum and on perusal of the same we find that the agreement sets out clauses about the sale of goods by appellant to DEL. The said agreement speaks of purchasing of various items from appellant by the said DEL and it also records that appellant shall allow flat deduction/commission of 8% on the invoice value to DEL. We perused the invoice raised by appellant to DEL and find that the invoice is for the sale of the goods and 8% commission is indicated as has been given on the total invoice value. It is also seen invoice value has been reduced by 8% shown as commission, is against the sale of the goods to DEL. We agree with the contentions raised by Learned Counsel that the purchaser of the goods cannot be considered as a “commission agent” as the deduction/commission is for the goods sold. There is nothing on record to show that the said DEL was appointed as “commission agent” for the sale of the goods of the appellant to third parties. It may be that DEL might purchase the goods from the appellant and sells the same in Europe. The reliance placed by Learned DR and adjudicating authority on the clause of agreement that “DEL shall increase the market share of appellant’s products” to conclude that DEL was a commission agent, seems to be erratic reading of the clauses of agreement and this itself does not amount DEL has been appointed as “commission agent”. The amount indicated on the invoice and recorded in the accounts as commission, in our view, will not attract tax under reverse charge mechanism. We also find strong force in the contentions raised by Learned Counsel that in order to tax this account as a commission, there has to be necessarily three parties, seller, purchaser and a person who negotiates such transaction. From the records it is very clear that DEL had not negotiated purchase or sale on behalf of appellant or their customers; to our mind the deduction/commission is nothing but trade discount. In view of the factual position as ascertained from the records, we hold that the impugned orders demanding service tax under reverse charge mechanism from appellant are unsustainable and liable to be set aside.”

In the matter of Hindustan Petroleum Corporation Limited – 2019 (24) G.S.T.L. 569 (Tri. – Del.), identical issue was decided wherein the HPCL, under an agreement for sale to retail customer purchased CNG from Indraprasth Gas Limited, the HPCL received consideration. The Tribunal held that the said consideration is in the nature of discount as agreement between HPCL and IGL is not on principal to agent basis but on principal to principal basis therefore, HPCL is not liable to service tax under the head of Business Auxiliary Service. In the case of Prabhakar MarotraoThaokar& Sons v. CCE, Nagpur – 2019 (20) G.S.T.L. 294 (Tri. – Mumbai), the department raised demand on discount given by manufacturer to the appellant who is a wholesale dealer while supplying goods for further distribution. The department alleged that such discount is basically sales commission and liable to service tax under the category of Business Auxiliary Service under Section 65(105) of Finance Act, 1994. The Coordinate Bench at Mumbai held that the transaction between appellant and wholesale dealer is sale on principal to principal basis. The discount passed on by the manufacturer cannot be construed as commission and same is not subject matter to levy of service tax.

In the present case also, identical nature of transaction involved therefore, applying the ratio of the above judgment, the commission deducted by the appellant in the present case in the invoice is nothing but a trade discount and same is not subjected to service tax.

8. The appellant made alternative submission that if at all the commission shown in the invoice is considered as service charges and the service tax payable/paid thereon is refundable to them as per Notification Nos. 41/2007- T., dated 6-10-2007 and 18/2009-S.T., dated 7-7-2009 even though some procedural lapse, if any, has occurred in the present case. Since we have already decided that the amount of 11%-12.5% shown as deduction in the invoice is not towards any service charges but it is in the nature of trade discount, there is no question of involving exemption of Notifications 41/2007-S. T., dated 6-10-2007 and 18/2009-S. T., dated 7-7-2009. Therefore, we are not discussing this issue.

9. As regards the limitation raised by the appellant, we agree with the appellant that firstly, 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 mala fide can be attributed to the Hence longer period of demand shall not be invoked. In this regard, the judgment relied upon by the appellant in the case of J.P.P. Mills Pvt. Limited v. CCE, Salem (supra) and Texyard International v. CCE, Trichy (supra) support their case. Therefore, the demand for the extended period is not sustainable on limitation also.

10. As per our above discussion and findings, we are of the clear view that since no service exists, the entire demand would not stand. Accordingly, the impugned orders are set aside and the appeals are allowed with consequential relief, if any, in accordance with law.”

• The similar issue was taken up by this Tribunal in the case of Duflon Industries Pvt. Ltd. (Supra) wherein the following order was passed:

“5 .We have considered the submissions made at length by both sides and perused the records.

6. The entire issue revolves around the fact whether clearances effected by appellant on goods which exported by them to DEL is of actual sale or sale based on commission basis. If it is direct sale to DEL then appellant has case and if it is held that it is not direct sale, but the sale based on commission basis then appellant has no case. For this we have to examine the agreement dated 16-5- 2001 entered between appellant and DEL. The agreement is enclosed to the appeal memorandum and on perusal of the same we find that the agreement sets out clauses about the sale of goods by appellant to DEL. The said agreement speaks of purchasing of various items from appellant by the said DEL and it also records that appellant shall allow flat deduction/commission of 8% on the invoice value to DEL. We perused the invoice raised by appellant to DEL and find that the invoice is for the sale of the goods and 8% commission is indicated as has been given on the total invoice value. It is also seen invoice value has been reduced by 8% shown as commission, is against the sale of the goods to DEL. We agree with the contentions raised by learned Counsel that the purchaser of the goods cannot be considered as a “commission agent” as the deduction/commission is for the goods sold. There is nothing on record to show that the said DEL was appointed as “commission agent” for the sale of the goods of the appellant to third parties. It may be that DEL might purchase the goods from the appellant and sells the same in Europe. The reliance placed by learned DR and adjudicating authority on the clause of agreement that “DEL shall increase the market share of appellant’s products” to conclude that DEL was a commission agent, seems to be erratic reading of the clauses of agreement and this itself does not amount DEL has been appointed as “commission agent”. The amount indicated on the invoice and recorded in the accounts as commission, in our view, will not attract tax under reverse charge mechanism. We also find strong force in the contentions raised by learned Counsel that in order to tax this account as a commission, there has to be necessarily three parties, seller, purchaser and a person who negotiates such transaction. From the records it is very clear that DEL had not negotiated purchase or sale on behalf of appellant or their customers; to our mind the deduction/commission is nothing but trade In view of the factual position as ascertained from the records, we hold that the impugned orders demanding service tax under reverse charge mechanism from appellant are unsustainable and liable to be set aside.

7. In view of the foregoing discussion, the impugned orders are set aside and the appeals are allowed.”

• Identical issue in the case of Hindustan Petroleum Corporation Ltd. (supra) was considered as under:

“6. We have also examined the terms of the agreement between the IGL and the appellant. At the outset, we note that similar set of facts in respect of appellant’s own case in Mumbai and for IOCL with IGL has been a subject matter of decisions of this Tribunal. The said decisions relied upon by the appellant are relevant to decide the present case also. In the case of IOCL (supra), the Tribunal observed as under :-

“7. On careful consideration of the submissions made by both the sides, we find that on identical set of facts and on the basis of the identical agreement, a case was booked against M/s. Bharat Petroleum Corpn. Ltd. (supra), wherein this Tribunal observed as under :-

“11. As per the said provisions, the service provider provides service to his client for marketing or promotion of the goods to third party. In these cases, appellants themselves are buying goods from M/s. MGL. Therefore, the question of rendering the service to the client for marketing of the goods does not arise. We further find that MGL is discharging VAT/ST liability while selling the CNG to appellants. Although the RSP is fixed but it does not mean that the profit margin shall be constituted as commission for rendering the service. On examination, it is found that all the transactions shown by the appellants are done on principal to principal basis. Moreover, the appellants are selling these CNG on payment of VAT/ST to the buyers. There is no commission component that have been received by the appellants from M/s. MGL. FOR e.g., if the appellant is receiving goods from MGL at 100/- per kg. including VAT but these goods are sold by the appellant to customers on RSP fixed at ` 102/- per kg., that does not mean that the appellants are receiving commission of ` 2/- from MGL. In fact the appellants are also paying VAT on ` 2/- also. It is also a fact that the appellants are not receiving any commission from M/s. MGL. Therefore, it cannot be presumed that appellants are rendering any service to MGL. Moreover, the case law relied upon by the counsel in the case of Bhagyanagar Gas Ltd. (supra) also supports the cases in hand, wherein this Tribunal held that mere mention in the agreement the trade margin as commission on which VAT/ST has been paid would not evidence the fact of rendering service. The contention of the Ld. AR that the private parties are paying Service Tax under the category of Business Auxiliary Service on the same activity, therefore, the appellants are required to pay Service Tax is not acceptable as in the case of private parties, the invoices on the customers were raised by M/s. MGL directly and the private parties are receiving commission and there is no transaction on principal to principal basis.”

8. We further find that as per the agreement, relationship between the parties had been defined in Clause 14.2 of the agreement, which is reproduced as under :-

“14.2 During the term of this agreement, IOCL shall not hold itself out as an agent of IGL. It is clearly understood that this agreement is on principal to principal basis and IGL shall not be liable for the acts of commission or omission of IOCL or its employees, personnel or representatives.“

9. As per the agreement, the transaction done between the parties is on principal to principal basis. Therefore, relying on the decision of this Tribunal in the case of Bharat Petroleum Corpn. Ltd. (supra), we hold that the demands against the appellants are not sustainable under the category of “Business Auxiliary Service” for the amount received by the appellant as commission as all the transactions have been done between the appellant and IGL on principal to principal basis.”

7. In the present case, the facts are almost identical. The transaction between IGL and the appellant are on principal to principal basis. The appellant has been prohibited from holding himself as an agent of IGL. The agreement categorically states that the same is on principal to principal basis.

8. Considering the ratio of the decisions of the Tribunal referred to above, we find that service tax liability under BAS cannot be sustained against the Accordingly, the impugned orders are set aside. The appeals are allowed.”

• In the case of Prabhakar Marotrao Thaokar & Sons (supra) the Mumbai Tribunal has passed the following order:

“4. On careful consideration of the submissions made by both the sides and on perusal of records. We find that as per the agreement particularly the following clause :

“5. The Wholesale Distributor shall sale the goods at the price as determined by the Manufacturer. It shall not charge anything extra over and above the said price. The Manufacturers shall not be responsible for any loss of goods after it leaves the factory premises. Wholesale Distributor would be the owner of the goods once same are supplied to them by the manufacturer from the factory gate and the Wholesale Distributor shall take possession of the goods from the factory gate and shall transport the same to its godowns at its own expenses.”

It is observed from the above para that after supply of goods by the manufacturer the ownership of goods is transferred to the wholesale distributor who is the appellant here. The sales invoice raised by the manufacturer is scanned below :

From the agreement coupled with the above invoice it can be seen that the transaction between the manufacturer M/s. Gunaji and the appellant is clearly of sale. In the invoice the manufacturer has charged 20% VAT the transaction is clearly at arms length hence sale transaction on principal to principal basis. From the invoice, it is also observed that a trade discount was passed on by the manufacturer to the appellant. As per this undisputed fact once, the transaction is of sale there is no relationship of service provider and service recipient between the manufacturer and the buyer (the present appellant). Accordingly, the discount passed on by the manufacturer to the appellant cannot be construed as a commission and the same is not the subject matter of levy of service tax. It is further seen that the appellant also, after purchase of goods from the manufacturer further sold to various traders. A copy of the sale invoice issued by the appellant is scanned below :

From the above invoice it can be seen that it is clearly a sale invoice under which the appellant also paid the VAT. This shows that the transaction from the manufacturer to the appellant and subsequent from appellant to the individual traders are clearly sale transactions. Hence no service is involved. As per the above facts, we are of the clear view that a trading margin cannot be subject matter of levy of service tax. Accordingly, the impugned order is set aside and the appeal is allowed.”

In the above decisions, this Tribunal has taken a consistent view that merely by mention of commission or any other term, whereby the deduction was given in the sale invoice, the same cannot be treated as commission for the purpose of levy of Service Tax under ‘business Auxiliary Service’. Accordingly, the demand of service tax on the commission shall not sustain.

4.2 As regard the submissions of the appellant that the demand is also not sustainable on limitation, we are convinced with the fact and submission made by the Learned Counsel that appellant have explicitly mentioned commission and shown its deduction in its sales invoice. Since this sale is for export of goods obviously the departmental officers have verified the transaction at the time of export for various reason of refund/ drawback or any other export incentive. Accordingly, the entire fact about the commission being shown deduction in the sales invoice was very much in the knowledge of the department. The appellant being registered manufacturer with Central Excise having filed their regular return to the department, there is absolutely no suppression of fact of mis-declaration on the part of the appellant.

4.3 This is also the submission of the appellant that even if the so called commission is liable to Service Tax the said service tax was available as Cenvat credit to the appellant. Therefore, the present case is of revenue neutrality for this reason also extended period cannot be invoked as held in various judgments. we do agree with this proposition that if at all there is a service tax liability on the commission the appellant is not only entitled for Cenvat credit but also prima facie eligible for refund, as the said commission service is exclusively in respect of export of goods. For this reason also the demand for extend is not invokable. Accordingly, the demand of service tax on the commission as well as on GTA service is not sustainable also on the ground of limitation. As per our above discussion and finding, the impugned orders are not sustainable.

5. Hence, the impugned orders are set aside. Appeals are allowed with consequential relief.

(Pronounced in the open court on 22.09.2023)