Suryanarayan Synthetics P Limited Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)
Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, recently issued a ruling in the case of Suryanarayan Synthetics P Limited against the Commissioner of Central Excise & ST. The Tribunal held that amounts labeled as “commission” and deducted from export invoices by a merchant exporter are in fact trade discounts and are not liable to service tax under the reverse charge mechanism. This decision provides clarity for exporters paying foreign “commission agents” by way of deductions from invoice values.
The Core Dispute: Commission vs. Discount
Suryanarayan Synthetics P Limited, a merchant exporter of textile goods, including fabrics, scarves, sarees, and dress material, pays what it terms “commission” to its foreign commission agents in connection with its export activities. The company also claims export incentives on these “commission” amounts under various government schemes like DEPB and duty drawback.
The Central Excise and Service Tax Department’s position was that the commission shown in the invoices, being a payment to foreign commission agents, was subject to service tax under the reverse charge mechanism as per Section 66A of the Finance Act, 1994.
Suryanarayan Synthetics, represented by its Chartered Accountant, Shri Rasesh Shah, countered this, arguing that the company had not made any direct payment to a commission agent. Instead, the “commission” was a deduction from the total value of the invoices raised to the foreign buyer. Therefore, this amount could not be considered a service charge paid to an individual commission agent in a foreign country, and thus, no service tax demand could be levied.
Assessee’s Arguments and Judicial Precedents
The appellant’s counsel emphasized that the relationship was primarily between the exporter and the foreign buyer, with the “commission” being a discount. To support this contention, the appellant cited several judicial precedents:
- All India Federation of Tax Practitioners vs. UOI – [2007] 10 STT 166 (SC): While the specifics of this Supreme Court case in relation to the current dispute were not detailed in the order, it was presented as a general precedent.
- Laxmi Exports vs. CCE&ST (Service Tax Appeal No. 10666/2014, Final Order No. A/11247-11251/2020 dated 22.09.2020): This case, decided by CESTAT, specifically addressed an identical issue. The Tribunal in Laxmi Exports found that when an amount shown as “commission” is a deduction from the C&F value in an export invoice and is extended to the foreign buyer, it constitutes a trade discount. The Tribunal noted the absence of any evidence to suggest a commission agent existed or that any payment was made to a third person for commission. It emphasized that a true commission agent scenario involves three parties: seller, purchaser, and a negotiator. In the absence of a third-party service provider, no service tax can be demanded.
- Aquamarine Exports vs. CCE &ST (Appeal No. ST/12941/2014, order dated 07.02.2022): This CESTAT order, also referred to in the present case, reiterated the findings of Laxmi Exports. It clearly stated that if no commission agent exists and no consideration is paid for alleged commission agent services, then no service tax can be demanded. The deduction in the invoice is essentially a discount to the foreign buyer.
- Intas Pharmaceuticals Limited vs. CST – [2009] 22 STT 230 (CESTAT Ahmd.): This was cited as a supporting judgment from CESTAT Ahmedabad.
- Orbit Research Associates Pvt. Limited vs. CST – CESTAT Ahmedabad: Another relevant decision from the same Tribunal.
The appellant’s counsel also referred to the Duflon Industries Pvt. Limited vs. CCE, Raigad case, where the Tribunal ruled that a flat deduction/commission allowed to a direct purchaser on invoice value was a trade discount and not a commission for service. The Tribunal highlighted that for a transaction to be considered a commission for service, there must be three parties: a seller, a purchaser, and a person who negotiates the transaction.
