Raju ORDER
Ramesh Nair, Member (J)
1. The brief fact of the case is that the appellant are merchant exporter and engaged in export of textiles goods such as fabrics, scarves, sarees, dress materials etc. to various countries. During the course of scrutiny of Shipping bills, it is revealed that Appellant have shown the commission amount to the tune ranging from 11% to 12% paid to commission agent located outside the India. From the scrutiny of their export invoices it is revealed that they were deducting the said commission amount from the gross value of their export goods to arrive the net value of export. The case of the department is that said commission shown in the shipping bills/export invoices is nothing but commission paid to the commission agent towards export of goods, therefore said commission amount is chargeable to service tax under the head "Business Auxiliary Service" in terms of Section 65(19) of the Finance Act 1994 and is taxable service vide Section 65(105)(zzb) of the Finance Act, 1994 read with Section 66A (19) of the Finance Act, 1994 read with section 66A of the said Act under Reverse Charge Mechanism. Accordingly Show Cause Notice was issued and the adjudicating authority confirmed the demand along with penalty and interest. Therefore, the appellant filed the present appeal.
2. Shri Willingdon Christian, Learned Counsel appearing on behalf of the Appellant submits that Appellant is not liable to pay the Service tax, as they had not received any service in India from any foreign Agent. As per the agreement with the foreign buyers, the Appellant was supposed to reduce the gross sale value by 10% as commission. The appellant have received 10% less from the gross sales price as per the purchase order placed by the foreign buyer. The entire demand of Service tax is based wholly on the amount of commission shown as deducted from the overall value shown as the sale price of the goods exported. There is only a reflection of the amount of commission allowed to the buyers, vide the export invoices, shipping bills, ARE-1, BRC etc. In this case the identity of alleged service provider or the person from whom the appellant allegedly received the taxable service is conspicuously missing. The Appellant neither appointed any agent nor is there any foreign agent from whom they have received any service. Ld. Commissioner has failed to appreciate that in this matter, neither Section 66A of the Finance Act, 1994 nor Rule 2(d)(iv) of the Service tax Rules 1994 nor Rule 3 of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 will apply, because there is no foreign agent appointed and dealt with by the Appellant. He also submits that the present issue fully and directly covered by the Judgment of the Hon'ble Tribunal in the matter of Laxmi Exports Vs CCE MANU/CS/0059/2020 : 2021 (44) GSTL 284(T), Duflon Industries Pvt. Ltd. Vs CCE MANU/CM/0764/2016 : 2017(47) STR 335 (T), Prabhakar Marotrao Thaokar & Sons Vs CCE Nagpur MANU/CM/0021/2018 : 2019(20) G.S.T.L. 294 (Tri.-Mumbai), Hindustan Petroleum Corporation Ltd.- MANU/CE/0083/2018 : 2019 (24) GSTL 569 (T), Textyard International - 2015 (44) GSTL 284 (T), Arvind A. Traders - MANU/CC/0182/2014 : 2016 (44) STR 264 (T), Wanbury Ltd. - MANU/CM/0461/2018 : 2019 (21) GSTL 154 (T) and Prudential Process Mgmt. Services (I) (P) Ltd- MANU/CM/0204/2016 : 2016 (42) STR 764 (T)
2.1. He further submits that even if it is assumed that the Appellant is liable to pay Service tax under Section 66A, there is refund and exemption under Notification No. 41/2007-S.T. : MANU/DSTX/0081/2007 dated 06.10.2007, Notification No. 17/2009 -ST : MANU/DSTX/0044/2009 dated 07.07.2009 and Notification No. 18/2009 S.T. : MANU/DSTX/0045/2009 dated 07.07.2009 available to the Appellant.
3. Shri Dharmendra Kanjani, Learned Superintendent (AR) appearing on behalf of the revenue reiterates the findings of the impugned order and submit that Appellant in invoices and records shown Commission amount, then it is obvious that they have received the services from the their foreign commission agent, therefore the same fall under the category of Business Auxiliary Service and the same is taxable under reverse charge mechanism under Section 66A of the Finance Act 1944.
4. On careful consideration of the submissions made by both sides and perusal of the records, we find that the revenue has confirmed demand of service tax on the commission which was shown as deduction in the export invoice. The revenue has treated this commission as a commission against foreign commission agent service. We find that firstly, there is no commission agent exist who provided the service for export trading of the goods exported by the appellant. When no service provider is in existence it cannot be said that the appellant have received the commission agent service. Secondly, it is also fact that the appellant have not paid the commission to any person in the foreign country. Therefore, in absence of any consideration paid for the alleged commission agent services no service tax can be demanded. In the export invoice the appellant have deducted an amount in the nomenclature of commission from the gross sale price thus, the deduction was passed on to the buyer of export goods which is nothing but a discount given to the Foreign Buyers of the goods. In the above facts we are of the view that neither any service provider exist nor was any consideration paid to any service provider. Therefore, the department's contention is baseless and not sustainable. This issue has come up time and again and the same was decided in the following judgments:
• Laxmi Exports - 2021 (44) GSTL 284 (T)
"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 - MANU/CE/0083/2018 : 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 Indraprastha 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 Marotrao Thaokar & Sons v. CCE, Nagpur - MANU/CM/0021/2018 : 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."
• Hindustan Petroleum Corporation- MANU/CE/0083/2018 : 2019 (24) GSTL 569 (T)
"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 appellant. Accordingly, the impugned orders are set aside. The appeals are allowed.
• Prabhakar Marotrao Thaokar & Sons- MANU/CM/0021/2018 : 2019 (20) GSTL 294 (T)
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."
From the above judgments it can be seen that on the identical issue this tribunal has taken a consistent view that merely because in invoice commission is mentioned that alone is not sufficient to treat it as a commission but the same should be treated as discount only. Consequently no service exist hence no service tax can be demanded.
4.1. As per our above discussion and finding supported by the above judgments the appellant is not liable to service tax on the so called commission mentioned in the invoice of the export.
4.2. We find that the appellant without prejudice also argued that if at all it is considered as the service of commission agent since the same was used for export of goods then also it is not chargeable for service tax as per notification no. 14/2004-ST : MANU/DSTX/0038/2004 10.09.2004 and in support of the submission they relied upon the judgment in the case of Textyard International - 2015 (44) GSTL 284 (T) and Arvind A. Traders - MANU/CC/0182/2014 : 2016 (44) STR 264 (T). Though we find force in this submission also made by the appellant but since on the first issue itself we had decided the matter, we are not inclined to give finding on alternate submission discussed above.
5. In view of our above discussion and findings, the impugned order is set aside and appeal is allowed with consequential relief.
(Pronounced in the open court on 07.02.2022.)
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