Custom, Excise & Service Tax Tribunal
Commissioner Of Service Tax, Mumbai vs Jmd Marketing (P) Ltd on 17 October, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL No. ST/152/07-Mum (Arising out of Order-in-Original No. 04/STC/SJS/07-08 dated 28.5.2007 passed by Commissioner of Service Tax, Mumbai) For approval and signature: Honble Mr. S.S. Kang, Vice President Honble Mr. P.K. Jain, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
====================================================== Commissioner of Service Tax, Mumbai Appellant Vs. JMD Marketing (P) Ltd. Respondent Appearance: Shri S. Dewalwar, Additional Commissioner (AR), for appellant Ms. Puloma Dalal, C.A., for respondent CORAM: Honble Mr. S.S. Kang, Vice President Honble Mr. P.K. Jain, Member (Technical) Date of Hearing: 13.8.2013 Date of Decision: 17.10.2013 ORDER NO Per: S.S. Kang
The Revenue filed this appeal against the order passed by the Commissioner of Service Tax, whereby it is held that the respondents are liable to pay service tax on the net commission received from the banks and not the gross commission paid by the banks.
2. The respondents are commission agent/direct selling agent (DSA) for marketing of auto loan products of various banks. The respondents are arranging loan facility for buyers of motor vehicle. In view of the activity undertaken by the respondents, they were held to be liable to pay service tax under the category of business auxiliary service. In the present appeal there is no dispute regarding the taxability of service. The only issue is whether the respondents are liable to pay service tax on the net amount received or the gross amount paid by the bank.
3. During negotiations, the DSA (respondents) discounts the commission by way of subvention to the banks as per the commercial arrangements between the DSA and the banks. During investigation, it has been clarified by the officials of the bank that the subvention is a part of the commission which is adjusted towards the loan interest of the customer and it is as per the mutual agreement between the bank and the DSA. It has also come on record during investigation that the banks had accounted the gross commission to the credit of the DSA before the deduction of subvention.
4. The case of the Revenue is that the respondents are liable to pay service tax on the gross commission paid by the banks.
5. The respondents submitted that as the respondents are paying service tax on the actual amount received as commission from the banks, as the respondents had not received the amount in question, on which the demand is made. Therefore, the demand is not sustainable.
6. During arguments, the respondents admitted that the banks are deducting TDS on the whole of the commission including the subvention. The respondents also submitted that the amount of subvention was directly paid by the bank to the customers taking loan and the respondents have never received the amount.
7. We find that this issue is already settled by the decision of the Tribunal in the case of CCE, Jaipur-I vs. Chambal Motors (P) Ltd. reported in 2008 (9) STR 275. The Tribunal held as under:-
6. It is obvious from the reasoning adopted by the Commissioner (Appeals) that he has proceeded on totally an erroneous footing that, a bank cannot avail of 'Business Auxiliary Services' as a client. From the nature of agreements on record including the franchisee agreement in the third appeal, it is clear that the assessees were, under an agreement with the bank had undertaken to provide service in relation to promotion or marketing of the 'Banking and Financial Services' provided by the banks. The banks were providing services under the category 'Banking and Other financial services' falling in Clause (12) of Section 65. In relation to those services, the respondent - assessees were providing services for promotion or marketing of the banking and other financial services provided by the banks. The banks were, therefore, their clients being recipient of such services from the respondents. It has come in evidence that the respondents were required to obtain loan applications from their customers who desired to avail loans from the banks. The respondents had undertaken to process those applications and after scrutiny forward them to the bank. Admittedly, for such services, they were paid commission by the bank, which was reflected in their account. Once consideration accrued to them, as against the services provided by them to the bank, by way of commission, it was hardly of any consequence how a portion of that commission, which as per the particulars provided by the Bank was given as "pay out" to assessees in respect of which even the TDS was deducted, was spent by them. If they chose to give some amount from that gross commission amount to their customers either directly or through the bank, it would not change the nature of the receipts in their hand. In another case, i.e. Em Pee Motors Ltd. vs. CCE, Chandigarh reported in 2012 (25) STR 68, the Tribunal held as under:-
4. Considered arguments of both sides. It is very clear that as per Section 67 of Finance Act, 1994 service tax shall be paid on the gross amount charged by the service provider. It is also noticed that as per the submission of the appellant, the TDS certificate was issued by the Bank in the name of the appellant for deduction of income tax on the full amount paid to the appellant. This means that while filing income-tax return, he is taking the credit for entire TDS including the amount deducted on account of payments directly made to the customers. Therefore, this is an arrangement where the appellant decided to get the benefit of deduction of TDS for the whole amount for income tax purpose but to pay service tax only on the amount net of subvention. Thus there is a inherent contradiction in the stand that is being taken by the appellant before the two tax authorities. The arrangement made for the purpose of reducing incidence of income-tax is not a subject matter of these proceedings.
5. We are of the view that the amount paid by the bank for the services rendered by the appellant and reflected as receipts in the books of accounts of the appellant, should be subjected to service tax and therefore, the orders passed by the lower authorities is maintainable and thus appeal filed by the appellant is rejected.
8. The ratio of the above decisions is fully applicable on the facts of the present case, therefore the impugned order whereby the adjudicating authority held that the respondents are liable to pay service tax only on the net commission after deducting subvention amount is not sustainable hence set aside. The respondents were liable to pay service tax on the gross amount of commission. In respect of imposition of penalties under Sections 76 and 78 of the Finance Act, we find as per the provisions of Section 80 of the Finance Act, as the respondents were under the bona fide belief that tax is to be paid on net amount of commission hence it is not a case for imposition of penalties. The appeal is disposed of as indicated above.
(Pronounced in Court on 17.10.2013) (P.K. Jain) Member (Technical) (S.S. Kang) Vice President tvu 1 2