Custom, Excise & Service Tax Tribunal
Duflon Industries Pvt. Ltd vs Commissioner Of Central Excise on 28 September, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT No. I Appeal No. ST/20/11 (Arising out of Order-in-Original No. 10/CSP(10) COMMR/ RGD/10-11 dated 11.10.2010 passed by Commissioner of Central Excise, Raigad. Appeal No. ST/85529 & 85545/13 Arising out of Order-in-Appeal No. BC/353/RGD//2012-13 dated 30.10.2012 passed by Commissioner of Service Tax (Appeals) Mumbai III. Appeal No. ST/88995/14 Arising out of Order-in-Original No. 33/MAK(33)COMMR/RGD/ 2014-15 dated 30.05.2014 passed by Commissioner of Central Excise, Raigad. For approval and signature: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. Raju, 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 : No 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?
Duflon Industries Pvt. Ltd. Appellant Vs. Commissioner of Central Excise Raigad Respondent Appearance:
Shri Sanjay Dwivedi, Advocate for appellant Shri A.B. Kulgod, Asst. Commr (AR) for respondent CORAM:
Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. Raju, Member (Technical) Date of Hearing: 28.09.2016 Date of Decision: 18.10.2016 ORDER NO Per: M.V. Ravindran All these appeals are directed against the respective impugned orders as mentioned herein above in preamble. Since all the appeals are raising the same issue, they are being disposed of by a common order.
2. The issue that falls for consideration in the case in hand is whether the appellant herein is required to discharge the service tax liability under the category of Business Auxiliary Service on amount paid by them to their purchaser situated abroad as deduction / commission on the sale of goods. Appellant herein entered into an agreement with M/s Duflon Europe Ltd. Europe (herein after referred to as DEL) for the sale of goods exported by them to the said DEL. The allegations in the show-cause notices are that appellant had paid commission to this entity DEL and recorded the same in their balance sheet as commission and such payment is liable to be taxed under the category of Business Auxiliary Service for the period 2004 to 09. Lower authorities after following due process of law held against appellant and confirmed the demands raised along with interest and also imposed penalties. For coming to such a conclusion, lower authorities relied upon the definition of the Commission Agent as indicated in the definition of Business Auxiliary Service.
3. Learned Counsel submits that lower authorities have erred in confirming the demands raised on them. He would draw our attention to the agreement entered by them with DEL and submits that the agreement specifically talks about sale of goods by appellant to DEL and DEL would get flat deduction/commission of 8% on the invoice value. He has drawn our attention to the fact that the invoices which are raised by appellant are in the name of DEL and not a third party. He would submit that to consider as to appellant has paid commission, there has to be three parties i.e. seller, buyer and a person who mediate such services. It is his submission that the goods are sold directly to DEL which is in fact is on record and not controverted. He would submit that the phrase used in the invoices as deduction / commission is only an error but in fact it is a discount given to DEL. He also relied upon the Notification No. 8/09-ST dated 07.07.2009 which excludes the commission paid to a tune of 1% of the FOB value from the payment of service tax. He would submit that in the case in hand the commission does not exceed FOB value of 1%.
4. Learned D.R. on the other hand submits that the invoices which has been raised by appellant on which reference / attention was drawn, indicates that they have paid commission to DEL; further it is submitted that it is very clear that commission which has been paid to overseas commission agent is taxable under reverse charge mechanism under Business Auxiliary Service. He would submit that the service tax liability on appellant is liable to be confirmed for the period post 08.04.06 under Section 66A of the Finance Act, 1994. As there is no dispute that appellant has recorded the amount paid to DEL as commission paid from PLA account.
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 16.05.2001 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 D.R. and adjudicating authority on the clause of agreement that DEL shall increase the market share of appellants 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.
7. In view of the foregoing discussion, the impugned orders are set aside and the appeals are allowed.
(Order pronounced in Court on..) (Raju) Member (Technical) (M.V. Ravindran) Member (Judicial) nsk 1 2 Appeal No. ST/20/11, 85529 & 85545/13, 88995/14