In M/s.Transair International Pvt. Ltd v. Commissioner of Service Tax, Chennai, the Chennai CESTAT held that service tax cannot be levied on overriding commission though the amount was received in the Indian office of the assessee.
The appellants are providing Air Travel Agent Service for which they are paying service tax to the department.
The sole grievance of the appellants was that the department demanded service tax from them on ground that they received income by way of overriding commission (ORC) which would constitute consideration for Business Auxiliary Service.
The bench noted that the issue regarding taxability of overriding commission has been settled by the Tribunal in the case of Arafaath Travels Pvt. Ltd. in that case, the Tribunal held that even if the payment is received in India rupees such retention will have to be necessarily treated as saving of foreign exchange and by implication is akin to receipt of moneys in convertible foreign exchange. In the said case, the appellant had retained that portion of the overriding commission and the same was not sent to the service recipient along with the other sale proceeds.
Referring the above decision, the bench noted that in the present case, it is undisputed that the appellants were receiving foreign currency in convertible foreign exchange and there is no dispute that the commission was received from abroad into India in convertible foreign currency. The only dispute raised by the department is that such commission was first received by the Indian office of the appellant is client who in turn transferred the amount in Indian rupees to the appellant.
Following the decision in Arafaath Travels Pvt. Ltd, the bench held that service tax is not leviable on such amount.
Read the full text of the Order below.
