Absence of Contractual Relationship exempts Foreign Commission from Service Tax: CESTAT [Read Order]

The Ahmedabad bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) allowed the appeal in favor of the apeallant and held the commission deducted from the sale invoice of the appallant to the overseas buyer is not subject to service tax demands.

In this case, the applicant, Suryanarayan Synthetics P Limited, is a merchant exporter who exports textile items to different foreign nations, and he is paying commission to their foreign commission agents in connection with the shipment of these commodities. Additionally, they are claiming export incentives on such commission amounts under the Foreign Trade Policy 2009–14's DEPB/duty drawback scheme.

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The department is of the view that the commission shown in invoices, which is the payment made to the foreign commission agent, is liable to payment of service tax under the reverse charge mechanism according to Section 66A of the Finance Act, 1994.

Rasesh Shah, the Chartered Accountant, on behalf of the applicant submitted that the appellant had not made any kind of payment to the commission agent, and the appellant has not received any services from the commission agent under the terminology of commission, which is deducted in the invoices raised to the buyer, and thus no service tax can be demanded.

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The bench observed that according to the invoice, the appellant has not made any payment directly to any commission agent, but the deduction has been provided from the total value of the bill raised to a foreign buyer of the goods.

The bench further observed that the demand of service tax on the commission shown in the invoice sent to the buyer cannot be made, as even if there is a payment arrangement between the buyer of the textile products and the commission agent in the foreign nation, there is no contract between the appellant and the foreign service provider.

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The bench, comprising Ramesh Nair (Judicial Member) and C.L. Mahar (Technical Member), allowed the appeal in favor of the applicant and directed to set aside the impugned order.

The CESTAT bench held that the demand of service tax on the commission deducted in the sale invoice of the appellant to their foreign buyer cannot be charged to service tax.

To Read the full text of the Order CLICK HERE

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