No Service Tax payable on “Address Commission” as in Nature of Discount and Not Payment for Provision of Any Taxable Service: CESTAT [Read Order]

The Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that no service tax is payable on “Address Commission” as the same is like the discount and not a payment for the provision of any taxable service. 

Apeejay Shipping Limited, the appellant assessee are owners of ships and engaged in providing ships on a hire basis, which in the common trade parlance, is known as ‘Chartering of Ships, and the ships are given on hire either for a specific period or for a single voyage and the ships are given on hire by entering into contracts with the respective charterers/parties. 

In terms of the contractual arrangement, the charterers hire the ships and the assessee allows a specified percentage of discounts from the freight/hire charge, which was commonly known as ‘Address Commission’. 

The assessee appealed against the order passed by the Commissioner of Service Tax for confirming the demand for service tax of Rs.1,56,27,124/- along with interest and imposed an equal amount of tax as a penalty. 

Somak Basu and Swagato Kabiraj, the counsels for the assessee contended that Address Commission paid to foreign companies was nothing but a ‘discount’, and it was a customary practice followed in the shipping industry for grant of discounts to charterers for taking the ships on hire basis, as was evident from the Charter party Agreement entered into by the Appellant, which contains the clause for payment of ‘Address Commission’ and netted off from the Vessel Hire Charges and does not contain any element of rendering services. 

J. Chattopadhyay, the counsel for the department relied on the decisions made by the lower authorities and contended that the assessee was not paid any service tax on the services received as the address commission and the demand was as per the law and liable to be sustained. 

The Bench observed that the payment of ‘Address Commission’ would only mean a slight reduction in the freight rate and the ‘Address Commission’ was not paid towards the rendering of any service. 

The two-member bench comprising Muralidhar (Judicial) and Anpazhakan (Technical) held that no service tax is payable on “Address Commission” as the same was like the discount and not a payment for the provision of any taxable service. 

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