The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled that no service tax payable under Business Auxiliary Service, Technical Inspection and Certification Service for the export of Hosiery Garments to Non Resident Company .
The Appellant, K. Shethra Exports are engaged in the manufacture and export of hosiery garments. The appellants are one of the many suppliers of textile goods to M/s. Bon Prix, Germany through M/s. JPS Trading Company. It is to be noted that the appellant receives the payments from their overseas buyer viz., M/s. Bon Prix, Germany through M/s. JPS Trading Company after deducting certain amounts towards Bonus, Inspection charges and recycling compensation which are shown as deductions from the export price shown in the shipping bills.
The Department was of the view that the appellant is paying these charges which are deductions towards Bonus, Inspection charges and recycling compensation for the furtherance of their business and as such, the services received are classifiable under Business Auxiliary Service (BAS) and Technical Inspection and Certification Service ( TIC ) and are taxable at the appellant’s end.
It was observed that the deductions given by the appellant on the invoice price under various heads is nothing but a commission paid to M/s. JPS Trading Company towards quality inspection and other marketing assistance given by M/s. JPS Trading Company through M/s. Fashion Force, Coimbatore.
Further the appellant failed to register themselves and pay the Service Tax and also file the ST-3 returns, Hence a Show Cause Notice was issued demanding Service Tax along with interest and also proposing penalties on the appellant.
Accordingly the adjudicating Authority has confirmed the demand of Service Tax along with interest and imposed penalties on the appellant which was upheld by the Commissioner.
Aggrieved by the order the appellant filed appeal before the tribunal.
Satish Chandrasekaran, Counsel for appellant submitted that the discounts cannot be equated with commission for levying Service Tax, as they are part of the sale transaction and cannot be equated with commission. Sale related discounts cannot be taxed under Business Auxiliary Service or Technical Inspection or Certification Service.
Further the counsel argued that the adjudicating Authority had admitted that M/s. JPS Trading Company, Dubai having their office in India in the name of M/s. Fashion Force, Coimbatore, as such, the question of payment of Service Tax on reverse charge could not arise.
Harendra Singh Pal, Counsel for the department argued that JPS Trading Company, Dubai through its local office viz., M/s. Fashion Force was rendering the services to the appellant in promotion of their export orders and also in receiving payments for the goods supplied to M/s. Bon Prix, Germany.
It was observed by the tribunal that the identical facts in the cases of Original Knit Exports, Harini Colours and Veera Creations where the Service Tax demands were confirmed under BAS and TIC and where M/s. JPS Trading Company, Dubai was the buying agent and garments were exported by these appellants to M/s. Bon Prix, Germany, the Tribunal Chennai have set aside the Service Tax demands raised and also imposed a penalty imposed in favour of the exporters of the garments.
Therefore the Two-Member Bench comprising Sulekha Beevi C.S ( Judicial Member) and Vasa Seshagiri Rao(Technical Member) held that confirmation of the demand of Service Tax and the imposition of penalties cannot be sustained.
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