No Service Tax on Commission Deducted by Foreign Buyers in Export Transactions Lacking Agent Relationship: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that service tax is not payable on commission amounts deducted by foreign buyers in export transactions when there is no agent relationship between the exporter and a foreign service provider.

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

Akshita Exports, the appellant, is engaged in the export of goods. The department alleged that the appellant paid commission to foreign buyers from 2008-09 to 2011-12, and that this amounted to a taxable service under the category of "Business Auxiliary Service" under Section 65(105)(zzb) of the Finance Act, 1994.

The department issued a show cause notice demanding Rs. 32,73,031 in service tax under reverse charge, along with interest and penalties, claiming that the commission was paid for promoting exports.

The appellant’s counsel argued that no foreign commission agent was appointed or paid directly. The commission was simply a trade discount shown in export invoices and deducted by the buyer before remitting payment. They contended that without a service provider or any service received, there was no taxable event.

They relied on several Tribunal decisions, including Texyard International v. CCE, Laxmi Exports v. CCE, and Suryanarayanan Synthetics Pvt. Ltd. v. CCE & ST, which held that no service tax is payable when commission is merely a discount and no service is rendered by an agent.

The revenue counsel argued that the appellant benefited from sales promotion services provided by agents abroad and that commission was essential to securing export orders. They emphasized that the director of the appellant firm admitted that export orders were obtained only after paying such commission, so a service was received.

The two-member bench comprising Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) observed that the commission was not paid to any agent by the appellant but was deducted by the foreign buyer, and there was no agreement or evidence of a service relationship between the appellant and any commission agent. It further observed that in the absence of a third-party service provider, no taxable service could be said to exist.

The tribunal also observed that the issue had been settled in a series of earlier decisions where it was held that deductions shown as commission in export invoices, when no service is rendered by an agent, are in fact trade discounts and not subject to service tax. The tribunal set aside the demand and allowed the appeal, granting consequential relief to the appellant.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates