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PJ/CASE LAW/2014-15/2537

Whether service tax payable on commission paid to foreign agent can be avoided by exporter contending that refund is admissible?

Case:- M/S LAXMI EXPORTS V/S COMMISSIONER OF CENTRAL EXCISE, SURAT-I
 
Citation:- 2014-TIOL-1637-CESTAT-AHM
 
Brief facts:- The stay application has been filed by the appellant for staying the operation of OIO No.SUR-EXCUS-001-COM-002-13-14, dt.29.11.2013, under which a Service Tax demand of Rs.1,13,34,954/- has been confirmed against the appellant along with interest. Penalties have also been imposed upon the appellant under Sections 76, 77 & 78 of Finance Act, 1994.
 
Appellant’s  contention:- The advocate appearing on behalf of the appellant argued that the issue involved is regarding commission allowed in the invoices which is to be paid to an unidentified overseas agent through the buyer of the exported goods and that according to the Revenue the same is chargeable to Service Tax under Business Auxiliary Service under Section 65 (105)(zzb) of Finance Act, 1994 under reverse charge mechanism. It was his case that appellant is not liable to pay any Service tax as they have not received any services in India from any foreign agent. That such services, if any, are provided to the buyers of the exported goods and the payments to such unidentified overseas agents are also made by the buyers of the goods. That appellant has accordingly reduced the price in the invoices for making payment to the foreign agent of their buyer. That all the Customs documents like Shipping bills, invoices bank certificates of export and realisation etc furnished to the Department clearly show that 11% discount given and, therefore, majority of the demand is time barred. That an amount of Service Tax of Rs.8,55,443/- already stand paid with respect to commission paid in excess of 10% as per an exemption notification.

Ld. Advocate made the bench go through the representative shipping bills, invoices and bank certificate of export and realization to drive home the point that 11% commission reduced in the documents is clearly reflected. He relied upon the order passed by us in the case of Sanghi Industries Ltd Vs CC Kandla [2014 (302) ELT 459 (Tri-Ahmd)] to argue that in the case of exports only the goods are required to be exported and not the taxes. That the whole exercise of demanding Service Tax will be revenue neutral in view of refund available under Notification No.41/2007-ST, dt.6.10.2007.
 
Respondent’s contention:- Shri Alok Srivastava, (AR) appearing on behalf of the Revenue argued that the declarations were made in the documents produced by the appellants only before the Customs authorities and not the Service Tax authorities. It was his case that extended period in this case would be applicable as no intimation was made to the jurisdictional Service tax authorities. It was strongly argued by the ld. A.R. that value of commissions are deducted from the invoices which means that the amount is paid to the foreign agent directly through their buyer. It was also his case that the declaration made in the invoices cannot be considered as a 'discount' because appellant has also availed export incentives on these commissions under DGFT Policy circulars on revenue neutrality. Ld. A.R. argued that refund of Service Tax paid under Notification No.41.2007-ST, dt.06.10.2007 is admissible only after payment of Service Tax under reverse charge and that too subject to fulfilling the conditions specified in the notification as discussed by Commissioner in Para 2.3 and 2.4 of the OIO dt.29.11.13.
 
Reasoning of judgement:- Heard both sides and perused the case records. It is the case of the appellant that commission to the unidentified foreign agent is paid by the buyer and the same is never paid directly by the appellant and only the price is reduced to that extent. However, it is observed from the export related documents that the price of the goods is paid less on account of a commission paid. As the appellant has also availed DGFT benefit on these payments as 'commissions', prima facie, it appears that commissions are paid to the foreign agents through the buyer of the goods but are directly borne by the appellant. Adjudicating authority has also brought out in Para 1.7 of the adjudication order dt.29.11.2013 that the role of such agent is to contact the appellant for requirement, then negotiate the price and other conditions and to ensure that the consignment reaches in time and the same is delivered to the consignees without any problem. That the agent also ensures that payment is made in time to the consignor. It is also felt on revenue neutrality that the exemption under Notification No.41/2007-ST, dt.06.10.2007 is by way of refund only after Service Tax is paid under reverse charge as per Section 66A of the Finance Act, 1994 and that too after fulfilling certain conditions. The refund of Service Tax so payable is not automatic. Similar procedure and conditions have been specified under Notification No.18/2009-ST, dt.7.7.2009 as discussed by adjudicating authority in Para 2.3 of the OIO dt.29.11.2013. Appellant has, therefore, not made out a case for complete waiver of the confirmed dues and is required to be put to certain conditions. Taking into consideration an amount of Rs.8,55,443/-, already paid by the appellant, it is ordered that appellant should pre-deposit an additional amount of Rs.5 lakhs (Rupees Five Lakhs only) within eight weeks and report compliance to the Deputy Registrar by 08.09.2014. Deputy Registrar on verification of the amounts paid by the appellant will put up the papers to the Bench on 15.09.2014 for further orders. Subject to payment of additional amount of Rs.5 lakhs, there will be stay on the recovery of the remaining amounts till the disposal of appeal.
 
Decision:- Pre deposit ordered.
 
 Comment:- The crux of the case is that the service tax on the commission paid to foreign agents payable under the reverse charge mechanism cannot be contested on the ground that the assessee being exporter of goods was otherwise entitled to refund and the situation is revenue neutral. The reason for the same being that for claiming refund of service tax, the exporter is required to fulfil certain conditions.
 
Prepared by: Neelam Jain
 
 

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