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- 3 - V2(ST)231/A-IV/2012

Order In Appeal

M/s Shree Krishna Cargo, L-19, Shree Ghantakarna market, Sarangpur, Ahmedabad (hereinafter referred to as ‘the appellants’) have filed the present appeal against OIO No.SD- 2/OIO.no.131/2011-12 dtd.28-03-2012 (hereinafter referred to as ‘the impugned order’) passed by Assistant Commissioner, Service Tax, Div.-II, Ahmedabad (hereinafter referred to as ‘the adjudicating authority’).

2. The facts of the case in brief are that the appellants were engaged in providing Courier Service and were registered with the service tax department. During the course of audit, it was noticed that the appellants have shown commission income of Rs.18,46,280/- received from Jet Air Pvt. Ltd. and Spice jet Cargo Ltd. in their Profit & Loss account for the year 2008-09 for the services provided as Cargo Booking Agent. The appellants have promoted the business of above airlines by booking the cargo on behalf of them and such services provided by them are taxable under the category of ‘Business Auxiliary Service’ but the appellants were neither registered under BAS nor paid service tax on the said commission received by them. Letters were written to the appellants to pay the service tax of Rs.1,83,784/- on the said commission along with interest and to obtain registration under the category of ‘BAS’. The appellants, in their reply stated that the amount reflected in Profit & Loss Account, is not a commission amount but it is a discount in purchase price. Nomenclature of the transaction should have no relevance but nature of transaction is more important. The appellants further submitted that at the time of raising purchase invoice, airlines have charged service tax to them and the same had been paid by the appellants to the airlines. The appellants submitted that as they have paid service tax on full value to the said airline while procuring courier service, demanding service tax on discount on purchase value will amount to double tax. On verification of P & L A/c and ST-3 returns, it was noticed that the appellants have shown only courier income in ST-3 returns and not shown commission income as detailed above in ST-3 returns. The commission income is taxable under the category of BAS. In view of the non payment of service tax and non registration under the category of BAS, a SCN was issued to the appellants which was adjudicated vide the impugned order. The adjudicating authority had confirmed the demand of service tax of Rs.1,83,784/-under section 73 (1) of the Finance Act 1994 under the category of “Business Auxiliary Service” and also ordered to charge interest under Section 75 of the Finance - 4 - V2(ST)231/A-IV/2012

Act,1994. Penalties were also imposed under section 76,77, 77 (1) (a) and 78 of the Finance Act,1994.

3. Being aggrieved by the impugned order, the present appeal along with the stay application has been filed by the appellants on the ground; that the amount received is a discount and not commission; that they have shown commission income through oversight; that Nomenclature of the transaction should have no relevance but nature of transaction is more important; that they pay service tax on income realised on account of courier service and if they receive trade discount and they pay service tax, it will amount to double tax; that they have received productivity link incentive and special rate benefit offered by the airlines, which is paid to the appellants in the form of credit notes; that trade discount is not taxable and cited case laws in support of their contention. The appellants further submitted that the commission has not been received from clients; that taxable service in relation to BAS means, any service provided or to be provided to a client by any person and in the present case, the trade discount, which has wrongly treated as commission, has been received from airlines and not from the clients; that the appellants are not providing any service to the airlines, instead airlines are providing services to the appellants and cited a case law in support of their contention. The appellants further submitted that invocation of extended period is wrong and period of one year is applicable for issue of SCN; that they have filed ST-3 return for the period 2008-09 on 25th April,2009, hence SCN cannot be issued after 25th April,2010; that audit was completed on 05-05-2010, hence the department was aware of the facts but the SCN was issued on 03-01-2012 after a period of more than one year; that no suppression involved with an intent to evade payment of duty and cited case laws in support of their contention; that simultaneous penalties under section 76 and 78 are not imposable; that penalty under section 77 is not imposable as they are registered with the service tax department and filing ST-3 returns under courier service. In their stay application, the appellants reiterated the grounds of appeal and stated that prima facie, the case is in their favour and any insistence of pre-deposit would cause undue hardship and irreparable loss to the appellants.

4. The personal hearing was granted on 30-05-2012 wherein Mr. Bishan Shah-C.A, on behalf of the appellants appeared before me and reiterated the grounds of appeal. He stated that the performance incentive received by them at the end of the year, is in the nature of - 5 - V2(ST)231/A-IV/2012

‘discount’ which is not liable to service tax under BAS and cited a case law of Tradex Polymers Pvt. Ltd. Vs. Comm. of Service Tax, Ahmedabad.

5. Looking to the facts narrated above, I dispense with any pre deposit and proceed to decide the main appeal itself on merits.

DISCUSSION AND FINDINGS

6. I have carefully gone through the facts of the case on records, grounds of appeal in appeal memorandum, case laws cited by the appellants and oral submission made at the time of personal hearing.

7. The main issue to be decided is whether the commission income shown in Profit & Loss A/c is taxable under ‘Business Auxiliary Service’ or otherwise.

8. The appellants mainly contented that Nomenclature of the transaction should have no relevance but nature of transaction is more important; that they pay service tax on income realised on account of courier service and if they receive trade discount and they pay service tax, it will amount to double tax; that trade discount is not taxable; that the commission has not been received from clients; that the appellants are not providing any service to the airlines, instead the airlines are providing services to the appellants.

.9. For the sake of reference, I reproduce the definition of ‘business auxiliary service’ business auxiliary service” as per section 65 (19) of the Finance Act,1994- means any service in relation to, — (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or 2[****] (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or [Explanation.— For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;] or (v) production or processing of goods for, or on behalf of the client; or (vi) provision of service on behalf of the client; or - 6 - V2(ST)231/A-IV/2012

(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, [but does not include any activity that amounts to “manufacture” of excisable goods.] Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this clause, — (a) ”commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person — (i) deals with goods or services or documents of title to such goods or services; or (ii) collects payment of sale price of such goods or services; or (iii) guarantees for collection or payment for such goods or services; or (iv) undertakes any activities relating to such sale or purchase of such goods or services; (b) excisable goods” has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944(1 of 1944); (c) “manufacture” has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1944(1 of 1944)]

I find that appellants have received commission income of Rs.18,46,280/-from Airlines during the year 2008-09. I find that the appellants are registered with the service tax department under the category of ‘courier service’ and paying service tax. The appellants have received commission income from the airlines for promoting the business of the airlines. The appellant’s contention that the said amount received is in the form of ‘discount’, is not acceptable. Normally, discount is offered only when there is sale or purchase of goods or services. In the present case the appellants have received incentives for booking of cargo for the above mentioned airlines. This promotes the business of the airlines. I find that the appellants have received commission amount from the airlines for promoting the business of airlines. I agree with the contention of the appellants that Nomenclature of the transaction should have no relevance but nature of transaction is more important. The amount received from the airlines does not fall into the category of discount as it does not satisfy any of the grounds on which ‘discount’ are given. Firstly, there is no sale of goods involved. The amount - 7 - V2(ST)231/A-IV/2012 given by the airlines was not fixed but depended on the cargo booking. This incentive is provided by the airlines as a part of their marketing strategy to the appellants. The cargo booking by the appellants results in expanding the business of the airlines in some way or other. Hence, I hold that more and more booking of cargo as courier agent ends up in marketing and promoting the business of the airline companies. In this case, the appellants company promotes or markets the services rendered by the airline companies and hence they are the ‘Service providers’ and airline companies as detailed above are the service receivers. Hence, I find that there is no merit in the argument put forth by the appellant that no service was rendered by the appellant to the airline companies as a client. The ‘incentives’ paid by the airline companies to the appellants are the remuneration paid for the services rendered and it does not matter by which name it is booked in the books of accounts i.e. commission or discount.

Thus, the services rendered by the appellants squarely falls within the ambit of sub clause (ii) of section 65 (19) of the Finance Act which reads as below;

“ promotion or marketing of services provided by the client”. Thus, the activity undertaken by the appellants is fully covered under the above said category of “Business Auxiliary Service”. No company will pay any amount to other company unless and until they themselves are benefitted by other company. The appellants cited some case laws in support of their claim. The case laws are applicable to the appellants if the amount received is ‘discount’. Since the amount received by the appellant are ‘commission for the services rendered and not ‘discount’, the contents of case laws cited by the appellants are not similar to the present case, hence, cannot be relied upon. Hence, I uphold the demand of service taxin the impugned order.

10. Regarding penalty, the appellants stated that there is no suppression of facts with intent to evade payment of service tax in this case. Hence, penalty not imposable. I find that the appellants have not come forward on their own to pay the service tax but were asked specifically by the Range Superintendent to pay the service tax not paid by them. They have also not registered under the category of ‘BAS’ and the commission received were not disclosed in the ST-3 returns filed by them. Hence, suppression of facts with intention to evade service tax has been established. In view of the above, the appellants are liable to pay service tax under proviso to Section 73 (1) of the Finance Act,1994. Accordingly, the appellants are liable for penalty for the offences committed. - 8 - V2(ST)231/A-IV/2012

The appellants have also not paid service tax in time, hence liable for interest and penalty under section 75 and 76 of the Act, respectively. Further, the appellants have neither taken registration under the category of ‘Business Auxiliary Service’ nor filed any ST-3 returns. Hence, I do not interfere with the penalties imposed under section 76, 77, 77(1) (a) and 78 of the Act.

11. In view of the above, I hold that the adjudicating authority has rightly confirmed the demand of Service Tax and interest thereon. I also hold that penalties have been rightly imposed.

ORDER

12. In view of the aforesaid discussion I uphold the impugned order passed by the adjudicating authority and reject the appeal filed by the appellants. The appeal and the stay applications get disposed of accordingly.

Sd/- 14.05.2012 (K.ANPAZHAKAN) Commissioner (APPEAL-IV), Central Excise, Ahmedabad, Attested

(Hemant Kumar Jain) superintendent (APPEAL-IV) Central Excise, Ahmedabad.

BY.R.P.A.D To, 1. M/s Shree Krishna Cargo, L-19, Shree Ghantakarna market, Sarangpur, Ahmedabad.

2. Copy to: 1. The Chief Commissioner, Central Excise, Ahmedabad. 2. The Commissioner, Service Tax, Ahmedabad 3. Assistant Commissioner, Service Tax, Div-II, Ahmedabad. 4. Assistant Commissioner, Service Tax, (Systems), Ahmedabad 5. Guard File 6. P. A. File.

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