The Chandigarh Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that direct marketing associates providing loan arrangement services to banks liable to pay service tax on gross commission.
The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that Section 67 of the Service Tax Act which provides that in case where the provision of service is for a consideration in money, the service tax chargeable on any taxable service with reference to its value shall be the gross amount charged by the service provider for such service provided or to be provided by him. The appellant is liable to pay service tax on the gross commission rather than the net commission received by them.
The appellant/assessees are engaged in providing services to ICICI Bank Ltd. as Direct Marketing Associates (DMA) by arranging loans for purchase of automobiles etc. for the customers and was registered with the department for providing taxable service of Business Auxiliary Service falling under Section 65(19) & 65(105)(zzb) of the Finance Act, 1994.
During the course of audit of accounts of the appellant and subsequent inquiry, it was found that the appellants were paid commission by the Bank after certain deductions including DMA subvention/Reduce etc., Commission, Cancellation cases amount, etc. The appellants were paying Service Tax on Net amount of Commission and not on Gross Commission. The certificates issued by the ICICI Bank categorically reflected the Gross Commission payable, based on the loan amounts. It was alleged that the appellants have not discharged service tax on the Gross Commission amount due to the appellants from ICICI Bank, as per provision of Section 67 of the Service Tax Act and it resulted in short payment of service tax.
The assessee contended that the internal Audit Team of the Department after scrutinising the books of accounts came to a conclusion that the amount payable to the appellant was more than the amount actually paid and the amount on which service tax was discharged by the appellant. The department has relied upon the provision of Section 67 of the Finance Act 1994 to come to a conclusion that the amount of service tax was to be discharged on the amount payable to the appellant and not on the amount actually received by them.
The assessee contended that Section 67 of the Finance Act which provides valuation of taxable service and submits that the adjudicating authority has relied upon the Explanation (c) of Section 67 of the Act to say that “amount charged includes” which is liable to be paid for the transaction. The commissioner has not at all considered the plea of the appellant that the Explanation (c) is only applicable in case of associated enterprises and not otherwise. The assessee paid the service tax on the net commission received by him from the ICICI Bank and regularly filing the service tax returns which has never been objected by the department. Rule 6 of the Service Tax Rules, 1994 states that the tax was payable on the amount actually received during the relevant period by the appellant on which service tax has already been discharged.
The issue raised was whether the service tax is chargeable on the gross commission due to the appellants as reflected in the certificates issued by the bank or on the net amount received by appellant from the bank.
The tribunal held that the service tax demand is upheld but on limitation the demand is set aside, hence, the order is set aside and the appeal is allowed only on limitation.
Case Details
Case title: M/s R.S. Financial Services V/S Commissioner of Central Excise Chandigarh
Citation: Service Tax Appeal No. 1448 of 2011
Decision date: 27/08/2024
Tribunal: CESTAT Chandigarh
