By TIOL News Service
NEW DELHI, JULY 14, 2011: THE Respondents do lot of activities to promote sales of the products in a territory assigned to them. For some part of the sales they are acting as an Authorized Dealer. In such cases they buy the machines from JCBI and sell it to customers after loading a profit margin as agreed to between the parties. This part of the sales is not presently before us in any dispute. The dispute is about that part of the sales effected by JCBI directly in the territory assigned to the Respondent. For such sales the Respondents get a commission from JCBI as a percentage of the value of the sales. The question is whether such commission is eligible for exemption under notification 13/2003-ST. This notification provides exemption for services provided by Commission Agents. The Revenue contests that the Respondents were not acting as a commission agent. The Respondent contests that they were providing the services of a Commission Agent. The Respondents do lot of activities to promote sales of the products in a territory assigned to them. For some part of the sales they are acting as an Authorized Dealer. In such cases they buy the machines from JCBI and sell it to customers after loading a profit margin as agreed to between the parties. This part of the sales is not presently before us in any dispute. The dispute is about that part of the sales effected by JCBI directly in the territory assigned to the Respondent. For such sales the Respondents get a commission from JCBI as a percentage of the value of the sales. The question is whether such commission is eligible for exemption under notification 13/2003-ST.
The Tribunal observed,
On a careful scrutiny of covenant 25 of the agreement it can be seen that the Respondents are not causing the impugned sales. The impugned sales are caused by JCBI . Respondents are just given a compensation for his opportunity loss when JCBI directly sells to customers in the territory assigned to Respondents. The impugned sales are not made by the Respondents on behalf of JCBI . JCBI is directly selling the goods to customers. There is a consideration paid. This is for the efforts the Respondents make for popularising the products in the territory assigned to them and for the opportunity loss of not being able to get dealers margin if sales were made through the Respondents. This Commission is also for his efforts to procure the orders and in realization of sale proceeds. So the Commission cannot be called a sales commission.
In the circumstances we are of the view that in the case of impugned sales made directly by JCBI in the territory assigned to the Respondents for which respondent is receiving commission under covenant 25 of the agreement, the Respondent is not acting as an agent of JCBI and the service provided cannot be considered as services provided by a commission agent.
The Respondent has raised the argument that the demand is time barred. It is seen that these impugned Commissions were not reported in ST3 returns filed. An assessee on his own giving an interpretation of law and not bringing the relevant matters to the notice of the department will be a fit case for invoking extended period of time.
The Respondent has also raised the issue that the amounts realized has to be considered as cum-tax amount and tax liability should be re-computed on the basis of principle laid down in CCE Vs. Maruti Udyog Ltd- ( 2002- TIOL -34-SC-CX ) . In this matter the Respondent succeeds and the Revenue is directed to re-work the tax liability accordingly.
It is noticed that the order-in-original imposes penalty both under section 76 and 78 of Finance Act 1994. Since 10.5.2008, it is expressly provided in section 78 that penalties under section 76 and 78 cannot be imposed at the same time. Since these penalties are substantially for the same offence there is no reason to impose both the penalties even prior to that period. Therefore penalty under section 76 is waived. Penalty under section 78 will be equivalent to the tax liability.
Therefore the Appeal of revenue is partially allowed.
(See 2011-TIOL-877-CESTAT-DEL in 'Service Tax')
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