Director's guarantee commission not taxable as business auxiliary service absent a principal-client relationship

Guarantee commission paid to a director for standing surety for the company was not taxable as business auxiliary service because such tax applies only where a service is rendered to a client as an external person for consideration. As the payment was made to a director and approved by the board, the essential principal-client relationship was absent. On that basis, the commission could not be treated as consideration for business auxiliary service, and the service tax levy was held unsustainable.

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Issues: Whether guarantee commission received by a director for standing surety for the company could be classified as business auxiliary service and subjected to service tax.

Analysis: The appellant was a director of the company from which the commission was received. Taxability under business auxiliary service requires a service rendered to a client as an external person for consideration. On the facts found, the payment was made to a director and was approved by the board of directors, so the essential principal-client relationship was absent. In such circumstances, the commission could not be treated as consideration for business auxiliary service, and the levy of service tax was not sustainable.

Conclusion: The demand of service tax was not maintainable and the appeal was allowed in favour of the assessee.

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