Tribunal rejects service tax demand on packaging sales, ruling in favor of sole selling agent

The Tribunal found the service tax demand on the profit generated from the sale of packaging and raw materials by the appellant, who was working as a sole selling agent, to be unjustified. The appellant's activities as a sole selling agent and as a trader of raw materials were considered separate, each with its own tax liabilities. The profit from trading transactions was deemed unrelated to the services provided as a sole selling agent. Therefore, the Tribunal set aside the service tax demands, ruling in favor of the appellant and granting any necessary relief according to the law.

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Issues:
Confirmation of service tax demand on the amount received towards cost of packing materials as consideration for services rendered by the appellant as a sole selling agent and the incentive received under 'Business Auxiliary Service'.

Analysis:
The appeal originated from an Order-in-Appeal passed by the Commissioner of Central Excise (Appeals), Pune-II, confirming the service tax demand on the amount received for packing materials as consideration for services rendered by the appellant. The lower appellate authority upheld the confirmation of the demand but remanded the matter for re-computation of tax liability. The appellant, working as a sole selling agent, received incentives for selling liquor and discharged service tax liability. The appellant also procured raw materials for the liquor manufacturer, discharging VAT liability on purchase and subsequent sale to the manufacturer, earning a profit. The department contended that the profit made on trading transactions is subject to service tax liability. The appellant argued that the profit from purchase and sale transactions of raw materials is not a consideration for services rendered as a sole selling agent, thus no service tax liability should apply. The Revenue argued that the difference in procurement and sale price of raw materials constitutes consideration for services rendered as a sole selling agent.

Upon careful consideration, the Tribunal found the charge against the appellant regarding profit generated from sale of packaging and raw materials as absurd. The relevant provisions did not provide for charging service tax on gross profit from sale and purchase transactions. The appellant undertook two distinct functions: acting as a sole selling agent and trading raw materials, each with separate tax liabilities. The profit earned from purchase/sale transactions was unrelated to the services rendered as a sole selling agent. The Tribunal reviewed purchase and sale invoices, confirming VAT payments, and concluded that the profit earned from trading transactions should not be subject to service tax related to services as a sole selling agent. The Tribunal held the demands as unsustainable in law and set them aside, allowing the appeal with any consequential relief as per law.

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