Foreign currency commission deemed foreign exchange saving, exempt from service tax

The Tribunal held that overriding commission received by the appellants in foreign currency qualifies as saving of foreign exchange, exempt from service tax. Relying on a precedent involving a similar issue, the Tribunal found the demand by the Service Tax Department unsustainable. The orders confirming the demand and penalties were set aside, and the appeals were allowed with any necessary relief.

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Issues:
1. Whether overriding commission is subject to levy of service tax.

Analysis:
The appellants, registered under the category of 'Air Travel Agent Service,' were alleged to have received income in the form of overriding commission (ORC), leading to a show cause notice from the Service Tax Department. The original authority confirmed the demand, interest, and imposed penalties under sections 76 and 77 of the Finance Act, 1994. The Commissioner (Appeals) upheld this decision. Subsequently, a notice was issued proposing a review under section 84 to impose penalty under section 78 of the Finance Act, 1994. The Commissioner imposed the penalty, leading to the filing of Appeal No. ST/142/2008 against this revision order. Appeal No. ST/185/2005 was filed against the order of the Commissioner (Appeals) upholding the demand, interest, and penalty.

The pivotal issue of whether overriding commission is subject to service tax was extensively deliberated by the Tribunal in a previous case involving Arafaath Travels Pvt. Ltd. The Tribunal concluded that even if the payment is received in Indian rupees, such retention should be treated as saving of foreign exchange, akin to receiving money in convertible foreign exchange. In the case under consideration, it was established that the appellants were receiving foreign currency in convertible foreign exchange. The dispute raised by the department centered around the commission being initially received by the Indian office of the appellant's client, who then transferred the amount in Indian rupees to the appellant.

In alignment with the Tribunal's decision in the Arafaath Travels case, it was determined that the demand in the present case was not sustainable. Consequently, both impugned orders were set aside, and the appeals were allowed with any consequential relief deemed necessary. The operative portion of the order was pronounced in open court.

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