Trade discount on principal-to-principal sale is not taxable commission when no service relationship exists.

A discount passed by a manufacturer to a wholesale distributor was held to be trade discount, not commission taxable as business auxiliary service, because the arrangement showed a genuine principal-to-principal sale. Ownership passed after supply, the distributor took delivery at the factory gate, and invoices reflected VAT on sale transactions. On these facts, the amount formed part of the trading margin and was not consideration for any service. As there was no service provider-service recipient relationship, service tax could not be levied on the discount, and the demand was unsustainable.

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Issues: Whether the discount passed by the manufacturer to the wholesale distributor constituted commission taxable as business auxiliary service, or was only trade discount in a sale transaction.

Analysis: The agreement provided that ownership of the goods passed to the wholesale distributor after supply, the distributor was to take possession at the factory gate, and the goods were sold at a price determined by the manufacturer. The invoices showed VAT charged on the transactions and reflected a sale on principal-to-principal basis. On these facts, the discount passed on by the manufacturer was part of the trading margin and not consideration for any service. Once the underlying transaction was a sale, there was no service provider-service recipient relationship to attract service tax.

Conclusion: The discount could not be treated as commission liable to service tax, and the demand was unsustainable.

Final Conclusion: The impugned order was set aside and the appeal succeeded.

Ratio Decidendi: Where the transaction is a genuine sale on principal-to-principal basis and the amount passed on is trade discount, it does not constitute taxable commission or consideration for service.

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