Service tax demand on gross commission unsustainable when tax not separately collected; section 67 not invokable

CESTAT dismissed the revenue appeal and upheld the assessee, holding that the demand for service tax on the gross commission could not be sustained. The tribunal rejected revenue's contention that tax must be levied on the gross amount where service tax was not collected separately, finding the invocation of section 67 to treat the gross receipt as value plus tax was not tenable in the circumstances of the case.

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Issues:
Interpretation of service tax liability on commission received by advertising agencies for services provided to private parties and government agencies.

Analysis:
The case involved appeals by the Revenue against orders passed by the Commissioner (Appeals) regarding service tax liability on commission collected by two advertising agencies for services provided to private parties and government agencies. The respondents collected service tax on commission from private parties but not from government agencies like Indian Railways. The Revenue contended that service tax should be paid on the gross amount of commission received, even if not collected separately. The Commissioner (Appeals) had directed re-quantification of the demand considering gross amount received as inclusive of service tax payable. The issue was whether service tax should be paid on the gross amount of commission received in cases where service tax was not collected separately.

The Appellate Tribunal noted that service tax is an indirect tax where the tax borne by the consumer is collected by the service provider and remitted to the Government. The Tribunal referred to Section 67(2) of the Finance Act, 1994, which states that when the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be the amount equal to the gross amount charged plus tax payable. The Tribunal emphasized that this principle had to be applied, and the gross amount had to be adopted to quantify the tax liability when no tax was collected separately. Therefore, the Tribunal rejected the Revenue's appeals, upholding the impugned order of the Commissioner (Appeals) directing payment of service tax on the gross amount of commission received by the advertising agencies, even in cases where service tax was not collected separately.

In conclusion, the Tribunal affirmed that service tax liability on commission received by advertising agencies for services provided to private parties and government agencies should be calculated based on the gross amount received, treating it as inclusive of service tax payable unless tax is collected separately. The decision was based on the principle of indirect taxation and the relevant provision of the Finance Act, 1994, emphasizing the importance of applying this principle in determining the tax liability in such cases.

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