2025 (7) TMI 1780 - AT - Service Tax

Service Tax Demand Dismissed on Commodity Income Under Other Income Due to Lack of Proof of Taxable Services

Principal Commissioner of Service Tax, Service Tax-I Commissionerate Versus M/s. Adhunik Steels Limited

The CESTAT Kolkata upheld the adjudicating authority's order dismissing the service tax demand on commodity income classified under Other Income. The ... Taxability - business auxiliary service - commodity income under the head of Other Income in Schedule 16 of the audited balance-sheet - Department has considered the Other Income as commission earned on trading in the open market and alleged that such commission earned is liable to service tax under the category of business auxiliary services - HELD THAT:- It is observed that the Department could not provide any documentary evidence in support of their allegation that the 'commodity income' has been received towards rendering of taxable service. It is only an assumption of the appellant-Department that when all the possibilities of income from trading/dealing of goods are ruled out, the only likelihood that remains is that the respondent could have earned such income from providing services. However, there is no evidence brought on record in this regard by the Department to substantiate their claim that the respondent has earned any commission on trading of goods. Accordingly, the income earned in cash while trading of goods cannot prima facie be construed to be 'commission' earned while providing a service. Thus, demanding Service Tax on the 'commodity income' by categorizing the same as a consideration earned towards rendering of taxable service under the category of “business auxiliary service” is legally not sustainable. The reasons given by the ld. adjudicating authority to drop the demand are convincing. It is pertinent to note that the Department has failed to bring in any documentary evidence on record to substantiate their allegation that the “commodity income” has been earned by the respondent as a 'commission' for trading of goods which is chargeable to Service Tax under the category of ‘business auxiliary service’ - there are no infirmity in the findings of the ld. adjudicating authority in the impugned order. Appeal of Revenue dismissed. ISSUES: Whether 'commodity income' shown under 'Other Income' in the balance sheet constitutes commission income liable to Service Tax under the category of 'business auxiliary service'?Whether absence of documentary evidence or ledger records to substantiate the nature of 'commodity income' justifies treating such income as taxable service income'Whether commodity trading income without VAT payment and not evidenced through commodity exchanges or regulated platforms can be classified as service income for Service Tax purposes'Whether the Department can impose Service Tax liability on speculative or trading income without concrete evidence of provision of taxable service? RULINGS / HOLDINGS: The Department's classification of 'commodity income' as 'commission income' liable to Service Tax under 'business auxiliary service' is not sustainable in absence of any documentary evidence; the income earned in cash while trading goods cannot prima facie be construed as commission earned while providing a service.The assumption that when all possibilities of income from trading/dealing of goods are ruled out, the only likelihood remaining is income from providing services, is unsupported by evidence and legally untenable.Commodity income arising from speculative trading or hedging activities, which may or may not involve actual delivery of commodities, is to be treated as business income under the Income Tax Act and not as service income liable to Service Tax.The adjudicating authority's finding that the demand for Service Tax was issued without 'any semblance of evidence of provision of service, receipt of payment for such provision' and without specifying the person(s) on whose behalf commission was earned, justifies dropping the demand. RATIONALE: The legal framework applied includes the definition and scope of 'business auxiliary service' under Service Tax law, the nature of commodity trading regulated by the Forward Market Commission (FMC), and relevant provisions of the West Bengal Value Added Tax Act, 2003.The court emphasized the distinction between commodity trading income as 'business and profession income' assessable under Income Tax law and commission income arising from acting as an agent, which attracts Service Tax.The adjudicating authority relied on the principle that a person is liable to Service Tax under 'business auxiliary service' only if acting 'on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration.'The judgment recognized that commodity trading can be speculative, may not involve actual delivery, and may occur through spot or futures markets, including over-the-counter (OTC) transactions, which do not necessarily require a commodity exchange or Demat account.The court noted the absence of any evidence that the respondent acted as a commission agent or provided any service to others, and that the 'commodity income' was accepted by the Income Tax Department as business income from commodity trading.The decision confirms that mere failure to produce documents or VAT payment records does not justify reclassifying business income as service income for Service Tax without evidential basis.