Contingent bonus payments under a share sale can be treated as taxable marketing service consideration when linked to turnover and business performance.

Additional contingent bonus payments under a share purchase arrangement were treated according to their real character: because they were separately stipulated, linked to future turnover and managerial continuance, and payable over and above the share price to the individual sellers, they were regarded as consideration for marketing services and made liable to service tax under Reverse Charge Mechanism. Non-disclosure of the liability, discovered only through investigation, was treated as suppression with intent to evade tax, so the extended period of limitation was upheld. The penalty structure was nevertheless modified because the commission-related demand had been paid with interest before the show cause notice, resulting in reduction of one penalty and setting aside of another.

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Issues: (i) Whether the additional bonus payments made under the share purchase arrangement were, in substance, consideration for marketing services and therefore liable to service tax under Reverse Charge Mechanism; (ii) Whether invocation of the extended period of limitation and the consequential penalties were justified.

Issue (i): Whether the additional bonus payments made under the share purchase arrangement were, in substance, consideration for marketing services and therefore liable to service tax under Reverse Charge Mechanism.

Analysis: The bonus amounts were not part of the fixed share purchase price alone but were separately stipulated, contingent on future turnover and managerial continuance, and payable to the individual sellers. The arrangement showed that the payments were linked to future business performance and promotion of the appellant's business, rather than to the acquisition of shares as such. The performance-based nature of the payments, their linkage to turnover, and the fact that they were made over and above the agreed share value supported the conclusion that they represented consideration for marketing services. The appellant's reliance on customs valuation decisions was found inapposite.

Conclusion: The bonus payments were taxable as consideration for marketing services under Business Auxiliary Services and service tax demand on this count was upheld in favour of Revenue.

Issue (ii): Whether invocation of the extended period of limitation and the consequential penalties were justified.

Analysis: The relevant documents came to light only through investigation, and the liability was not disclosed in the ordinary course. The non-payment was therefore treated as suppression with intent to evade tax, warranting invocation of the extended period. At the same time, the pre-show-cause payment of the commission-related demand with interest justified modification of the penalty structure, including reduction of the penalty under the penal provision and setting aside of the smaller penalty under the general penalty provision.

Conclusion: Invocation of the extended period was upheld, while the penalty regime was modified by reducing the penalty under the penal provision and setting aside the penalty under the general penalty provision.

Final Conclusion: The substantive tax demand on the disputed bonus payments was sustained, the extended period was upheld, and the appeal succeeded only to the limited extent of penalty modification.

Ratio Decidendi: A payment described in a share purchase agreement will be treated according to its real character; where an additional contingent payment is linked to future turnover and business performance and is payable to the individual sellers, it is consideration for taxable marketing services rather than share purchase price, and suppression of such liability can justify the extended limitation period.

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