Principal-to-principal trade margin is not commission; service tax fails and exemption threshold also applies.

A principal-to-principal purchase and resale arrangement at trade discount was treated as trading activity, not agency, because the appellant bought goods on its own account, took title, and did not act on behalf of another. The 1% margin retained on purchase and sale was therefore trade profit, not commission, and could not be taxed as service commission. After excluding that amount, the remaining taxable services for each year fell below the exemption threshold under Notification No. 33/2012-ST, so no service tax was payable on that count. The impugned order was unsustainable and the appeal succeeded with consequential relief.

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Issues: (i) whether the 1% margin retained by the appellant on purchase and sale of goods at trade discount amounted to commission liable to service tax; (ii) whether, after excluding such amount, the taxable services in each year remained within the exemption threshold under Notification No. 33/2012-ST dated 20.6.2012.

Issue (i): whether the 1% margin retained by the appellant on purchase and sale of goods at trade discount amounted to commission liable to service tax.

Analysis: The appellant purchased goods on its own account from registered sellers at a discount and resold them on its own account at a different discount to registered buyers. The arrangement was principal-to-principal and not one of agency. A commission agent acts on behalf of another, does not take title to the goods, and earns commission for connecting buyer and seller. A trade discount retained in buying and selling transactions is not the same as commission merely because the margin is small or the counterparties are pre-registered.

Conclusion: The 1% margin was trade profit and not commission. The service tax demand on the alleged commission income was not sustainable and was set aside in favour of the assessee.

Issue (ii): whether, after excluding such amount, the taxable services in each year remained within the exemption threshold under Notification No. 33/2012-ST dated 20.6.2012.

Analysis: Once the alleged commission income was excluded, the value of taxable services for each year fell below the exemption limit of Rs. 10,00,000. The remaining service values for the relevant years were below the threshold prescribed for service tax liability under the notification.

Conclusion: The remaining taxable value was exempt and no service tax was payable on that count.

Final Conclusion: The impugned order could not be sustained, and the appeal succeeded with consequential relief to the appellant.

Ratio Decidendi: A person buying and selling goods on its own account on a principal-to-principal basis at trade discount is not a commission agent, and the resulting trading margin cannot be taxed as commission income for service tax purposes.

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