Taxability of Service provided by FOREIGN BASED COMMISSION AGENT

[SANTOSH SHARMA]

What will be the position of service receiver and provider in the following situation after the amendment made in the definition of “INTERMEDIARY” in the rule 2 (f) which is mentioned in Rule 9 of Point of Taxation of Service, 2012. The situation are given below:-

1. If we are receiving service of foreign based commission agent to sell of our finished goods on the mutually agreed percentage of Commission linked to sale. Presently we are paying service tax under BAS on RCM under Noti. No. 30/2012 ST Dt. 20.06.2012 once we make payment to them.

2. If commission agent also engage sub-agent for providing said service outside India with or without our concurrence where we are liable to pay commission to both agents either directly or through main agent.

3. On the other hand, If we are also engaged in providing service to foreign based clients for selling their products in India as well as outside India and receiving commission in freely convertible foreign currency which presently we are treating it as “EXPORT OF SERVICE”.

4.The point of taxation where commission agent’s commission accrues when we get Export Proceeds in our Bank account as per the agreement between agent and us.

PLEASE THROUGH SOME LIGHT ON ABOVE ISSUE.

Regards,

SANTOSH SHARMA

[SHAHID HASHMI]

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH, AHMEDABAD

Appeal No.E/854/2011

Date of Decision: 18.7.2014

COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, SURAT-II VsM/s SHREE KAMREJ VIBHAG KHAND UDYOG SAHAKARI MANDLI LTD

M V Ravindran, J.

For the Appellant : Shri G P Thomas (AR)

For the Respondents : Shri Rahul Gajera And Shri J C Patel, Advs.

PER : M V Ravindran

This appeal is filed by the Revenue against OIA No.BC /64/SURAT-II/2011 dt 12.4.2011.

2. The revenue is aggrieved by the impugned order on the ground that the first appellate authority has allowed the Cenvat Credit of the service tax paid on Business Auxiliary Services on sales commission paid by the appellant for selling/marketing of their finished goods during the period June 2008 - March 2009.

3. Heard both sides and perused the records.

4. Ld Counsel appearing for the respondent raised preliminary objections and submits that authorisation to file appeal does not bear any date. On perusal of documents, I find that the said authorisation bears signature of one of the commissioners with a date on it. In my view the preliminary objections raised by the Ld counsel is incorrect and needs to be rejected and I do so.

5. On the merits, I find the first appellate authority has allowed the appeal filed by the appellant by recording the following findings.

    "I have carefully gone through the facts of the case, appeal memorandum and submission made at the time of personal hearing. As per the provisions of Rule 2(1) of the Cenvat Credit Rules 2004 "Input Service" means any taxable service, used by the manufacturer, whether directly or indirectly, in or in relation to manufacturer of final product. I find that the definition of input service the words "sales promotion" has been included. I find that the appellant sold their finished goods through Commission Agents and the Commission agents charged commission for sale of the goods to the customer and paid service tax on such commission. The appellant has also produced Chartered Accountant certificate that brokers or agents are paid their commission amount separately. It clearly shows that the commission has been given for promoting the sale of the finished excisable goods of the appellant. Therefore the said service is definitely an input service of the appellant. Therefore the said service definitely an input service of the appellant. The issue is no res integra as the specific issue of credit of service tax paid on sales commission agents has been allowed in case of Lanco Industries Ltd vs. CCE Tirupati 201(17) STR 350 9 (Tri. Bang.); CCE Raipur vs HEG Ltd 2010 (18) STR 446 ( Trii Del)) and host of other cases".

6. It can be seen from the above reproduced paragraph that the first appellate authority has relied upon a chartered accountant's certificate which clearly shows the commission which has been paid by the appellant is for promoting the sale of finished goods. As against such a categorical findings on the facts of the case, I find that the Revenue' appeal has not adduced any contrary evidence. The entire grounds of the appeal of the Revenue is basically trying to interpret the provisions of the Rule 2(l) of the Cenvat Credit Rules 2004, to drive home a point; that the sales promotion and such other activities are related sales commission service and do not qualify for as an Input Service. Revenue has placed reliance on the judgment of the Hon'ble High Court of Gujarat in the case of Cadila Health Care Ltd - 2013 (30) STR 3 (Guj) of the judgement leadership , I find that the lordship have categorically held that the Cenvat Credit on the service tax paid on the sales commission is per-se is not allowed but if the said commission is paid for promotion, that would be a different. The factual matrix is recorded by the first appellate authority indicates that the amount paid by the appellant is a commission for sales promotion expenses.

7. In my view, the judgment of the Hon'ble High Court of Gujarat in the Cadila Healthcare Ltd (Supra) would cover the issue in favour of the assessee.

8. I do not find any merits in the appeal filed by the Revenue. Accordingly, I upheld the impugned order as correct and legal and do not suffer from any infirmity.

9. Appeal is rejected.

(Pronounced in the Court on 18.7.2014)

[Priya Rajarajan]

@Santosh,

Have you got any reply?.I'm also travelling on the same boat.I'm about to sign a contract for sugar ,seller and buyer outside India,I will be receiving money to my Indian account.But in turn to pay agent comission to 3 of my sub-agents.

1.Can I transfer directly to the subagents the comission from India or should I need to ask the endseller to send the comissionstoforeign subagents.

2.How much comission to foreign sub agents per month(as I need to pay 2 million usd per month for each subagent)

[SR AGRAWAL]

As can be seen from the case law cited above and also as per provisions of Place of provision of Serves Rules, 2012 that Service shall be deemed to have been provided at the place where the Service recipient is situated. As such in the cases as above the place of Service be deemed as INDIA. Further as per provisions of Rule 2 (d) of the Service tax Rules, 1994 any Service Received from outside the taxable territory i.e. outside INDIA in these cases, the person liable to pay Service Tax be the recipient of Service. As such the liability to pay Tax be on the Service Recipient.

As regards admissibility of CENVAT Credit, it will depend on case to case.

Regards,

S R AGRAWAL

[Manoj Agarwal]

Dear Sir,

You are not required to pay service tax under RCM on payment of commission to the agent outside India, if the agent is not having any establishment in India. For further clarifications, if any, kindly email me at servicetaxexpert@yahoo.com

Regards,

Manoj Agarwal

AI Summary

Place of Provision of Service determines recipient's tax liability under reverse charge for services received from abroad. Services received in India from foreign commission agents are generally treated as provided where the service recipient is located, making the Indian recipient liable under the reverse charge mechanism for service tax when the provider is outside the taxable territory. CENVAT credit for service tax on sales commission depends on factual characterisation; credit may be allowed where the commission is shown to be for sales promotion, but is not permitted as a blanket rule. Application to sub-agents, direct payments, and export commissions requires case-specific analysis of establishment, contractual terms, and evidentiary proof.