Service tax on referral fees / commission

[Ganeshan Kalyani]

Dear Experts,

A manufacturing company has given reference of some of its customers who was in need of working capital to Bank. For providing such reference of prospective customers by company, the bank has given some amount of money as reward / referral fee / commission (whatever it can be called as) to the company. Now the query is whether service tax is applicable on such reward / referral fee / commission received by the Bank.

In my view, the company being manufacturer has not promoted or marketed about the Banks loan facility to the customers. A company has merely referred the details of prospective customers to the Bank and Bank has provided loan to those customers and a reward is credited to the company. In my view this does fall under ‘Business Auxiliary Service’ and therefore no service tax is warranted.

Request the experts to share their valuable views in this regard. Thanks.

AI Summary

Debate on Whether Commission for Referring Customers to Bank is Taxable Under Finance Act 1994 Section on Services A manufacturing company referred potential customers to a bank, which rewarded the company with a commission. The discussion seeks to determine if this commission is subject to service tax. One participant argues that since the company did not actively promote the bank's services, it should not fall under 'Business Auxiliary Service' and thus not be taxable. Others suggest that the commission qualifies as a service under the Finance Act 1994, making it taxable unless it falls below a specified threshold. The consensus leans towards the necessity of considering the transaction's nature to determine tax liability.