Commision on acc of Sale & purchase of motor vehicles & payout

[Varun Arora]

Dear Experts,

Please resolve my query.

I am engaged in the business of Sale & purchase of Motor Vehicles and holds franchisee of Mahindera First Choice.

And i am receiving Commision on account of Sale and purchase of motor vehicles from my customer as well as Payout from Mahindera first choice.

Please suggest whether service tax is applicable or not on commision as well as payout received.

Commision amount is 9 lacs and Payout amount is 3 lacs.

Thanks in advance.

[Rajagopalan Ranganathan]

Sir,

Since the total amount received by you exceeds the small scale exemption meant for Services you have pay service tax on the same . The service provided by you are classifiable as 'services not under negative list'.

[Ganeshan Kalyani]

Both commission and pay out received by you is toward the service that you have rendered. Hence eligible to service tax.

[Ganeshan Kalyani]

It is advisable to get registration number. And after getting the service tax RC number you should pay the tax along with applicable upto date interest.

[Ganeshan Kalyani]

Service tax shall not be applicable on first ₹ 10 Lacs consideration, and on excess of the said amount Service is payable.

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Shri Rajagopalan.

[Varun Arora]

Dear All,

Thank you all for your valuable replies , In this case as i mentioned i holds franchise of Mahindera first choice in this case whether exemption of rs 10 lcas shall be available to me or not because i am running the workshop as well as showroom under the brand name of Mahindera First choice.

Thanks a ton.

[Ganeshan Kalyani]

You are eligible for SSI exemption. But then in your query it is mentioned that commission crossed the SSI limit, hence the experts opined the service is taxable.

[Mahir S]

1) You are carrying out sale of purchase of Motor Vehicles for which you have received commission of ₹ 9 Lacs. This commission is nothing but Profit earned for sale/purchase of Vehicles which is a trading activity.. Hence, here no service tax applicable thereon.

2) Yes, you are required to pay service tax for the Payout amount received from Mahindra First Choice. Since this amount is ₹ 3 Lacs is under the threshold limit , therefore no service tax required to be paid till ₹ 10 Lacs.

In view of above, no service tax is required to be paid.

Further, no service tax liability even if the commission amount of ₹ 9 Lacs referred in para 1 above crosses 10 Lacs limit.

[Ganeshan Kalyani]

The term commission is used in query. Commission refers to a sort of incentive / remuneration for effecting sale and purchase. Whether the price of vehicle is paid to the supplier on purchase or sale price of vehicle is received on sale to customer. If the same is the case then it would be a trading activity which is exempt from service tax. VAT will be applicable then on sale and purchase transaction.

[Ganeshan Kalyani]

If the vehicle is received from the supplier for affecting sale and commission is receivable only when sale takes place then it tantamounts to service and service tax is applicable on commissions received.

AI Summary

SSI exemption for service tax may apply; commissions as trading receipts differ from commissions as taxable service. Commission linked to actual trading margins for sale/purchase is treated as trading consideration and not a taxable service; remuneration strictly for effecting sales is a taxable service. Franchisor payouts are treated as consideration for services and fall within service tax unless covered by the small service provider exemption; exceeding that threshold requires registration and payment with applicable interest.