Service tax on commission

[Kuldeep Jain]

An oil company is recovering from its customers, the amount it paid to bank for clearance of outstation cheques.Amt recovered is greater than the amt paid to bank.Bank is charging service tax on the commission portion of the amt.Whether the bank is right in its approach? If yes , under which service head it is charging? Also whether co. should in turn charge service tax? If yes, on which amt. and under which head?

[Surender Gupta]

The activity of charging commission by bank is subject to service tax. Accordingly bank is right in charging service tax. However, your activity would also be subject to tax if falling under the taxable provisions of the Finance Act, 1994.

AI Summary

Service tax on bank commission: bank's levy upheld; suppliers may be taxable if recovered charges constitute a taxable service.
Banks may lawfully levy service tax on the commission component for cheque clearing. A company that recovers such bank charges from customers will be liable for service tax only if that recovery constitutes a taxable service under the Finance Act provisions.