Service Tax on overriding commission received in India from outside India "

In a recent decision honorable tribunal has held that Overriding Commission Received by an Indian Company from its foreign principle is taxable under service tax.

Re. ETA Travel Agency (P.) Ltd. Vs. Commissioner of Central Excise, Chennai reported in 2007 -TMI - 1552 - CESTAT, CHENNAI

Relevant abstract of the case are:

"Overriding Commission" ('ORC', for short) received by the appellants in Indian currency from Malaysian Airlines during the period of dispute under an Agreement dated 2-11-2000.

M/s. Malaysian Airlines System Berhad ('Malaysian Airlines', for short) had appointed the appellants as "General Sales Agent" ('GSA', for short) for India.

The duties of GSA were as laid down under article 5 of the Agreement.

The services rendered, in discharge of such duties, by the appellants to Malaysian Airlines fell in the category of "Business Auxiliary Service", which had become exigible to service tax w.e.f. 1-7-2003.

In this matter the appellant has claimed that:

• The service in question is export of service.

• By virtue of the Board's Circular No. 56/5/2003, dated 25-4-2003 service tax is not leviable on them.

• As the service in question had been rendered by them for a foreign client under an Agreement executed abroad and as the commission was calculated on the basis of the actual-flown-revenue, the transaction involved 'export of service' and the same was not taxable.

• They also argued that receipt in Indian Currency must be treated as receipt in Convertible foreign exchange.

• They have claimed benefit under notification no. 21/2003 ST dated 20-11-2003.

Tribunal has held that,

The impugned service is not an export of service. Demand confirmed.

Overriding commission taxation: commission received in India from a foreign principal is taxable as business auxiliary service. Overriding commission received in India from a foreign principal falls within Business Auxiliary Service and is taxable under service tax (exigible from 1-7-2003); arguments treating the transactions as export of service, receipt in Indian currency as convertible foreign exchange, or invoking circulars/notifications to avoid levy were not accepted in the factual context.