TaxTMI 
TaxTMI 
2025 (7) TMI 1780
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.... facts of the case are that M/s. Adhunik Steels Ltd. (hereinafter referred to as the "respondent/assessee") is a public limited company, registered with the Department as a service provider for various services viz., 'transportation of goods by road', 'mining service', 'works contract service', 'manpower recruitment or supply agency', 'management consultant service', 'business auxiliary service' and 'maintenance or repair service'. 3.1. During the course of scrutiny of respondent's balance sheet for the period from 2010-11 to 2011- 12, the Departmental authorities observed that the respondent had shown an item named as "commodity income" under the head of 'Other Income' in Schedule 16 of the audited balance-sheet. The respondent could not substantiate the nature of such income and could not produce any record as to how such a consolidated income is arrived at or as to how such high value cash transactions had taken place. 3.2. The Department took the view that the "commodity income" in question is nothing but commission earned on trading of goods in the open market and accordingly, is liable to be taxed under the category of 'business auxiliary service'. It has also been alleged ....
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....ssessee in their reply to the notice also reiterated that such income has been generated from trading in open market and basically in cash and accordingly there are no supporting documents for the same. They also indirectly referred in their reply to future contracts, where actual delivery of commodities is not essential, and contended that VAT is, therefore, not chargeable on such transactions. But the fact of the matter is that to start trading in commodity future the minimal requirement is to open a trading account with a broker and to have a commodity Demat account either with NSDL or CDSL just like in stocks. Moreover, all such commodity trading, regulated by Forward Market Commission (FMC), can happen only through National-level Commodity Exchanges over an electronic platform, where every detail of each transaction is recorded. (iv) Moreover, if the assessee's submission was rationally examined it would have given rise to some pertinent questions like: - If no record or ledger is maintained by the assessee, as claimed by them, then how at the end of the financial year the consolidated commodity income is arrived at and is known to the Auditor and finally recorded in t....
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....It is the case of the respondent that they are engaged in the activities of Trading of Goods & Provision of Service; whatever 'other income' they get should be classified/accounted for either trading of goods or as service rendered. Since the respondent could not provide any documents, like VAT payment documents, to prove that the income is from the activities of Trading of Goods, the Department has deemed it appropriate to treat the same as 'commission' earned on trading of goods and subjected to Service Tax under the category of 'business auxiliary service'. The respondent's claims that such income has been generated from trading in open market and that they earned this commodity income in cash; this income is generated out of unrecorded transaction of trading in commodity; that the transactions were basically done in the open market and not through any commodity exchange. Since the respondent had not maintained any ledger for recording this transaction, the respondent claims that there are no supporting documents for the same. 7.2. It is also the respondent's case that commodities are traded either in the spot market (sometimes called the cash market), whereby t....
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....nt either with NSDL or CDSL just like in stocks. Moreover, all such commodity trading, regulated by Forward Market Commission (FMC), can happen only through National Level Commodity Exchange over an electronic platform, where every detail of each transaction is recorded. (iv) It is their submission that for contending this objection raised by the Committee one needs to has a basic understanding of the commodity market and how does the said market works. A commodities exchange is an exchange where various commodities and derivatives are traded. Most commodity markets across the world trade in agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies, oil, metals, etc.) and contracts based on them. These contracts can include spot prices, forwards, futures and options on futures. Other sophisticated products may include interest rates, environmental instruments, swaps, or freight contracts. (v) Further, a commodity market is a market that trades in primary economic sector rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa, fruit and sugar. Hard commodi....
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.... that the commodity transactions can take place in both cash or in physical delivery system and there is no need for a broker to get himself registered with the regulator. Further, it is baseless to say that the transactions are carried only through exchange as over the counter (OTC) trading is also allowed in commodity transaction which does not require any exchange. (ix) That the commodity are traded either in the spot market (sometimes called the cash market), whereby the buyer and seller immediately complete their transaction based on current prices, or in the futures market. In futures contracts, buyer and seller enter into a nature of transaction to buy or sell at a future date. Basically, it is hedging towards risk of increase/ decrease in price. (x) However, it is not must that actual delivery of commodities does take place, because it may be entered only to receive a specific quantity of the commodity at a specific date and at a specific price or hedging may be done just to earn profit. In the instant case, the respondent had traded only to make profit and not to receive the commodity at future date. As the actual delivery does not take place, question of VAT does not ....
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....g of goods. 9.2. In this regard, we observe that the Department could not provide any documentary evidence in support of their allegation that the 'commodity income' has been received towards rendering of taxable service. It is only an assumption of the appellant-Department that when all the possibilities of income from trading/dealing of goods are ruled out, the only likelihood that remains is that the respondent could have earned such income from providing services. However, there is no evidence brought on record in this regard by the Department to substantiate their claim that the respondent has earned any commission on trading of goods. Accordingly, we hold that the income earned in cash while trading of goods cannot prima facie be construed to be 'commission' earned while providing a service. Thus, we are of the view that demanding Service Tax on the 'commodity income' by categorizing the same as a consideration earned towards rendering of taxable service under the category of "business auxiliary service" is legally not sustainable. 9.3. In this regard, we find that while dropping the demand raised in the Notice, the ld. adjudicating authority has rec....
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....goods or service. On the contrary, it is of a kind of speculative business income arising out of commodity trading on one's own, either on receipt of a specific quantity of the commodity at a specific date and at a specific price, or by way of hedging just to earn profit. Commodity incomes are classified and assessed under the business and profession income under the Income Tax Act. 4.5 I find that the notice only sought logical conclusion of their apprehension that the amount shown as 'Commodity Income' must be in relation to provision of service and issued the subject demand without: taking the pain of any sort of investigation or without making any effort to comprehend I the business of the noticee resulting in the income under the head 'Commodity Income'. A person is treated as commission agent and would be liable to service tax under the head 'Business Auxiliary Service', if the person acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration. The demand has been issued without any semblance of evidence of provision of service, receipt of payment for such provision. It also fa....