ST - Appellant receives commission from borrower who does not have either a product or a service to place in market - Consideration is, thus, not connected with sale of a product or service - Appellant, therefore, is not a provider of 'Business auxiliary service': CESTAT
By TIOL News Service
MUMBAI, FEB 24, 2016: THE appellant, as a broker, have an empanelled list of potential financiers and that, on being approached by potential borrowers, the details of offering of these financiers are made available to those in need of finance. Thereafter, the potential borrower and the potential financier settle the terms of loan following which the appellant issues a memo of interest which shows the details of interest to be paid by the borrower to the financier, the amount of commission/brokerage to be paid to the appellant and the tax amount liable to be deducted at source. Appellant receives its brokerage from the borrower. It is the claim of the appellant that no other activity is performed by them then or at any other stage.
However, the department is not convinced with this justification and says that this activity is taxable under the head BAS. Proceedings were initiated for recovery of Service Tax.
The CCE, Nagpur confirmed the service tax demand of Rs.70,79,542/- for the period between 2005-06 and 2009-10 along with appropriate interest besides penalizingthe appellant under sections 76, 77 and 78 of the FA, 1994.
The appellant has challenged this order before the Tribunal. Whereas the appellant draws support from the decision in Inter Ocean Shipping Co - 2012-TIOL-1824-CESTAT-DEL, the AR takes the assistance of the Tribunal decision in Sanfin - 2008-TIOL-1988-CESTAT-KOL to justify the department action.
A conglomerate of literary fragments dots the findings of the CESTAT.
The Bench after explaining the intricacies of a SCN, the allegations contained therein and an adjudication order proceeded to make its observations thus -
++ It is seen from paragraphs 13.6 and 13.7 of the impugned order that the adjudicating authority appears to believe that the appellant is a commission agent. It would appear that the lower authority has determined taxability on the ground that appellant is an agent and appears convinced that an entity once categorized as an agent is liable to be fitted as one intended to be covered by section 65(19)(vii). … A plain reading of the section, however, indicates that a commission agent is also deemed to be a provider of 'business auxiliary services' in addition to others who may be fitted in the seven sub-categories.
++ It is seen from the description of the activity that the appellant does not enter into any contract, written or implied, with either the financier or the borrower; nor is there any responsibility cast upon the appellant in the event of default on the part of financier or the borrower. Accordingly, the appellant fails the test of description as agency or agent for classification as commission agent under section 65(19) of Finance Act, 1994. There is no force in the argument that rendering any activity that fall in section 65(19)(vii) would classify the appellant as 'commission agency' when section 65(19)(vii) can be invoked only in relation to the preceding sub-categories.
++ The case laws relied upon by the adjudicating authority stand on a different footing inasmuch as the providers therein received commission from the clients whose commercial outputs were placed with final consumers. The appellant, on the other hand, receives commission from the borrower who does not have either a product or a service to place in the market. The consideration is, thus, not connected with the sale of a product or service belonging to the person who makes over the consideration. The appellant, therefore, does not find fitment in section 65(19)(vii) as provider of 'business auxiliary service'.
++ The activities of the appellant may indeed benefit the various empanelled financiers with increased business but the appellant is not in receipt of any consideration from any of them. To be a 'commission agent' the definition requires entities to "act on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration".
++ In view of an equation that is devoid of an agency relationship with the financier and rules out the provision of a service on behalf of the borrower from whom the appellant receives consideration, the activities of the appellant are outside the ambit of "business auxiliary service".
The impugned order was set aside and the appeal was allowed.
(See 2016-TIOL-502-CESTAT-MUM)
