ST - Seeking to tax a particular commission amount under Excise duty & later demanding Service tax on very same amount is an exercise in incredulity: CESTAT
By TIOL News Service
CHENNAI, MAR 22, 2019: THIS is a Revenue appeal.
The respondent company acts as an authorized distributor for products manufactured by M/s HP India Limited and also receives 1% volume discount on the total turnover made in respect of HP products.
The Revenue observed that the net sale price for re-sellers was arrived at after deducting discounts and rebates. It was also noted that the discount so deducted and allowed to distributors included 1% additional discount given to volume distributors for providing reseller sell-through reports as inventory reports on weekly basis to M/s HP India Ltd.
The Revenue, therefore, viewed that such amount was not a trade or sales discount but was a commission received for providing stategic marketing information to M/s HP, which helped to increase the sale of HP brand products and hence the respondent had provided Business Auxiliary Service (BAS) to M/s HP and on which Service Tax was payable.
SCN was issued demanding Service Tax but the adjudicating authority dropped the proceedings holding that 1% discount is not consideration received for rendering services and so is not taxable.
The Tribunal considered the submissions and upon examining the provisions in the charging sections in the Central Excise Act, 1944 and the Finance Act, 1994 observed that the assessable value for levying Central Excise duty and for levying Service Tax were different and distinct entities. Inasmuch as while Central Excise duty sought to tax production or manufacture of goods in India, service tax is a levy on service; that by virtue of its intrinsic nature, a service could not be treated as an activity amounting to manufacture & be subject to levy of Excise duty.
The Tribunal elaborated thus -
"6.10 Viewed in this light, a value or consideration undisputedly forming part of assessable value for purposes of levy of central excise duty cannot then be also considered as part of the value of taxable service for levy of service tax. This is in keeping with the fundamental principle that the same activity cannot be considered as manufacture and subjected to excise levy and at the same time considered to be a service and subjected to service tax. In fact, the process amounting to "manufacture" is kept specifically out of the scope of Section 65 (19) of Finance Act, 1994 which prescribes service tax liability on processing of goods not amounting to manufacture..."
The Tribunal also delved into the history of the litigation between the respondent assessee and the Revenue, observing that as far back as on 26.03.2001, a SCN had been issued to M/s HP India Ltd., proposing to include the very same 1% commission amount, which is the subject matter in the present appeal as part of the assessable value for levy of Central Excise duty; that on adjudication therein, such 1% commission amount was not found to be eligible for deduction & that Excise duty was payable on it. The said decision had been upheld by the Tribunal and subsequently affirmed by the Apex Court.
The CESTAT, therefore, observed -
"...The Department should have taken precautionary measures to issue periodical SCNs on the very same issue from time to time pending final decision in the matter. This being the case, we are unable to fathom the how and why of the department having taken a stand contrary to that settled by the Hon'ble Apex Court on 06.02.2004 and deemed it proper to issue a SCN taking an antipodal and opposite proposition. Unless the said judgment of the Supreme Court has been further reviewed, or for that matter, the ratio laid down had been overturned by the Apex Court itself, which is certainly not the case here, there is no justification for the department to have initiated the impugned proceedings. In our view, seeking to tax a particular commission amount under excise duty on the one hand, and in respect of the identical transaction, demanding service tax liability on the very same amount, is nothing but an exercise in incredulity..."
The Bench also viewed that there being no allegation of non-filing of prescribed statutory returns or any attempt to conceal the facts or suppression of any information and audit having been conducted by the Internal Audit as well as CERA during the material period, the extended period of limitation could not have been invoked.
Finding no grounds to interfere with the impugned order, the Revenue appeal was dismissed.
(See 2019-TIOL-832-CESTAT-MAD)
