2009 (4) TMI 799 - Commissioner - Service Tax

Issues Involved:
1. Classification of the amount received as 'commission' or 'compensation.'
2. Applicability of service tax under the category of "Business Auxiliary Service."
3. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
4. Invocation of the extended period of limitation for issuing the demand notice.

Issue-wise Detailed Analysis:

1. Classification of the Amount Received as 'Commission' or 'Compensation':
The appellant, M/s. Emerson Climate Technologies (India) Ltd., argued that the amount of Rs. 58,96,835/- received from M/s. Copeland, USA was 'compensation' for direct sales to Indian customers and not 'commission.' The adjudicating authority rejected this contention, stating that the agreement did not mention the term 'compensation' and that the amount received should be treated as 'commission' for promoting sales and carrying out after-sale service activities. The appellant contended that the nomenclature of a transaction is not determinative of its nature, citing the Apex Court decision in 1979 (116) ITR-1, which emphasizes the substance of the transaction over its form.

2. Applicability of Service Tax under "Business Auxiliary Service":
The adjudicating authority held that the appellant was liable to pay service tax under the category of "Business Auxiliary Service," which includes services for the promotion of sales of goods and services. The appellant argued that they did not play any role in the direct sales transactions between M/s. Copeland, USA, and Indian customers, nor did they provide any after-sale services. The definition of 'Business Auxiliary Service' under Section 65(19) was examined, which includes services related to the promotion or marketing of goods or services, customer care services, and services incidental or auxiliary to these activities. It was found that the appellant did not deal with the goods or services, nor was there evidence of after-sale services. Therefore, the commission received as compensation for direct sales could not be brought under 'Business Auxiliary Service.'

3. Imposition of Penalties:
The adjudicating authority imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994, along with confirming the service tax demand of Rs. 6,01,478/- and interest. The appellant contested these penalties, arguing that the demand itself was not sustainable. Since the commission received was not for promoting sales or after-sale services, the imposition of penalties was deemed unwarranted.

4. Invocation of the Extended Period of Limitation:
The lower authority invoked the extended period of limitation, alleging suppression of facts with intent to evade service tax. The appellant argued that the department was already aware of the relevant facts from a previous show cause notice (SCN) issued for the financial year 2004-05. Citing the Supreme Court decision in Nizam Sugar Factory v. CCE, the appellant contended that the extended period could not be invoked for the subsequent period on the same set of facts. The adjudicating authority's reliance on the extended period was found to be unjustified, making the SCN for the financial year 2005-06 time-barred.

Conclusion:
The appeal was allowed, and the impugned order passed by the Joint Commissioner, Central Excise, Pune II, was set aside. The appellant was not liable to pay service tax on the commission received from M/s. Copeland, USA, and the extended period of limitation was not applicable. Consequently, the penalties imposed were also set aside.

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