The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, has held that commission received after a service became taxable cannot attract service tax where the underlying service was rendered during the earlier exempt period.

The bench of R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) set aside a service tax demand of ₹4,79,087, along with interest and an equivalent penalty. It held that the date of rendering the service was relevant to determining tax liability in the dispute, and subsequent receipt of payment could not make an otherwise exempt service taxable.

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The dispute arose from commission and brokerage received by Century Plyboards for activities involving the sale or purchase of goods on behalf of other persons.

Based on the company’s annual accounts and trial balance for financial year 2004–05, the department alleged that it had received ₹59,88,590 as commission and brokerage without paying service tax under the category of Business Auxiliary Service.

A show cause notice dated October 6, 2009, proposed a service tax demand of ₹4,79,087 for the period from July 9, 2004, to March 31, 2005.

The proceedings culminated in an Order-in-Appeal dated November 30, 2018, confirming the demand along with interest and a penalty equal to the tax amount. The company challenged that order before CESTAT.

The assessee submitted that the disputed commission related to services provided to Patton Limited for transferring its DFRC licences for C.R. coils to POS-Hyundai Steel Mfg (I) Pvt. Ltd.

The company maintained that these services had been rendered before July 9, 2004, although the commission was received between July 9, 2004, and March 31, 2005.

It relied on Notification No. 13/2003-ST dated June 20, 2003, which exempted services provided by a commission agent from service tax. It also invoked the second proviso to Rule 6(1)(ii) of the Service Tax Rules, 1994, in support of its argument that later receipt of consideration did not create a tax liability for services rendered during the exempt period.

The department’s authorised representative reiterated the findings in the impugned order.

On examining the records, the Tribunal found that the debit notes supporting the disputed commission had all been issued before July 9, 2004.

The debit notes were dated April 27, June 20, June 21 and June 26, 2004. They related to the transfer of DFRC licences covering 157.010 metric tonnes, 3,392.790 metric tonnes, 1,962.380 metric tonnes and 2,472.609 metric tonnes of C.R. coils, respectively.

The Tribunal concluded that these documents established that the services were provided before Notification No. 8/2004-ST dated July 9, 2004. The services were therefore rendered during a period when the commission agent services in question were not taxable under Business Auxiliary Service.

CESTAT noted that the adjudicating authority had confirmed the demand on the ground that the proceeds, payments or commissions were received after July 9, 2004.

Rejecting that reasoning, the bench observed that it was an admitted fact that the commission agent service was not liable to service tax before that date.

The Tribunal explained that receiving commission after July 9, 2004, did not create a liability because the underlying service had been rendered when it was exempt. For determining liability in these circumstances, the relevant date was when the service was rendered, rather than when the consideration was received.

Accordingly, the bench held that no service tax was payable on the commission agent services rendered before July 9, 2004, even though the commission was actually received later.

Having found that the disputed services did not attract service tax, the Tribunal held that the demand of ₹4,79,087, together with interest and an equivalent penalty, was unsustainable.

It set aside the impugned order and allowed the company’s appeal with consequential relief, if any, in accordance with law.

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