The CESTAT, Ahmedabad in Akshita Exports v. Commissioner of C.E. & S.T., Surat-I [Final Order No. 10459/2025 dated June 09, 2025] held that service tax cannot be levied on commission amounts merely shown in export invoices, when there is no contract or direct payment relationship between the Indian exporter and the alleged foreign service provider.
Facts:
M/s Akshita Exports (“the Appellant”) was engaged in the export of goods. The Commissioner of C.E. & S.T., Surat-I (“the Respondent”) alleged that the Appellant paid commission to foreign buyers from 2008-2009 to 2011 -2012, and simultaneously availed export incentives such as DEPB and Duty Drawback on the entire invoice value, including the commission component.
The Respondent sought to levy service tax on such commission amounts under the reverse charge mechanism, classifying it as “Business Auxiliary Services” under Section 65(105)(zzb) of the Finance Act, 1994.
The Appellant contended that they had not appointed any foreign commission agent, and that payment to foreign buyers who in turn paid their own agents was a standard export trade practice. They submitted that no service was received by the exporter as no agreement existed with the commission agents, and the commission shown in the invoices was in fact a discount to buyers.
The Respondent argued that the Director’s admission that such payments helped secure export orders clearly demonstrated receipt of promotional services. It was further contended that non-payment of service tax was discovered only upon departmental investigation, thereby justifying invocation of extended limitation under Section 73(1).
Aggrieved by the Order upholding the demand, the Appellant filed an appeal before the Hon’ble CESTAT.
Issue:
Whether service tax is leviable under reverse charge mechanism on commission amounts deducted from export invoices where there is no agreement or direct transaction between the Indian exporter and the foreign commission agent?
Held:
The CESTAT, Ahmedabad in Order No. 10459/2025 held as under:
- Observed that, there was no contract or agreement between the Appellant and any foreign-based service provider, nor any direct payment from the Appellant to such agents.
- Noted that, even assuming some service was rendered by a commission agent abroad, such service was rendered to the foreign buyer and not to the Appellant, thereby lacking the essential nexus required for taxing ‘Business Auxiliary Services’ under reverse charge mechanism.
- Held that, in the absence of a service provider-recipient relationship, no taxable event arose; hence, service tax liability under Section 66A of the Finance Act, 1994 was not attracted.
- Held further that, the commission shown in invoices was duly disclosed in export documents and bank realization certificates, eliminating any element of suppression or misstatement. Consequently, invocation of the extended limitation period under the proviso to Section 73(1) was held to be unsustainable.
- Relied on, the decision in Suryanarayanan Synthetics Pvt. Ltd. v. CCE & ST, Surat-I [2024 (8) TMI 908 – CESTAT Ahmedabad] which held that commission shown in export invoices is not subject to service tax in the absence of a direct agreement with the foreign service provider.
- Set aside the impugned order and granted consequential relief to the Appellant.
Our Comments:
This Order affirms the principle that tax liability under reverse charge cannot be mechanically imposed in the absence of a qualifying taxable event. The Tribunal emphasized that to invoke service tax under Section 66A of the Finance Act, 1994, there must exist a contractual and payment relationship between the Indian recipient and the foreign service provider.
Section 66A imposes a reverse charge obligation only when a taxable service is provided by a foreign party to a person in India “under a contract or otherwise.” In the instant case, the Appellant had not entered into any written or even implied agreement with the foreign commission agent; instead, the commission was paid by the foreign buyer from the sale proceeds.
Further, Section 65(105)(zzb) of the Finance Act, 1994, which gives the definition of taxable service, “Business Auxiliary Service” envisages a direct service relationship between the service provider (here, the commission agent) and the Indian recipient (the Appellant). In the absence of any such relationship, no taxable event arises under this provision. The Tribunal rightly observed that the commission was merely a deduction from the sale invoice, equivalent to a trade discount rather than a service fee.
Additionally, the Tribunal rejected the invocation of extended limitation under the Proviso to Section 73(1) of the CGST Act, 2017 by relying in Texyard International v. CCE, Trichy [2015 (8) TMI 794 – CESTAT Chennai]. The requirement for invoking the five-year limitation period includes fraud, suppression of facts, or wilful misstatement. Here, all details related to commission were declared transparently in invoices, shipping bills, and bank realization certificates. Thus, the Department’s claim of suppression was rightly dismissed.
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