Commission Shared By Head Office With Branch Office Of Same Entity Is Not Taxable: CESTAT

The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that commission shared by the head office with a branch office of the same entity is not taxable.

The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that in the absence of any provider-receiver of service relationship, the commission amount shared by the branch office with the head office cannot be subjected to tax under the category of service.

The appellant/assessee is in the business of providing “Air Travel Agent Service” and is holding the service tax registration. The appellant was discharged the service tax under Rule 6(7) of the Service Tax Rules, 1994, and was paying the service tax at the rate of (0.6%) or (1.2%) of the base fare in cases of domestic booking and international booking, respectively, for the services taxable under the category of Air Travel Agent Services.

The Department found that the appellant had deliberately manipulated their books of account and not reflected the actual income earned as commissions received from the General Sales Agent (GSA) and also the incentives received from the airlines.

A show cause notice was issued to the appellant for demand of service tax under “Business Auxiliary Services” (BAS), along with interest under Section 75 and penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

The adjudicating authority confirmed the demand under Section 73(1), and the amount of Rs. 2,96,057 received in the name of ticket cancellation charges, voting charges, refund administrative fee (RAF), and air transaction fee was dropped. The appeal filed by the appellant was dismissed.

The learned counsel for the appellant has challenged the confirmation of the demand for service tax under the category of BAS.

The assessee contended that for the commission received from other branches, the transaction does not involve two separate entities in terms of the definition of taxable service, which requires the existence of a service provider and a service receiver, whereas the appellant and the branches are one and the same entity.

The department contended that the services in question are covered under the category of business auxiliary services, and the appellant is liable to pay the service tax.

The tribunal noted that though the appellant and the branches have separate service tax registration numbers, they are one and the same person, and the transaction does not involve two separate entities. The branch has been set up to serve the appellant company's customers in and around Jaipur, and the commission received by the Jaipur office from other branch offices is not for any taxable services rendered.

The CESTAT has held that the demand raised by the revenue under the category of “Business Auxiliary Service” is unsustainable.

Counsel For Appellant: Manoj Chouhan

Counsel For Respondent: Manoj Kumar

Case Title: M/s. Akbar Travels of India (P)Ltd. Versus Commissioner of Central Goods and Service Tax

Case No.: Commissioner of Central Goods and Service Tax

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