Where assessee’s employees involves in promotion of client’s products, the service provided by assessee’s employees amounts to services provided by assessee himself because employees were not free agent. Hence, commission received for such promotion is taxable in hands of assessee even if entire commission is distributed among employees.

This was recently held in Joshi Auto Zone (P.) Ltd. vs. Commissioner of Central Excise, Chandigarh.

 

Facts of the case:

 

M/s Joshi Auto Zone Pvt Ltd was engaged in providing ‘authorised service station’ and ‘business auxiliary service’ as defined in Section 65(9) and (19) of the Finance Act, 1994. The appellant was in receipt of incentives/commission from M/s Maruti Udyog Limited and other finance companies.

 

Assessee allowed table space to finance companies within its premises and received following sums:

(a) Commission towards efforts made by assessee’s employees for promotion of financial products and such commission was fully distributed among employees,

(b) Processing fees for processing of loan applications;

(c) Sum towards providing table space

 

Department demanded service tax on all three sums mentioned above.

 

In view of the above demand, assessee highlighted the following case:

 

In Pagariya Auto Center vs. CCE, it was held that consideration for allocation of ‘table space’ for accommodation of representative of financial institutions in the premises of automobile dealer do not fall within the ambit of ‘business auxiliary service’. The Larger Bench has held that the nature of the transactions, to the extent that it was not limited to providing ‘table space’, would determine the leviability under the head of ‘business auxiliary service.’ It is seen that the records do not indicate that the claim of the appellant that they are mere provider of ‘table space’ and that these receipts are in the nature of consideration for such allocation can be controverted. Therefore, the tax levied on such remuneration is liable to be set aside.

 

In the present case, the commission paid through the appellant to their executives is, admittedly, remuneration for the efforts made by the employees of the appellant to promote the products of the finance companies. Admittedly, they are employees of the appellant and, thereby, not free agents.

 

The appellant chooses not to retain any of the commission and instead passes them on to the executives is an internal policy of the appellant that need not concern the tax authority.

 

HELD:

 

• Providing table space to finance companies within assessee’s premises does not amount to Business Auxiliary Services and hence, not taxable
• Commission received for promotion of products of finance companies by assessee’s employees amounts to Business Auxiliary Services provided by assessee himself because employees were not free agent; hence, same is taxable in hands of assessee even if entire sum is distributed among employees
• Processing fees are the consideration for handling the loan applications and it is, undoubtedly, incidental to promotion of the service that is offered by the finance companies and is, therefore, taxable.

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