By TIOL News Service

MUMBAI, MAR 23, 2016: THE appellant entered into an 'agreement of retail agency' with M/s Style Spa in January 2004 in accordance with which the appellant provided its space in a commercial building for exhibiting the products of M/s Style Spa which were to be delivered by the appellants to customers on instructions. The appellants were responsible for collecting and remitting the sale price to M/s Style Spa and were to receive 1% of sale value as commission subject to a minimum of Rs.1,10,000/- per month.

The appellant has been held liable to tax of Rs.2,77,200/- under BAS for the period from February 2004 to April 2006 on amounts allegedly received as 'commission agent'.

Before the CESTAT, the appellant claimed that, notwithstanding the title of the agreement, it had merely rented out space to M/s Style Spa and that the building space was owned by the kartha and co-parceners of the Hindu Undivided Family (HUF) as an asset which could not be considered as a commercial activity. Reliance is also placed on section 65 (105)(zzb) of Finance Act, 1994 which restricted tax on 'business auxiliary service' to that rendered by 'commercial concern' till the amendment therein on 1st June 2006. Citing the decision in Infinity Credit - 2009-TIOL-589-CESTAT-DEL, it is contended that a HUF is a group of individuals and hence its assets cannot be considered to have been used in the course of commerce.

The AR justified the action by the lower authorities.

The Bench, after considering the submissions, observed –

+ Commission agent is defined in the exemption notification [8/2004-ST dated 9th July 2004] as - a person who causes sale or purchase of goods, on behalf of another person for a consideration which is based on the quantum of such sale or purchase.

+ Section 65(105)(zzb) of Finance Act, 1994, till 30th April 2006 taxed 'business auxiliary service' rendered by a 'commercial concern'.

+ Appellant contends that members of HUF are individuals and that the decisions cited exclude individuals from being taxed as 'commercial concern'. We find that the decisions were rendered in the limited context of imposition of penalties. Consequently, that HUFs can also be commercial concerns is no longer res integra and claim of the appellant for immunity from taxability under section 65(105)(zzb) is not tenable.

+ The appellant claims that the transactions with M/s Style Spa is one of renting of immoveable property. A perusal of the agency agreement does not sustain this contention. Undoubtedly, the arrangement with M/s Style Spa is predicated upon the possession of space available for display and storage of goods of M/s Style Spa . Nevertheless, the arrangement is one in which the appellant is the custodian of the goods intended for sale. The remuneration that was to be made over to the appellant is based on quantum of sale. Guarantee of minimum payment of Rs.1,10,000/- per mensem does not detract from the connection with sale.

+ This is squarely within the ambit of 'commission agency' which became taxable for non-agricultural produce in the hands of provider of 'business auxiliary service' vide notification of 9th July 2004. Appellant is eligible for exemption from February to July 2004. It is observed that, during the period of dispute, appellant was in receipt of only the minimum guaranteed amount of Rs.1,10,000/-. The agreement also makes it clear that M/s Style Spa is responsible for discharge of tax liability. In view of these facts, the plea of the appellant for 'cum-tax' computation is justified.

+ The impugned order is modified by re-computing the tax liability as Rs.2,03,634/- along with appropriate interest.

+ In view of the reasonableness of doubt that individuals may not be 'commercial concerns', we invoke section 80 of Finance Act, 1994 to set aside the penalty imposed under Section 78.

The appeal was disposed of.

(See 2016-TIOL-697-CESTAT-MUM)