SERVICE TAX ON TRADE INSENTIVE

Having a first look on your case and on the basis of information provided by you, it seems that the dealer gets the commission if the target quantity/amount of goods are sold by him. if this is the case, this may be regarded as " BUSINESS AUXILIARY SERVICE" its a taxable service u/s 65(105). and accordingly the amount of incentives received will amount to the consideration received towards a taxable service. CH. V of Finance Act, 1994 shall apply.

Thank You! 

Dear Mr. Azim Khan

Thanks for your reply.

Please note Trader gets the insentive on purchase of goods. Seller is not concern with wether this goods sold or in the stock.

Please advice

Regards

Dear Sir

Please find the comments from perspective of company and dealer as follows:

Company perspective

A company engaged in trading of goods is rendering a trading activity which not a service as per service tax law. However, for Cenvat credit purposes the input pertaining to trading turnover needs to be segregated as the same is not eligible for Cenvat credit.

Dealer perspective

 Dealer engaged in purchasing and selling goods on behalf of the Company falls under the category of commission agent defined under Business Auxiliary services (‘BAS’) as follows:

”commission agent” means any  person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person —

 (i) deals with goods or services or documents of title to such goods or services; or 

 (ii) collects payment of sale price of such goods or services; or 

 (iii) guarantees for collection or payment for such goods or services; or

 (iv) undertakes any activities relating to such sale or purchase of such goods or services;  

Accordingly, if the company has entered into a contract/ agreement with dealer to sell goods on its behalf then there is a service provider and recipient relationship and the activity undertaken by the dealers clearly fall under the ambit of BAS so the gross consideration received by dealer i.e. commission and incentive commission is taxable in hands of service provider and he is liable to tax (please note that a dealer availing threshold exemption of 10 lacs may opt to pay or not to pay the said tax).

However, in case the transaction between company and dealer is on principal to principal basis then the transaction may not be subject to tax.

Please note that contracts undertaken between parties are the very basis which helps in determination of service tax levy. The view given above are based on the assumption that dealer is selling goods on behalf of the company. full analysis of the transaction is only possible basis review of service/ dealer – company contract

 In case you require any further advisory assistance please contact

Thanks & Regards

Hardeep Singh Lamba

+91- 9891535339

In my opinion what the trader gets is only the bulk purchase discount and not  'Commission" to ring under the  the purview of Service Tax net.

receiving discount or commission does not matter in relation to service tax. if(inter alia) the dealer purchases goods on behalf of the manufacturer and sold or vise versa, such activity amounts to a taxable service under service tax as Business Auxiliary Service.

The term Auxiliary means Supportive.

It is held in various judgement  in apealent  is not covered under business auxilliry services , as incentive received on trading of goods , it depend upon how  u make the entris in the books of account,  if you are showing as trade discount which is attracted because of trading acitvity which is it self  tax free service and extra consideration received will be treated as trading considration hence it will be tax free till 1-7-2012