Larger Bench of CESTAT to decide whether Incentive from Service Provider subject to Service Tax [Read Order]

A larger bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Delhi bench will decide the issue of whether Incentive from service provider subject to Service Tax. A two-member bench of the Tribunal has referred the issue to a larger bench.

In the instant case, the appellants were asked to pay Service tax on the “Incentive Received” under the taxable category of “Business Auxiliary Services” (BAS) since the department was of the view that the Incentive was recorded as “Commission” in the books of accounts.

The appellants contended that the “incentive” cannot be taxed because the value of services rendered by it has been fixed and the “Incentive” received is not value of rendition of any service that merits classification under the taxable category “Business Auxiliary Service” because it does not satisfy any of the ingredients of the definition of “Business Auxiliary Services”.

Before the Tribunal, the appellants urged to refer the matter to the larger Bench due to divergent judgments.

After hearing the rival submissions, the two-member Tribunal held that  the order in case of D.Paul‟s case has been passed without considering and discussing any of the judgments pronounced by various Benches on non-taxability of incentives, without specifying the sub clause of BAS and the targeted audience before whom the services of Galileo India, Amadeus India and Calleo Distribution were promoted.

Accordingly, the Tribunal referred the following questions to be determined by the Larger Bench:-

• Whether the Incentive received by service receiver from service provider, on appreciable performance, can be subjected to service tax
• Whether a demand can be confirmed without specifying the sub clause of BAS under which the activities are covered?
• Whether demand of service tax can be confirmed under the taxable category of BAS in absence of three parties – service provider, service receiver and targeted audience?
• Whether in cases where value of service is fixed under an option provided under the Rules, such option having been exercised and not withdrawn, is it open for the authorities to demand service tax on other consideration or incentive received, be taxed under another category?