In Mail Related Service v. Commissioner of Service Tax, Chennai, the Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that the rebate received by the assessee from the Postal department with a view to encourage the use of franking machine cannot be treated as Commission for the purpose of imposing Service Tax.
The assessee, engaged in providing mailing services using franking machines obtained on licence from the postal department, submitted before the Tribunal that the postal department gives the rebate to encourage the use of franking machine and there is no service provider-client relationship between appellant and the post office and according to the Memo of the postal department, the 3% rebate for the use of the franking machines is an “independent concession”.
Franking machine is used to avoid pasting of postage stamps, avoid pilferage and thereby make the work much convenient and easier way.
The bench noticed the decision of the Tribunal in United Mailing Services wherein it was held that the rebate received from the postal department on franking charges is not liable to be taxed. Further, the Tribunal has held that rebate cannot be designated as commission or remuneration for a service. The Tribunal, in that case, also observed that inclusion of franking cost in the service charges receivable by the Appellant from the client would be contrary to Post Office Act.
Following the above decision, the bench observed that the rebate received from the postal department, cannot be treated as a commission or an amount received for promoting the postal services.
“Such incentives are given by the postal authority to encourage use of franking machines, especially where the volumes are above a certain threshold level. We, therefore, do not find any merit in the adjudicating authority’s stand that these are required to be taxed under Business Auxiliary Services,” the bench said.
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