The central issue was whether service tax should be calculated on the gross commission amount or the net amount (after deductions) received by the DMAs

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) recently ruled that the service tax is indeed chargeable on the gross commission, as per Section 67 of the Finance Act, 1994, which mandates that service tax is levied on the gross amount charged for the service provided loan arrangement services to bank are liable to service tax on gross commission CESTAT ruled that . The matter is relevant in deciding the applicability of service tax on the gross commission received by Direct Marketing Associates (DMA) in the context of loan arrangement services provided to banks. Become an Expert in Foreign Exchange Regulations! The case in question involved M/s R.S. Financial Services, who were engaged by ICICI Bank Ltd. to arrange loans for the purchase of automobiles and were registered under the taxable service category of Business Auxiliary Service as per Section 65(19) and 65(105)(zzb) of the Finance Act, 1994. The central issue was whether service tax should be calculated on the gross commission amount or the net amount (after deductions) received by the DMAs. During an audit, it was found that M/s R.S. Financial Services was paying service tax on the net commission received after deductions such as subvention/reduction, commission, and cancellation case amounts, instead of on the gross commission reflected in the certificates issued by ICICI Bank. The tribunal held that the appellants had short-paid the service tax by not accounting for the gross commission, thereby leading to a demand for the recovery of ₹52,92,942, along with interest and penalties. The tribunal also addressed the issue of whether the extended period of limitation could be invoked for the recovery of short-paid service tax. The tribunal found that the appellant had suppressed material facts with the intent to evade payment of service tax, justifying the invocation of the extended period of limitation under Section 73 of the Finance Act. Become an Expert in Foreign Exchange Regulations! A penalty equal to the service tax demand was imposed under Section 78 of the Finance Act, and an additional penalty under Section 77 was also confirmed. The appellant argued that the order was passed without considering certain documents, which were provided only after the issuance of the order, thereby violating the principles of natural justice. However, the tribunal upheld the penalty based on the findings. The Tribunal decision underlines the requirement to pay service tax on the gross commission received by DMAs from banks, disregarding any deductions made by the bank. This ruling underlines the strict interpretation of service tax provisions under the Finance Act, 1994, particularly Section 67, which is crucial for businesses involved in similar arrangements to note. This judgement reaffirms the principle that all components contributing to the gross amount payable for a service are subject to service tax, and any deviation from this can lead to significant tax liabilities, including interest and penalties.