CESTAT observed that Aadat is nothing but a trade profit

The Ahmedabad bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), allowed the appeal and held that Aadat is nothing but a trade profit. In this case, the appallent, Vinay Corporation, has engaged in the trading of cotton bales. As per commercial practice, the sale of cotton would usually be bifurcated into the value of cotton and Aadat. Become an Expert in Foreign Exchange Regulations! The appellant’s margin is called as the Aadat. The applicable value-added tax (VAT) is paid on the total price, which is the price including the aadat. The department is attempting to collect service tax in relation to the appellant’s margin as commission under the Business Auxiliary service. The Commissioner (appeals) observed that there is no need for the above bifurcation and had confirmed the demand of service tax and penalties under Sections 78 and 77 of the Finance Act, 1994. The appellant, who was aggrieved by the above order, approached the CESTAT for relief. The counsel for the appellant contended that Aadat is not liable to service tax as Aadat is the profit margin in the course of the sale of goods, which is part and parcel of the sale value. It was further submitted by the counsel that in a sale invoice, in the trade of cotton, it is customary for the trader to show the actual purchase price of cotton and then add their profit margin, or Aadat. Thus, the Aadat is shown separately as a result. Become an Expert in Foreign Exchange Regulations! The bench observed that Aadat is nothing but a trade profit, which is a part and parcel of the sale price of the goods. The bench further observed that unlike the normal transaction, in this type of transaction, profit margin is bifurcated into purchase price and Aadat. The bench was of the opinion that just because the term Aadat has been used for the purpose of margin, it does not make it a commission for any service. As a result, the requirement under Business Auxiliary Service that treats Aadat like a commission is unsustainable. The bench, comprising Ramesh Nair (Judicial Member) and C.L. Mahar (Technical Member), allowed the appeal in favor of the applicant, and the impugned order was set aside.