No Service Tax Implication on Performence Linked Incentives
Citation :- AMR India Ltd. Versus Commissioner of Central Excise, Customs And Service Tax Hyderabad-II 2016 (1) TMI 67 - CESTAT BANGALORE
Facts :- Appellant is a registered service provider under the category of site formation and clearance and excavation services being provided by them to one M/s Singareni Colleries Company Ltd. (herein after referred to as Singareni) in terms of the agreement entered into between the two.
Further, in terms of the agreement, if the appellant consumes explosives and diesels over and above the agreed quantity per cubic meter of overburden removed, a penalty at the agreed rates was to be levied on the appellant. Similarly if the appellant used less quantity of explosives and diesels, he would be paid bonus/incentive by the service recipient.
Revenue by entertaining a view that value of the explosives and diesel oil which is being supplied free of cost by M/s Singareni is to be added in the assessable value of the services and the bonus received by them in the shape of incentive for optimum use of explosives and diesel oil is to form part of the assessable value of the services, raised demand of duty against the appellant by way of issuance of show-cause notice dated 21/10/2012 for the period March 2008 to March 2012.
Hon’ble CESTAT held that :-
The said bonus which stands paid to the appellants, dependent upon the conservative and efficient use of diesel and explosives, can by no stretch of imagination be held to be value of the services being provided by them. It is to encourage the service provider to use the oil and explosives in a conservative manner. In fact, such type of bonus being given by the service providers has been considered by the Tribunal in a number of cases.
Tribunal in the case of Kerala Publicity Bureau Vs CCE [2008(9) STR 101 (Tri-Bang)] observed that the incentives given to the service providers in the form of discounts are not leviable to service tax inasmuch as the said amounts are not received by the assessee in relation to service provided to their clients. Similarly, in the case of CCE Chandigarh Vs Facinate Advertising & Marketing [2013 (31) S.T.R. 77 (Tri-Del)], it was held that the incentives received by the assessee for appreciating performance were not known at the time of providing services and the same was never a consideration received by the assessee so as to tax the same.
Similarly in the case of Euro RSCG Advertising Ltd Vs CST Bangalore [2007(7) S.T.R. 277 (Tri-Bang)], it was held that incentives received from certain publications after they reached certain targets of advertising business are not connected with the services rendered to the clients.
8. In the present case also we find that the incentives given by M/s Singareni are for appreciating the appellants performance in utilizing less quantum of oil and explosives. In fact the said incentives were not even known at the time of performance of the service and are always calculated subsequent to the completion of the service. As such it can be safely concluded that the same is more in the nature of a prize money for a good performance by the appellant and are in no way linked to the value of the services. As such we find no justification for including the same in the value of the services and to confirm service tax on the same.Note :- The Above Judgement is for the Period of Dispute Prior to Imposition of Negative w.e.f 1.7.2012.