2011 (1) TMI 57 - HC - Service Tax

Writ petition to prohibit the department from levying and collecting service tax on the commission received acting as agents for a number of south Indian Tea Estates in the marketing and sale of their tea overseas, under the head Business Auxiliary Services - writ petition even before show cause notice Held that - revenue directed to issue a show cause notice and to give an opportunity of hearing to the petitioner before deciding the issues arising for his consideration relating to the payment of service tax by the petitioner. It would be open to the petitioner to substantiate its claims, by producing the necessary records. Thereafter, the respondent may pass appropriate orders on merits and in accordance with law, taking into consideration all the relevant aspects, including the decisions of the supreme Court cited by the petitioner, as expeditiously as possible.

Summary

Issues:
- Whether the respondent can levy service tax on the commission received by the petitioner for acting as agents for Tea Estates?
- Whether the exemption from service tax applies to the commission received by the petitioner in connection with the export of tea?
- Whether the product tea falls under the definition of 'Agricultural Produce' for exemption from service tax?
- Whether the writ petition is premature in nature due to the absence of a show cause notice from the respondent?

Analysis:
1. The writ petition challenges the respondent's authority to levy service tax on the commission received by the petitioner for acting as agents for Tea Estates. The petitioner argues that as a Commission Agent falling under 'Business Auxiliary Services', they were exempt from service tax during a specific period. The exemption was later restricted to commission related to the sale or purchase of 'Agricultural Produce', which includes tea. The petitioner contends that since tea is specifically mentioned under 'Agricultural Produce', they are exempt from service tax.

2. The petitioner further argues that the tea they deal with is not further processed beyond drying, making it exempt from service tax. They assert that the respondent misinterpreted the definition of 'Agricultural Produce' and issued a communication without proper analysis. The respondent, on the other hand, argues that the tea dealt with by the petitioner undergoes manufacturing processes in tea factories, making it a manufactured product not exempt from service tax.

3. The respondent denies the petitioner's claims and states that the exemption from service tax for commission agents was limited to those dealing with 'Agricultural Produce', including tea. The respondent argues that the tea handled by the petitioner is a manufactured product subjected to various processes, making it ineligible for the exemption.

4. The respondent raises the issue of the writ petition being premature as no show cause notice was issued to the petitioner regarding the service tax liability. The Court directs the respondent to issue a show cause notice, provide an opportunity for hearing, and consider relevant Supreme Court decisions before making a final determination on the service tax liability of the petitioner. The petitioner is allowed to substantiate their claims with necessary records during the process.

5. The Court orders the respondent to issue a show cause notice, conduct a hearing, and make a decision on the service tax issue considering all relevant aspects and legal precedents cited by the petitioner. The writ petition is upheld, with no costs imposed, and a related motion is closed.