2005 (1) TMI 423 - AT - Service Tax

Service Tax - Del Credere Agency - Penalty - appellants providing taxable service under the category Clearing and Forwarding Agents - Whether the commission received on account of Del Credere Agency is liable to Service Tax under the category of C F Agents as defined in Finance Act, 1994 - HELD THAT - It is very clear that as per the Agreement entered between the appellant and M/s. IPCL, they indemnify M/s. IPCL against the default in payment of creditors. For this purpose, they receive commission at the rate of Rs. 250 per MT. In these cases, they do not even handle the goods. The customers directly book orders and the Principal sends the goods to the customers. In case the customers default in payment, the appellant undertakes the liability and compensates M/s. IPCL. In our view, this service cannot come within the purview of C F operations. Even though the appellant is a C F Agent, every activity undertaken by him cannot be brought within the purview of C F operations. Thus, we do not find any merit in the OIA. We allow the appeal with consequential relief.

Summary

Issues:
- Alleged failure to declare the whole value of service rendered leading to short payment of Service Tax
- Classification of commission received on account of Del Credere Agency under the category of C&F Agents for Service Tax liability

Analysis:
1. The appellant was accused by the Revenue of not disclosing the full value of services provided to clients, resulting in Service Tax underpayment. The appellant operates as a Clearing and Forwarding Agent, offering services to M/s. India Petrochemicals Corporation Ltd. The services include receiving goods from M/s. IPCL for forwarding to buyers, for which they receive service charges/commission. Specifically, the appellant receives charges for PDA sales, where they act as a 'Del Credere Agent' for M/s. IPCL, ensuring timely payment collection from customers and indemnifying M/s. IPCL in case of default. The adjudicating authority confirmed the underpayment and imposed penalties under various sections of the Finance Act, 1994. The appellant's appeal challenging this decision was unsuccessful before the Commissioner (Appeals), leading them to approach the Tribunal.

2. The appellant's representative argued that the Revenue's imposition of Service Tax on activities not directly related to C&F agency work was unjustified under the Finance Act, 1994. They highlighted the Del Credere agreement with M/s. IPCL, emphasizing their indemnification of the principal in case of losses due to credit extended to third parties. Definitions of Del Credere from authoritative sources were presented to support their argument. The appellant contended that the Commissioner (Appeals) failed to consider their points adequately and incorrectly categorized Del Credere Agency as part of C&F Agency work.

3. The Tribunal examined the dispute regarding the liability of the commission received for Del Credere Agency under the Service Tax category for C&F Agents as defined in the Finance Act, 1994. It was noted that the agreement between the appellant and M/s. IPCL involved indemnifying the latter against payment defaults by customers, for which the appellant received a commission. Importantly, the appellant did not handle the goods directly in these transactions; customers placed orders directly, and M/s. IPCL handled the delivery. Given these circumstances, the Tribunal concluded that the service provided did not fall within the scope of C&F operations. While the appellant functioned as a C&F Agent, not all their activities could be considered part of C&F operations. Consequently, the Tribunal found no merit in the decision of the Commissioner (Appeals) and allowed the appeal, granting consequential relief to the appellant.