2016 (1) TMI 562 - AT - Service Tax

Commission agent for ginned cotton - Scope of exemption - agricultural produce or not - Notification No. 13/2003-ST dated 20.06.2003 - business auxiliary services - Held that - Cotton fibre obtained by ginning cotton plucked from cotton plants is nothing but raw cotton fibre because there cannot be rawer form of cotton fibre obtained from cotton-with-seeds plucked from cotton plants. We also take note of the exclusionary part of the definition of agricultural produce which states that it does not include manufactured products such as sugar, edible oils, processed food and processed tobacco as also of the no-further-processing requirement contained in the said definition and are of the view that holistic, harmonious and fair construction of the definition of agricultural produce leads to the inescapable conclusion that while ginned cotton would be covered within the scope of raw vegetable fibres such as cotton and hence qualify to be called agricultural produce , ginned cotton if subjected to any further processes like carding etc. would get out of the purview of agricultural produce . As appellant is a commission agent of ginned cotton, it is eligible for the benefit of Notification No. 13/2003-ST. - Decided in favor of assessee.

Issues:
1. Interpretation of the definition of "agricultural produce" in Notification No. 13/2003-ST.
2. Eligibility of ginned cotton as "agricultural produce" for service tax exemption.
3. Application of the principle of avoiding redundancy in statutory interpretation.
4. Consideration of further processing on ginned cotton for exemption eligibility.

Analysis:
1. The appeal challenged an order-in-appeal upholding a service tax demand but setting aside penalties based on the eligibility for the benefit of Notification No. 13/2003-ST. The issue revolved around whether ginned cotton, as a commission agent's product, falls under the definition of "agricultural produce" as per the notification.

2. The appellant argued that ginned cotton is covered within the scope of "raw vegetable fibres such as cotton," which is specifically included in the definition of agricultural produce. The appellant contended that if only un-ginned cotton was intended to be included, there would be no need to mention "raw vegetable fibres such as cotton" separately. Therefore, the appellant claimed exemption from service tax.

3. The Departmental Representative (DR) countered, stating that ginned cotton, resulting from a manufacturing process on cotton produced by farmers, should not be considered agricultural produce under the notification due to the processing involved in obtaining ginned cotton.

4. The Tribunal examined the notification's definition of agricultural produce, emphasizing the inclusion of "raw vegetable fibres such as cotton." The Tribunal noted that interpreting ginned cotton as not qualifying would render certain words redundant in the definition. The Tribunal applied the principle of statutory interpretation to avoid redundancy and concluded that ginned cotton, falling under "raw vegetable fibres such as cotton," qualifies as agricultural produce.

5. The Tribunal further analyzed that while ginned cotton initially meets the definition of agricultural produce, any further processing beyond ginning, like carding, would exclude it from the exemption. As the appellant acted as a commission agent for ginned cotton, deemed to be agricultural produce under the notification, the Tribunal ruled in favor of the appellant, setting aside the service tax demand.

In conclusion, the Tribunal allowed the appeal, emphasizing that ginned cotton, falling under "raw vegetable fibres such as cotton," qualifies as agricultural produce for the purpose of service tax exemption under Notification No. 13/2003-ST. The decision highlighted the importance of a holistic, harmonious, and fair interpretation of statutory definitions to avoid redundancy and ensure consistent application of tax exemptions.

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