2017 (5) TMI 518 - AT - Service Tax

Business Auxiliary Service (BAS) - Goods Transport Service (GTA service) - Renting of Immovable Property Service - demand - manufacture of cigarettes and undertaking of other processes to make tobacco suitable for manufacture of cigarettes - Held that - the activity of the assessees is in relation to the agriculture and not subject to service tax as a business Auxiliary Service even before or after the negative list was issued on 01/07/2012 - there is no merit in the impugned orders where the said activity of threshing and redrying was brought under BAS - demand set aside. GTA service - The assessee-appellants have brought the tobacco bundles from the auction platform to their factories. The dispute arose when the goods are brought for the buyers, customers and assessees are doing job work - the main plea of assessees on this issue is that no consignment notes have been raised - Held that - the assessees are the service recipients for which they are paying the freight charges. When it is so, then we are of the view that the Department has rightly applied GTA and demanded the service tax for the reason that without an accompanying paper/document, goods cannot be received without which is the basis of amount for payment - demand upheld. Renting of immovable property for commercial purpose - Department has demanded the service tax under sub-section (105) (zzzz) of Section 65 Finance Act, 1994 w.e.f. 01/06/2007 under the head of renting of immovable property services - Held that - it is an undisputed fact that the immovable property in question was given for the purpose of commercial activities. When it is so, then the service tax is leviable - demand upheld. Commission paid foreign agents - demand - foreign agent acted as an agent outside India in relation to sale of the processed tobacco - Held that - the services rendered by the foreign agent shall be classifiable as a taxable service under clause 19(1) of Section 65 of the Finance Act, 1994 and the commission paid shall be liable to service tax - the amount of commission paid shall be liable to service tax, the liability thereof being on the appellant-assessee under reverse charge mechanism in terms of Rule 2 (1) (d) (iv) of the Service Tax Rules - demand upheld. Issue of penalties is remanded for de novo consideration. However, it is clarified that such reconsideration will only be concerning penalties with regards to demands of GTA, Renting of Immovable Property and commission paid to foreign agent. Appeal disposed off - appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Demand of service tax on Business Auxiliary Service (BAS)
2. Demand of service tax on Goods Transport Service (GTA)
3. Demand of service tax on Renting of Immovable Property Service
4. Demand of service tax on commission paid to foreign agents
5. Imposition of penalties

Detailed Analysis:

1. Business Auxiliary Service (BAS):
The appellants were engaged in processing tobacco leaves, which the Department considered as BAS and demanded service tax. The appellants argued that their activities were related to agriculture and thus exempt from service tax under Notification No. 14/2004-ST and subsequent amendments. They cited Circular No. 143/12/2011-ST which clarified that processing of tobacco leaves retains their essential characteristics and is thus related to agriculture. The Tribunal agreed with the appellants, setting aside the demands on BAS, stating that the activities were indeed related to agriculture and not subject to service tax. Consequently, all penalties related to BAS were extinguished.

2. Goods Transport Service (GTA):
The appellants contended that they were Goods Transport Operators (GTO) and not GTA, arguing that no consignment notes were issued, relying on precedents like South Eastern Coal Fields Ltd. vs. CCE, Raipur. However, the Tribunal noted that consignment notes can be issued in any form and found that the appellants, as service recipients, paid freight charges, thus falling under the definition of GTA. The Tribunal upheld the demands for service tax under GTA, dismissing the appeals on this issue.

3. Renting of Immovable Property Service:
The Department demanded service tax under Section 65(105)(zzzz) of the Finance Act, 1994 for renting immovable property for commercial purposes. The Tribunal found that the properties were indeed used for commercial activities and upheld the service tax demands. The appeals on this issue were dismissed.

4. Commission Paid to Foreign Agents:
In appeal No. ST/663/2011, the issue involved service tax on commission paid to foreign agents. The Tribunal upheld the adjudicating authority's decision that such services are taxable under clause 19(1) of Section 65 of the Finance Act, 1994, and the liability falls on the appellant under the reverse charge mechanism. The appeal on this issue was dismissed.

5. Imposition of Penalties:
The appellants argued that since they had paid the service tax along with interest, no penalties should be imposed. The Tribunal referred to the case of Sethi Tools Pvt. Ltd. vs. CCE, CC & ST, Vadodara-II, which observed that if service tax is paid within six months, penalties are not leviable. The Tribunal remanded the cases for de novo consideration on the issue of penalties related to GTA, Renting of Immovable Property, and commission paid to foreign agents, directing the authorities to afford reasonable opportunities to the appellants.

Conclusion:
The Tribunal's order resulted in:
- Setting aside demands on BAS and allowing appeals on this issue with consequential relief.
- Upholding demands on GTA and dismissing appeals on this issue.
- Upholding demands on Renting of Immovable Property and dismissing appeals on this issue.
- Upholding the demand on commission paid to foreign agents and dismissing the related appeal.
- Remanding the issue of penalties for de novo consideration.

(Order pronounced and dictated in open court)