2007 (10) TMI 142 - AT - Service Tax

Recipient of C/F agent service Appellant plea they are not liable to pay tax as contract was on principal to principal basis Refund rejected in view of validation clause Refund will be allowed after examining agreement between parties & incidence of duty Matter remanded

Summary

Issues Involved:
1. Nature of the relationship between the appellant and M/s. ICI India Ltd.
2. Applicability of service tax under Section 65 (25) of the Finance Act, 1994.
3. Refund claim of Rs. 64,94,422/- and the principle of unjust enrichment.
4. Validation of tax collection under the Finance Act, 2000.

Issue-wise Detailed Analysis:

1. Nature of the Relationship Between the Appellant and M/s. ICI India Ltd.:
The appellant contended that their agreement with M/s. ICI India Ltd. was a joint venture for the sale of products and not a principal-agent relationship. The agreement dated 29th August 1996 defined M/s. ICI India Ltd. as a consignment, distribution, and selling agent, with duties outlined in clauses 3.2 and 3.3, including promoting and marketing the appellant's products. The appellant argued that the relationship was not that of a clearing and forwarding agent, as alleged by the Department, but a business arrangement with mutual interests.

2. Applicability of Service Tax Under Section 65 (25) of the Finance Act, 1994:
The Department maintained that the activities of M/s. ICI India Ltd. fell within the definition of a clearing and forwarding agent under Section 65 (25) of the Finance Act, 1994. The appellant disputed this, arguing that the activities did not meet the criteria of clearing and forwarding operations. The Tribunal examined various clauses of the agreement and relevant case laws, including the Tribunal's decisions in Mahavir Generics Vs. CCE, Bangalore and the Larger Bench decision in Larsen & Toubro Ltd. Vs. Commr. of C.E., Chennai, which clarified that mere procurement or booking of orders does not constitute clearing and forwarding services.

3. Refund Claim of Rs. 64,94,422/- and the Principle of Unjust Enrichment:
The appellant filed a refund claim for the service tax paid from July 1997 to February 1999, citing the Supreme Court's judgment in Laghu Udyog Bharati Vs. Union of India, which declared certain service tax rules ultra vires. The Department rejected the claim, citing non-compliance with documentation requirements and the principle of unjust enrichment. The Tribunal noted that refund claims must establish that the tax incidence was not passed on to others, as per the principles laid out in Mafatlal Industries Ltd. Vs. U.O.I.

4. Validation of Tax Collection Under the Finance Act, 2000:
The Tribunal discussed the retrospective validation of service tax collection under Sections 116 and 117 of the Finance Act, 2000, which deemed certain actions taken under the Service Tax Rules as valid. The Tribunal referenced the Supreme Court's rulings in ITW Signode India Ltd. Vs. CCE and M/s. Ujagar Prints and Others (II) v. Union of India, affirming the legislature's power to enact retrospective validation laws to cure defects identified by judicial decisions.

Conclusion:
The Tribunal remanded the case to the appellate authority to re-examine the facts and the agreement between the parties to determine whether M/s. ICI India Ltd. acted as a clearing and forwarding agent. The appellate authority was instructed to consider the principles of unjust enrichment if a refund was warranted. The appeal was allowed by remand for further examination.

Pronouncement:
The judgment was pronounced in court on 3/10/2007.