2009 (9) TMI 51 - AT - Service Tax

Extended period of limitation demand under section 73(1) held that - verification of the records resulted in the Department coming to know that the assessees did not disclose receipt of service charges for the second agreement for the White Cement Division - that five year period has been correctly invoked and applied against the assessees as the case falls within the provision of Section 731(1)(a) of the Finance Act, 1994 - the demand is not barred by limitation penalty set aside on the ground that assessees are not physically handling the goods and that they are paid commission on the basis of the quantum of goods dispatched by M/s. Grasim Industries Ltd. for which the assessees are responsible upto the settlement of accounts and therefore they are not carrying out any clearing and forwarding operations

Summary

Issues:
1. Interpretation of Section 73 (1)(a) regarding the time limit for serving a notice for escaped assessment or under-assessment of service tax.
2. Determination of penalty imposition on clearing and forwarding agents for service tax liability.

Analysis:
1. The case involved a Show Cause Notice demanding service tax from the assessees for rendering taxable service as clearing and forwarding agents. The Deputy Commissioner confirmed the demand and imposed a penalty, which was later challenged. The Commissioner (Appeals) allowed the appeal, but the Tribunal set aside the order, remanding the issue of time-bar and penalty. The Commissioner (Appeals held that the demand was not time-barred and imposed a penalty. The Tribunal upheld the tax liability but set aside the penalty. The issue of time limitation was analyzed under Section 73 (1)(a) of the Finance Act, 1994. The Tribunal concluded that the five-year period for serving a notice was correctly invoked as the assessees failed to disclose material facts related to service charges, falling within the provision of Section 731(1)(a).

2. Regarding the penalty imposition, the Tribunal accepted the assessees' contention that they were not physically handling goods but receiving commission based on goods dispatched by another company. Citing a judgment of the Punjab & Haryana High Court, the Tribunal found that the assessees were not engaged in clearing and forwarding operations. Despite upholding the tax liability, the Tribunal deemed the penalty imposition unsustainable and set it aside. The appeal was partly allowed, with the penalty being revoked based on the nature of the assessees' activities as commission-based agents rather than traditional clearing and forwarding agents.