2018 (1) TMI 1052 - AT - Service Tax

Business Auxiliary Services - It appeared to the department that appellants are providing services of Promotion or Marketing or Sale of Goods produced or provided by or belonging to various clients, i.e. tea factories in the auctions conducted at Coonoor, which fall under taxable service of Business Auxiliary Service - benefit of N/N. 13/2003 - case of appellants is that they have acted as commission agents and therefore are eligible for exemption from payment of service tax - Extended period of limitation. Held that - Notification No. 13/2003-ST was amended with effect from 9.7.2004 vide Notification No. 8/2004-ST specifically to expand exemption to commission agent services in relation to sale and purchase of agricultural produce - Vide Notification No. 19/2005-ST dated 7.6.2005, the clause (i) to Explanation to Notification No.13/2003-ST which gave the definition of Commission Agent was omitted. The appellants, no doubt are called brokers in terms of the Coonoor Tea Trade Association Rules. However, they do not merely cause the sale of goods on behalf of their clients, the tea sellers, for a consideration that is based on the quantum of the sale. They are also engaged in drawing samples, undertaking printing of catalogues, distribution of samples to their buyers and conduct of auction in accordance with the procedure laid down by the Coonoor Tea Trade Association. Upon completion of the auction, the sales consideration is received not by the sellers but by the appellants. Thereafter, the appellant themselves issue delivery orders which enables the buyers to take delivery of the tea from the warehouse. They do the billing work and collection of sale proceeds on behalf of their clients. The appellants also collect lot money not only from their clients but also from the buyers. Appellants also make advances to their clients in anticipation of receipt of goods for sale. They are also engaged in activity of collection and payment of tax namely sales tax on behalf of their clients. The appellants promote the sale of the tea produced by their clients by sending out samples to their prospective buyers advertising by way of printing and distribution of catalogues. It therefore appears to reason that this wide gamut of activities of the appellant would go far beyond the scope of a commission agent since the services rendered by them are not restricted only to sale of goods on behalf of the sellers for consideration, which is the main edifice of the definition of commission agent. Notwithstanding the fact that the appellant may have been appointed as a broker, that by itself is only a requirement of Coonoor Tea Trade Association. Though they are called as broker under the Association rules that will not enable the appellant to claim that they are only commission agent for the purpose of section 65(19) ibid. The services performed by the appellant is thus promotion and sale of goods produced or provided or belonging to their clients and thus fall within the ambit of section 65(19)(i) of the Act. The services provided by the appellant will not fall either in the category of commission agent under section 65(19) or as a commission agent under Notification No. 13/2003-ST or for that matter under auction of property service under section 65(7a) but only under Business Auxiliary Service for promoting sale and marketing of goods of the tea sellers as falling under section65(19)(i) of the Act. The services rendered by appellants for private sales also being of the same genre, they would also fall under the ambit of section 65(19)(i) only. Penalty - Held that - the whole dispute has been based on interpretation as to classification of their services. This being so, we find that there is a strong case for setting aside the penalties - penalties set aside. Appeal allowed in part.

Issues Involved:
1. Classification of services provided by appellants.
2. Eligibility for exemption from service tax under Notification No. 13/2003-ST.
3. Applicability of extended period of limitation.
4. Imposition of penalties.

Issue-wise Analysis:

1. Classification of Services Provided by Appellants:
The appellants, operating as brokers and auctioneers under the Tea (Marketing) Control Order, 2003, were alleged by the department to be providing services falling under the taxable category of Business Auxiliary Service (BAS) as per section 65(19)(i) of the Finance Act, 1994. The appellants contended that they acted as commission agents, thus qualifying for exemption from service tax. The Tribunal examined the wide range of activities performed by the appellants, including tea tasting, valuation, billing, collection of sale proceeds, and payment of taxes on behalf of clients. It was concluded that these activities went beyond the scope of a commission agent and fell under BAS, specifically under section 65(19)(i) as promotion or marketing or sale of goods produced or provided by or belonging to the client.

2. Eligibility for Exemption from Service Tax under Notification No. 13/2003-ST:
The appellants claimed exemption under Notification No. 13/2003-ST, which exempts services provided by a commission agent in relation to agricultural produce. The Tribunal noted that the appellants' activities extended beyond mere sale facilitation, encompassing a broad spectrum of services. Consequently, the appellants did not qualify as commission agents under the notification. Furthermore, the Tribunal highlighted that the definition of commission agent was amended in 2005 to include a broader range of activities, yet the appellants' services still exceeded this scope.

3. Applicability of Extended Period of Limitation:
The appellants argued against the invocation of the extended period of limitation, citing that the dispute involved interpretation of the Act and the Notification. The Tribunal found that the authorities had relied on omissions by the appellants, which was insufficient for invoking the extended period. Given the interpretative nature of the dispute, the extended period of limitation was deemed unjustified.

4. Imposition of Penalties:
The Tribunal considered the appellants' consistent contention that their activities were exempt from tax liability due to their classification as commission agents dealing with agricultural produce. Despite rejecting this contention, the Tribunal acknowledged the interpretative nature of the dispute. Consequently, it found a strong case for setting aside the penalties imposed on the appellants. The penalties were thus annulled, although the demand for service tax and interest was upheld.

Conclusion:
The Tribunal concluded that the services provided by the appellants fell under BAS as per section 65(19)(i) and not under the category of commission agent or auction services. The appellants' plea for exemption under Notification No. 13/2003-ST was rejected. The extended period of limitation was deemed unjustified, and penalties were set aside due to the interpretative nature of the dispute. The demand for service tax and interest was upheld. The appeals were partly allowed, modifying the impugned orders by setting aside the penalties while maintaining the service tax demand and interest.

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