2018 (8) TMI 1171 - AT - Service Tax

Business Auxiliary Service or Agricultural Extension Services? - appellant was working a super distributor for one major pesticides/insecticides manufacturer and were engaged in marketing and promotion of pesticides/insecticide manufactured by their principal - Held that - Nowhere it is coming out that the appellant is doing marketing and promotion of the product of their principal. Moreover in the impugned order the Ld. Commissioner has observed that the Agricultural Extension Service is of scientific research and knowledge by observing that None of the supporting documents which the Noticee have submitted to substantiate their claim that they have been providing Agricultural Extension Service could show that the farmers were being given any training through scientific research and knowledge to agriculture practices through farmer education and training. The appellant was required to provide scientific research and knowledge to agriculture practices through farmer education and training. As per agreement the appellant has provided the said service. The finding of the Ld. Commissioner is not appreciable. The appellant has provided ample evidence in respect of nature of the services provided by them by way of photographs and agreement of other materials but the Revenue has not come with an evidence that the appellant was engaged in the marketing and promoting the product of their principal while providing Agricultural Extension Service - the appellant is not providing any taxable service but is providing only Agricultural Extension Service. Receipt of remuneration in terms of sale by the appellant of the product of their principal - Held that - The appellant is getting separate commission on which they are discharging service tax liability. Therefore on the basis of remuneration it cannot be held that the appellant is providing service of marketing and promotion. As on merits the services rendered by the appellant are Agricultural Extension Services and are covered under negative list as per section 66D of the Finance Act 1944 therefore the appellant is not liable to pay service tax - as the issue is decided on merits the issue of penalty is not taken up. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of service tax on the services provided.
3. Validity of the extended period of limitation for the demand.
4. Imposition of penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The primary issue was whether the services provided by the appellant under an agreement with E.I. Dupont India Pvt. Ltd. were "Agricultural Extension Services" or "Business Auxiliary Services." The appellant argued that their services, which included disseminating knowledge on crop protection techniques and training farmers, fell under "Agricultural Extension Services" as defined in Section 65B(4) of the Finance Act, 1994. The adjudicating authority, however, classified these services as "Business Auxiliary Services," which are taxable.

2. Applicability of Service Tax on the Services Provided:
The appellant contended that the services provided were exempt from service tax under Section 66D(d) of the Finance Act, 1994, as they were covered under the negative list. The services included activities such as understanding pest problems, providing feedback to Dupont, creating linkages between farmers and Dupont, explaining the usage of crop protection products, and conducting field demonstrations and farmer group meetings. The Tribunal found that these activities constituted "Agricultural Extension Services," which involve the application of scientific research and knowledge to agricultural practices through farmer education and training. The Tribunal noted that the appellant provided ample evidence, including photographs and agreements, to substantiate their claim.

3. Validity of the Extended Period of Limitation for the Demand:
The demand for service tax covered the period from January 2015 to March 2016, with the show cause notice issued on April 13, 2017, invoking the extended period of limitation. The appellant had already paid the service tax along with interest and a penalty equal to 15% of the service tax after the issuance of the show cause notice. The Tribunal did not specifically address the validity of the extended period of limitation, as the decision was made on the merits of the service classification.

4. Imposition of Penalty under Section 78 of the Finance Act, 1994:
The adjudicating authority had imposed an equivalent amount of penalty on the appellant under Section 78 of the Finance Act, 1994, on the grounds that the appellant was engaged in the marketing and promotion of the principal's products. The Tribunal, however, found no evidence to support this conclusion. The Tribunal observed that the remuneration received by the appellant was based on the sale/turnover of the principal's products, which was merely a mode of calculating remuneration and did not indicate marketing and promotion activities. Since the services were classified as "Agricultural Extension Services" and were exempt from service tax, the imposition of the penalty was not justified.

Conclusion:
The Tribunal held that the services provided by the appellant were "Agricultural Extension Services" and not "Business Auxiliary Services." These services were exempt from service tax under Section 66D(d) of the Finance Act, 1994, as they were covered under the negative list. Consequently, the demand for service tax, along with interest and penalty, was set aside. The appeal was allowed with consequential relief, if any.

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