2019 (2) TMI 409 - AT - Service Tax

Classification of services - Business Auxiliary services or not - exports of alcoholic liquor - one organization has been given the monopoly over trade; they procured goods from various vendors and retained a percentage of amount and transferred the rest to the supplier - period July, 2003 to March 2006 - Held that - In this case the title gets transferred as soon as the ship sails. It is also clearly reflected in the impugned order that all records showed that there was sales and purchase between the two organizations. - the contention of the Revenue cannot be agreed upon, that the appellant should be treated as an agent of NMDC and charged service tax on the 3% of the sale value retained by them. The appellant is not liable to pay service tax - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of service tax on exports made by a Public Sector Undertaking acting as a canalizing agency for import and export of minerals under the head "Business Auxiliary services."
2. Determination of whether the PSU was acting as an agent or engaging in a purchase and sale contract in the export transactions.
3. Interpretation of the nature of the transactions based on invoices, ledgers, and other relevant documents.
4. Application of legal precedents related to similar cases involving percentage retention in transactions.
5. Clarification on the transfer of title of goods and its impact on the liability to pay service tax.

Issue 1: Liability of service tax on exports made by a Public Sector Undertaking acting as a canalizing agency for import and export of minerals under the head "Business Auxiliary services."

The Department sought to charge service tax on the exports made by the PSU under the head of "Business Auxiliary services," alleging that the PSU was acting as an agent of another PSU in promoting their business. A show cause notice was issued, and the demand was confirmed by the Commissioner of Central Excise and Service Tax. The PSU, being a canalizing agency for import and export of minerals, contested this charge.

Issue 2: Determination of whether the PSU was acting as an agent or engaging in a purchase and sale contract in the export transactions.

The PSU argued that they were not acting as an agent but were purchasing goods from one entity and exporting them on their own account. They presented evidence showing that they were purchasing from one entity and exporting in their name, with invoices raised on them. The Department contended that the PSU was acting as an agent based on the percentage of the export value paid to the supplier, indicating agency activity rather than a direct sale contract.

Issue 3: Interpretation of the nature of the transactions based on invoices, ledgers, and other relevant documents.

The PSU provided clarification through letters and documents, demonstrating that the transactions were maintained on a principal-to-principal basis, with all export documentation under their name. The Commissioner of Customs also acknowledged the transactions as principal-to-principal. The invoices and ledgers indicated a sale between the PSU and the supplier, further supporting the argument against agency activity.

Issue 4: Application of legal precedents related to similar cases involving percentage retention in transactions.

Legal precedents such as the cases of Kerala State Beverages Corporation and Rajasthan State Beverages Corporation were cited to support the argument that the PSU's transactions should be considered as purchase and sale contracts, not agency activities. These cases established that certain transactions involving percentage retention do not necessarily imply agency activity, as upheld by higher courts.

Issue 5: Clarification on the transfer of title of goods and its impact on the liability to pay service tax.

The Tribunal examined the transfer of title of goods in the transactions and concluded that once a sale is established, the timing of the transfer of title becomes immaterial. In this case, the title transferred as soon as the ship sailed, indicating a sale between the PSU and the supplier. Based on legal precedents and the nature of the transactions, the Tribunal held that the PSU was not liable to pay service tax, setting aside the demand, interest, and penalties imposed.

This detailed analysis of the judgment highlights the key issues involved, the arguments presented by both parties, the interpretation of relevant documents, the application of legal precedents, and the final decision of the Tribunal regarding the liability of the PSU to pay service tax on the export transactions.