2023 (11) TMI 222 - AT - Service Tax

Classification of services - business auxiliary services or not - whether the subsidiary company of appellant located in USA is acting as C F Agent or as a Commission Agent and if it is a commission agent whether the service tax is payable on the commission received by them in view of the provisions of Section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of Service Tax Rules, 1994? HELD THAT - The books are exported by the appellant to the subsidiary company located in USA. The purchase orders are received from the customer directly by the appellant. Further, after the arrival of the said books at USA destination port, the subsidiary company will undertake the clearing activity of the said books from the customs authorities. The invoices to the customers are issued by the subsidiary company. Payment is also received by subsidiary company from the customers located in USA. As per the terms of the agreement, the subsidiary company retains a 15% commission of the ultimate sale price to the third parties for each shipment or part thereof and bank transfer the reaming 85% proceeds to the appellant. The appellant are booking the said expenses under the head selling expenses as commission on sales (export). There is difference between commission agent and consignment agent. Consignment agent actually deals with the goods, when he receives the same from the principal and dispatches them on the direction of the principal, to the ultimate customer. Consignment agent may not be even associated with the procurement of orders or does not directly deal with the sale purchase. He is acting on behalf of the principal and deals with the movement of the goods as per the direction of the principal. On the other hand commission agent is only concerned with the procurement of orders for which he may receive the fixed amount along with some percentage amount. The Subsidiary company is also undertaking the activity of clearing and forwarding agent. No clause of the agreement provides that subsidiary company also undertaking any marketing or promotion activity for the sale of the books exported by the appellant. In such a scenario, the subsidiary company who is the service provider had to be held as consignment agent rather than commission agent. The conclusion of the Learned Adjudicating authority that the appellant are liable to pay service tax under the taxable service Business Auxiliary Services cannot be sustained - Appeal allowed.

Summary

Issues Involved:
1. Classification of services provided by the subsidiary company.
2. Applicability of service tax under 'Business Auxiliary Services'.
3. Invocation of the extended period of limitation.

Summary:

1. Classification of Services Provided by Subsidiary Company:
The primary issue was whether the subsidiary company of the appellant in the USA acted as a Clearing and Forwarding (C&F) Agent or a Commission Agent. The appellant contended that the subsidiary acted as a consignment cum C&F agent, not a commission agent. The subsidiary received goods on a consignment basis, cleared them from customs, and forwarded them to customers in the USA, retaining a 15% commission from the ultimate sale price. The tribunal found that the subsidiary company's activities were consistent with those of a consignment agent, as clarified by the Board Circular No. 59/8/2003-ST dated 20.06.2003.

2. Applicability of Service Tax under 'Business Auxiliary Services':
The revenue alleged that the subsidiary company's services fell under 'Business Auxiliary Services' and were thus taxable. However, the tribunal noted that the revenue failed to specify under which sub-clause of 'Business Auxiliary Services' the demand was raised. The tribunal referenced several judgments (United Telecoms Ltd., Sharma Travels, and Balaji Enterprises) and concluded that without specifying the exact sub-clause, the demand could not be sustained. Additionally, the tribunal emphasized that the subsidiary did not undertake any marketing or promotional activities, further supporting the classification as a consignment agent rather than a commission agent.

3. Invocation of the Extended Period of Limitation:
The appellant argued that the extended period of limitation should not apply since there was no suppression of facts with intent to evade tax. The appellant maintained regular books of accounts and disclosed all transactions. However, since the tribunal decided the matter on merits, it did not address the limitation issue and kept it open for future consideration.

Conclusion:
The tribunal set aside the impugned order, concluding that the appellant was not liable to pay service tax under 'Business Auxiliary Services'. The appeal was allowed with consequential relief in accordance with the law. The decision was pronounced in open court on 03.11.2023.