2012 (11) TMI 199 - AT - Service Tax

Demand of service tax - whether the services rendered by the foreign agents is classifiable as Clearing and Forwarding Services or as Business Auxiliary Service Held that - There is no responsibility cast on the foreign agents for promoting the sale of goods produced by the Appellants - no other activity mentioned in the contract which will fit into one of the entries at Sr. No. (i) to (vi) of the definition under Section 65(19). Therefore the mere fact that they are following up the payments will not prima facie make the service classifiable as Business Auxiliary Service - service is classifiable as Clearing and Forwarding Service - no liability on the Appellants to pay service tax on activity of this type performed entirely outside India - pre-deposit waived

Summary

Issues:
Classification of services rendered by foreign agents - Clearing and Forwarding Service or Business Auxiliary Service.

Analysis:
1. The Appellants, engaged in manufacturing frozen meat for export, utilized foreign agents for clearing goods from ports and collecting proceeds. The key issue was to classify these services as either Clearing and Forwarding Service or Business Auxiliary Service to determine service tax liability under Section 66A of the Finance Act, 1994.

2. The Revenue contended that since foreign agents followed up on export realization, the service fell under Business Auxiliary Service, encompassing activities like billing and payment collection. A Show Cause Notice was issued demanding service tax for payments made to foreign agents between 18-4-2006 and 31-3-2008.

3. The Appellants' Counsel argued that foreign agents primarily cleared goods from foreign ports, with payment collection being a minor aspect. Collection of payments, as per Section 65(19), is taxable only if incidental to specified activities, which was not the case here. The service aligned more with Clearing and Forwarding Services, exempt from service tax if performed entirely outside India.

4. The Revenue's Representative contended that all foreign agents' activities promoted the Appellants' business, with payment collection falling under Section 65(19). Thus, service tax should have been paid under Section 66A.

5. Upon review, the Tribunal found no contractual obligation for foreign agents to promote sales, and no activities fitting Section 65(19)'s specified criteria. Consequently, the service was not prima facie classifiable as Business Auxiliary Service. The Tribunal agreed with the Appellants that the service aligned more with Clearing and Forwarding Service, exempt from service tax if performed outside India. The Tribunal waived the pre-deposit of dues for appeal admission and ordered a stay on collection of dues pending the appeal.