2014 (8) TMI 821 - AT - Service Tax

Trading activity or service activity - appellant had quoted in the tenders floated by Ministry of Chemicals & Fertilizers for receiving, bagging, standardization and distribution of imported urea - cargo handling services or Business Auxiliary Service - Held that - It transpires that the entire issue is regarding Service Tax liability on the appellant as to the amount received by them from Govt. of India through MOCF for handling and distribution of imported urea - urea is imported by Govt. of India and is being distributed at subsidized price to the farmers in order to further the policy of Govt. of India and also to meet the provisions of Food Control Act and Essential Commodities Act read with the fertilizer policy of Govt. of India. It is not disputed that Govt. of India imports urea from Saudi Arabia. Govt. of India floats tender for unloading, bagging, standardization and distribution of this imported urea for which bid is made by various fertilizers marketing companies. It is also undisputed that the Bill of Lading of goods imported are endorsed in the name of the appellant herein and the appellant herein files Bill of Entry as an importer and discharges the Customs duty as is assessed. Undoubtedly the tender document indicates that Govt. of India is desirous of handling and distribution of imported bulk urea. Though, the wordings of the said tender indicate that Govt. of India wants to appoint a handling and distribution agent, we find that actually entire transaction is of sale and purchase of urea from the following documents. It is seen from the records available that the Govt. of India has imported 27,500 MTs of imported urea for which the appellant herein was required to open a letter of credit (LOC). In the case of ration shop, the authorized ration shops purchases the food grains from the Govt. of India and stores in his godown. Subsequently, the said food grains are distributed to various ration card holders at a price predetermined by the Government. The authorized ration shops pays in advance to the Govt. of India for the food grains which is allotted for public distribution system. The authorized ration shops also engaged in an similar activity Govt. of India which though not identical can be equated to the activity undertaken by this appellant. In our considered view, the said activity cannot be considered as services as the authorized ration shop owners purchases the food grain before distributing the same to the ration card holders. Though the tender documents indicates about the appointment of a handling agent, the invoices issued by Govt. of India for sale of imported prilled urea to the appellant and subsequent clearances made by the appellant to the consumers of fertilizers would also indicate that appointment of handling agent is misnomer, as entire transaction is of purchase and sale of imported urea. - Decided in favour of assessee.

Summary

Issues Involved:
1. Service Tax liability on handling and distribution of imported urea.
2. Nature of the transaction between the appellant and the Government of India.
3. Applicability of extended period for demand of Service Tax.

Issue-wise Detailed Analysis:

1. Service Tax liability on handling and distribution of imported urea:
The main issue was whether the appellant was liable to pay Service Tax on the amount received from the Government of India (MOCF) for handling and distribution of imported urea. The department contended that the appellant's activities fell under "cargo handling services" or "Business Auxiliary Service" and thus were taxable. The adjudicating authority upheld this view, confirming the demand with interest and penalties.

2. Nature of the transaction between the appellant and the Government of India:
The appellant argued that the transaction was a sale and purchase of urea, not a service. They provided evidence that:
- The urea was transferred to them on an ownership basis, and they paid for it through a letter of credit.
- They filed a Bill of Entry and paid Customs duty.
- They quoted lump-sum rates for expenses related to unloading and distribution, excluding port dues, inland freight, and Customs duty.
- They sold the urea under their own brand and invoiced the ultimate buyers.
- They paid VAT on the sale of urea, indicating a sale transaction rather than a service.

The tribunal found that the appellant's activities, including unloading, bagging, and distributing urea, were indeed transactions of purchase and sale. The appellant bore the risk of loss during transit, further supporting the sale nature of the transaction. The tribunal concluded that the activities did not constitute "cargo handling services" or "Business Auxiliary Service."

3. Applicability of extended period for demand of Service Tax:
The appellant contended that the extended period for demand was not applicable because their activities were known to the Government of India. The tribunal agreed, stating that different arms of the government (Revenue Department and MOCF) should be aware of each other's activities. Therefore, invoking the extended period was incorrect.

Conclusion:
The tribunal held that the impugned order was unsustainable both on merit and limitation. The activities of the appellant were found to be transactions of purchase and sale of urea, not taxable services. The tribunal set aside the impugned order and allowed the appeal.