2017 (3) TMI 1289 - AT - Service Tax

Benefit of N/N. 14/2004-ST dated 10.09.2004 and 13/2003-ST dated 20.06.2003 - The department is of the view that, process of de-husking is not an agricultural activity so, no exemption can be granted - Held that - Board has issued a Circular, No. 143/12/2011-ST dated 26.05.2011, where the benefit was provided to raw cashew, tobacco leaves etc. and the same were considered in relation to agriculture. Needless to mention that in the cashew, kernel is removed and in the instant case, the husk is removed. So both the cases are on the same footing. By considering the Notifications, Circulars and clarifications, we are of the view that de-husking of the paddy is covered in relation to the agricultural activity hence, the service tax is not applicable on such activity - demand set aside. Levy of tax - brokerage and commission - payment to the agents in foreign currency - Held that - as per Board Circular No. 143/12/2011-ST dated 26.05.2011, it is clarified that the commission agents stationed abroad provide business auxiliary service to promote the export of rice, said business auxiliary service is covered by Notification 13/2003-ST (as amended) because, the word rice is mentioned under the explanation to the term agricultural produce , in the inclusive portion along with other items like cereals, pulses, etc - demand set aside. Clearing and Forwarding services in relation to export of rice - Held that - the said payment was made under the head of Clearing and Forwarding services which includes the freight charges - demand upheld. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
1. Exemption under Notification No. 13/2003-ST and 14/2004-ST for de-husking activity.
2. Service tax on brokerage, commission, and payment to foreign agents for rice export.
3. Service tax on Clearing and Forwarding Agent services for rice export.

Analysis:

1. Exemption for De-husking Activity:
The appeal challenged the Order-in-Original dated 31.05.2012, disputing the imposition of service tax on the de-husking process of paddy undertaken by the appellant. The issue revolved around whether de-husking can be considered an agricultural activity to qualify for exemption under Notification No. 13/2003-ST and 14/2004-ST. The Tribunal examined the definitions provided in the notifications and related circulars. It was observed that de-husking, akin to other activities like cashew processing, falls under the ambit of agricultural activities. By interpreting the notifications and circulars, the Tribunal concluded that de-husking of paddy qualifies as an agricultural activity, thereby exempting it from service tax. Consequently, the impugned order was set aside, and the appellant's claim was allowed.

2. Service Tax on Brokerage and Commission for Rice Export:
Another contention in the appeal was the imposition of service tax on brokerage, commission, and payments made to foreign agents for facilitating rice exports. The appellant argued that such payments, including commission in foreign currency, should not attract service tax. The Tribunal referred to Board Circular No. 143/12/2011-ST, which clarified that services provided by foreign commission agents to promote rice exports are covered under the exemption for agricultural produce. Citing the circular, the Tribunal ruled in favor of the appellant, setting aside the order and allowing the claim related to brokerage, commission, and payments to foreign agents.

3. Service Tax on Clearing and Forwarding Agent Services:
The final issue pertained to the demand for service tax on Clearing and Forwarding Agent services availed by the appellant for rice export. The appellant contended that the charges were for freight services, not Clearing and Forwarding services. Upon examination, the Tribunal found that the payment made was categorized under Clearing and Forwarding services, which encompassed freight charges. Consequently, the Tribunal upheld the imposition of service tax on Clearing and Forwarding Agent services, rejecting the appellant's claim in this regard.

In conclusion, the appeal was partly allowed concerning the exemption for de-husking activity and brokerage/commission payments for rice export, while the demand for service tax on Clearing and Forwarding Agent services was sustained. Penalties, if any, were to be proportionately determined as per the Tribunal's decision.