Services of commission agent held within def. of 'business auxiliary service',HC

Facts in Brief:

1. Revenue has filed the present appeal under Section 35G of the Central Excise Act, 1944 challenging the order dated 20-6-2005 passed by the Customs Excise and Service Tax Appellate Tribunal, New Delhi raising the following substantial questions of law:

(i) Whether the service provided by M/s. United Plastomers, Amritsar to M/s. IPCL as dealer/commission agent is covered under the 'Clearing and Forwarding Agent Service' as defined under Section 65 of the Act as any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent?

(ii) Whether the penalty is imposable when the party deposits the service tax before the issue of the show cause notice after department has caught them for non-payment of service tax?

2. The respondent-assessee is providing the services of consignment agents as defined under Section 65(23) of the Finance Act, 1944 as amended (hereinafter referred to as the 'Act'). It was found that the respondent is not registered with the Department as required under Section 69 of the Act and has also not paid service tax as required under Section 66 of the Act.

3. It is alleged that the respondent received commission of Rs. 45,79,411/- for the period from August, 1999 to February, 2001 and Rs. 32,28,379/- for the period from March, 2001 to November, 2001. As such, the respondent was issued two show cause notices for the recovery of the service tax amounting to Rs. 2,28,971/- and Rs. 1,61,419/- respectively along with interest and imposition of penalty under Sections 76 and 77 of the Act. The assessee-respondent submitted reply dated 22-10-2003 as under:

4. They are consignment agents of Indian Petro Chemicals Corporation Ltd. (A Govt. of India Undertaking). M/s. IPCL Ltd. had been charging Service Tax from us and they were deducting the same from out commissions received from them. However, w.e.f. 1-9-99, with the amendment of Section 68(1) of the Finance Act, the responsibility for payment of Service Tax was cast upon the C & F agents. However we were under the bona fide belief that Service Tax was to be deducted and deposited by our principal only i.e. M/s. IPCL Ltd., since they had been doing the same since 1997.

5. The matter was pointed out to us by Service Tax branch of the Central Excise Department that w.e.f. 1-9-99 the responsibility of payment Service Tax was cast upon the C & F agents.

6. The present Show Cause Notice has invoked the extended period of the limitation in utter disregard to the substantive factum that they were under the bona fide belief that the Service Tax was to be charged by their principal i.e. M/s. IPCL Ltd. and that there was no wilful suppression or mala fide intention involved in the whole episode.

7. The present Show Cause Notice is based on wrong calculations leading to arbitrary demand, in so far as Service Tax has been demanded for the month of August, 1999, whereas the responsibility of payment of Service Tax was cast upon the C/F agents w.e.f 1-9-1999 vide amendment to Section 68(1) of Finance Act. Therefore, the demand of Service Tax for the month of August, 1999 being illegal, arbitrary, ultra virus the Constitution, may kindly be dropped in entirety.

8. That the Show Cause Notice has invoked extended period of limitation, in utter disregard to be substantive factum that department was in knowledge of the fact that we consignment agents M/s. IPCL Ltd. as we were registered with the Central Excise Department as registered dealers. Even otherwise we were under bona fide belief that Service Tax was to be deducted and deposited by our principal M/s. IPCL Ltd. since they had been doing the same since 1997. Therefore the demand of Service Tax beyond the normal period of limitation may kindly be dropped on this count.

9. That alternatively (this is without prejudice to our defence pleas in preceding paras), our bona fide intention is bolstered from the fact that of immediate knowledge of the fact that Service Tax was to be paid by us, was deposited the entire amount of Service Tax due, well before the issue of Show Cause Notice. It is a settled legal proposition by now that when the tax amount is deposited before the issue of show cause notice, the imposition of penalty is not warranted. In this connection the notice beg leave to refer to a whole catena of judgment which have ordained in unequivocal terms that when the duty is deposited prior to the issue of show cause notice, the imposition of penalty notice is not warranted.

HC held as under,

10. We find no force in the arguments raised by the counsel for the appellant. While passing the impugned order, the Tribunal has concluded that the case of the respondent-assessee is clearly covered by the ratio of the decision in the case of Raja Rajeshwari Intl. Polymers Pvt. Ltd (supra) wherein it has been observed that the dealer agent falls within the purview of clearing and forwarding operations as the goods not directly or indirectly handled by him and no service tax is leviable on commission received by him on account of Del Credre Agency.

11. Moreover, the said conclusion/observation stands settled by a Larger Bench of the Tribunal in the case of Larsen & Toubro Ltd. (supra) wherein it has been held that services of commission agent are included in the definition of 'business auxiliary service' from 1-7-2003 and mere procuring or having orders for the principal by an agent on payment of commission basis would net amount to providing services as "clearing and forwarding agent", within the meaning of the definition of that expression under Section 65(25) of the Finance Act, 1994.

12. While reaching to this conclusion the Tribunal has observed that the expression "directly or indirectly" and "in any manner" occurring in the definition of 'clearing and forwarding agent' cannot be isolated or the activity of clearing and forwarding operations and an agent it engaged only for procuring purchase orders for the vendor on commission basis does not engage in any of the activities connected with clearing and forwarding operations directly or indirectly.

13. We have also been informed by Sh. Sanjiv Kaushik, Advocate counsel for the appellant that in view of Board's clarification and the various judicial pronouncements, the order of Larger Bench of the Tribunal Delhi in the case of Larsen & Toubro Ltd. (supra) has been accepted by the revenue. It is also not disputed that the second question of law as raised by the revenue has already been decided against the department by this Court in appeal.

14. In view of the above, no substantial question of law arises for determination of this Court. Hence, the appeal is dismissed.

Case Reference - Commissioner Of C. Ex. vs United Plastomers.