Customs, Excise and Gold Tribunal - Bangalore
B.S. Refrigeration Ltd. vs The Commissioner Of Service Tax on 16 June, 2006
Equivalent citations: 2006(111)ECC707, 2006ECR707(TRI.-BANGALORE), 2006[4]S.T.R.103
ORDER T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Order-in-Appeal No. 212/2004 Central Excise dated 31.12.2004, passed by the Commissioner of Central Excise, Bangalore.
2. The brief facts pf the case are as follows:
The appellants manufacture refrigerators and plastic molded parts. They appointed M/s BPL Ltd. (herein after referred to as BPL) to act as consignment agent vide agreement dated 21.3.1997 for marketing their goods. BPL agreed to take the following activities for marketing the goods:
(a) Stock the goods on behalf of the appellants
(b) To sell the products in the name of BPL on behalf of the appellants as a consignment agent at the price fixed by the appellants.
(c) Allow discounts to dealers as per market conditions on behalf of the appellants
(d) To advertise for the product on behalf of the appellants
(e) Undertake C & F operation and local deliveries on behalf of the appellants.
Further according to the agreement:
(a) Property in goods would remain in the hands of the appellants
(b) Sale price of the goods sold would be paid within 45 days of sale
(c) Responsibility of shortage/damage on BPL after delivery is taken from the appellants.
Further it was agreed that the expenses towards all the above activities including the statutory levies were to be reimbursed to BPL. In addition to re-imbursement of expenses, BPL was to be paid a commission at fixed percentage of the gross sales as mutually agreed upon from time to time. During the period from 1.7.1997 to 31.3.1998 the total amount paid to the BPL is reimbursable and commission was Rs. 20,47,21,664/-. BPL in turn engaged the service of C & F for undertaking clearance and forwarding activity. The total amount paid to C & F agents for the period 1.7.1997 to 31.3.1998 comes to Rs. 54,60,960/-. Since the appellants are the receiver of the taxable service, tax liable to be paid on the above amount is Rs. 54,60,960/-. They also filed returns periodically. But the Department issued a show cause notice dated 28.3.1002 demanding service tax on the balance amount of Rs. 19,92,60,704/-which worked out to Rs. 99,63,035/- alleging that the entire amount was liable to service tax under the head 'clearing and forwarding agent'. The Assistant Commissioner in his order-in-Original dated 30.4.2004 confirmed the entire demand. He imposed a penalty of Rs. 5,00,000/- under Section 78 of the Finance Act, 1994. A penalty of Rs. 100/- per day under Section 76 of the Finance Act, 1994 was imposed. Interest was also demanded under Section 75 of the Finance Act, 1994. The appellants approached the Commissioner (Appeals). The Commissioner (Appeals) passed the impugned order confirming the findings of the Assistant Commissioner.
3. Shri G. Shivadass, the learned Advocate appeared for the appellants and Shri R.K. Singla, the learned Jt. CDR for the Revenue.
4. The learned Advocate urged the following points:
(i) Apart from doing the activity of clearing and forwarding, BPL undertook many other activities as per their agreement with the appellants. For all the activities, the appellant reimbursed an amount of Rs. 20,47,21,664/-. But as far as the service tax liability is concerned, the service tax in the present case is on the service of 'clearing and forwarding agent'. The Revenue demanded service tax on the entire amount reimbursed. This is not correct. Any activity done by a clearing and forwarding agent other than clearing and forwarding operation is not liable to service tax.
(ii) The learned Advocate quoted expression from various dictionaries and legal books with regard to the definition and meaning of 'clearing and forwarding' activity. As the service undertaken by BPL encompasses a wide range of activities which are much more than the service of a clearing and forwarding agent and which can only be of a consignment agent and not of a clearing & forwarding agent. BPL had identified and entrusted the clearing and forwarding operation to various C&F agents and service tax has been discharged on the amount paid by the appellants for this purpose.
(iii) The Tribunal in an identical case in the matter of Mahavir Generics v. CCE held that when the agreement clearly indicates the activities to be rendered are that of consignment agent then the activities cannot be taxed under C&F agents even if consignment agent is brought under the definition of 'clearing and forwarding agent'.
(iv) The impugned order is liable to be set aside on yet another ground. The show cause notice has been issued on 28.3.2001 demanding service tax from the service receiver for the period from 16.7.97 to 31.3.98. Clearly the person providing taxable service shall collect and pay the service tax. However, as per the Rule 2(d)(xii) every person providing taxable service to any person should collect and pay the service tax in respect of certain services which include C&F agents. The Supreme Court in the case of Laghu Bharati v. Union of India 1998 (112) ELT 365(S.C.) held that the provisions of Rule 2(d)(xii) is ultra vires the Finance Act, 1994 itself and accordingly quashed the sub-rule in question. In order to get over the provision, the Finance Act, 2000 amended the definition of assessee under Section 65 during the period 1.7.1997 to 11.5.2000. The amendment sought to validate the action of levy and collection of service tax taken between 16.7.1997 and 12.5.2000 (the day Finance Act, 2000 received presidential assent) in respect to clearing and forwarding agents. The amendment also sought to deny any refund of service tax to users of such services consequent to the decision in the case of Laghu Udyog Bharathi (supra) and other decisions following the said decision. The Circular dated 3.3.2000, issued by the Directorate of Service Tax clarified that the object of introducing the amendment was to stop refund of service tax already collected and also to recover service tax already refunded in view of the Supreme Court judgment. No amendment were made to Section 68 which was charging section providing for collection and payment of service tax or to Section 73 which provided for issue of a notice only to a person who filed a return which was not complied with by the service receiver. Consequently the effect of the amendment made in Section 65 was incapable of being implemented in cases of persons who received the clearing and forwarding services from such service provider.
(v) Since the amendments made in Finance Act, 2000 did not completely fill in the lacuna, amendments were made by the Finance Act, 2003 to Sections 68 and 71A. The purpose of amendment was to validate the service tax already collected. The Memorandum explaining the Finance Bill, 2003 made it clear that retrospective amendments were introduced to stop refunds of service tax in future and to recover by overcoming the ruling of Apex Court and making the service receiver the person liable to pay tax. The Tribunal In the case of L.H. Sugar Factories Ltd. v. CCE wherein it was held that since Section 73 did not contemplate liability of appellants under Section 71A the same cannot be invoked to issue a show cause notice. Even if the amendment, the Department cannot initiate any fresh proceeding when no action was initiated before 12.5.2000. The decision of the Tribunal has been affirmed by the Apex Court 2005 (187) ELT 5 (S.C.)
(vi) The imposition of penalty does not survive since the explanation was inserted in the retrospective amendment of Finance Act, 2000 which specifically stated that any act or omission on the part of any person in relation to these retrospective amendments shall not be punishable.
5. The learned Jt. GDR reiterated the orders of the lower authorities.
6. We have gone through the records of the case carefully. The appellants appointed BPL to act as a consignment agent for marketing their goods. The appellants reimbursed BPL for all the services rendered to them. These services includes the service of C & F agents. BPL in turn sub-contracted the work of C & F agents to others. The department contended that the service tax is liable to pay on the entire amount reimbursed by the appellants to BPL. We do not agree with the Revenue's stand. The amount received by BPL from the appellant is not only for the clearing and forwarding services but also for the various other activities. In these circumstances the ratio of Mahavir Generics v. CCE (supra) case of the Tribunal is clearly applicable. In the above case, the Tribunal has made the following observations:
8. The agreement with specific reference to the clauses quoted above, would show that the appellant was not acting as a clearing and forwarding agent Unless its service can be treated as one to a client by a clearing and forwarding agent in relation to clearing and forwarding operations in any manner, the service cannot be taxed even if then consignment agent is brought under the definition of clearing and forwarding agent. Under the scheme of the Finance Act, 1994 with relation to service tax, the tax liability is attached to the taxable service. So long as the appellant is not providing a taxable service, the appellant cannot be brought under the net of service tax.
Following the above ratio, we do not find any merit in the orders of the lower authorities. There is absolutely no justification for imposition of penalty also. Hence we allow the appeal with consequential relief.
(Operative portion of the order has been pronounced in the open court on completion of hearing)