Custom, Excise & Service Tax Tribunal
M/S. The Salem Starch & Sago ... vs Cce & St, Salem on 20 February, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
ST/467 - 468/2009
(Arising out of Order-in-Appeal No. 100 & 101/2009 dated 29.06.2009 passed by the Commissioner of Customs & Central Excise (Appeals), Salem).
M/s. The Salem Starch & Sago Manufacturers Appellant
Service Industrial Co-operative Society, Ltd.
Vs.
CCE & ST, Salem Respondent
Appearance Ms. Sweta Giridhar, Advocate Shri Balaji Sai Krishnan, Advocate for the Appellant Shri R. Subramaniyam, AC (AR) for the Respondent.
CORAM :
Honble Ms. Sulekha Beevi, Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing/Decision: 20.02.2018 FINAL ORDER No. 40457-40458/2018 Per Bench The appellants are a Co-operative Society consisting of members wherein the members are manufacturers of starch and sago. Appellants undertake the sale of starch and sago through a system of sale by tendering as per the terms and conditions of the By-laws of the society. Towards this activity, society collects service charges from the concerned members. The sale is effected by two types of tendering process I and II. In type-I sales there is no upset price fixed before sale of goods. The member manufacturer, who has offered the goods for sale has the option to reject or accept the offer of bid by the tenderer. In type-II sales, where minimum price is fixed, the sale is automatically confirmed in favour of the merchant who has quoted the highest price provided the highest price is more than the minimum price fixed. Appellants collected charges towards godown renting, lab testing charges etc., and also collected 0.50% of the sale value as service charges from the merchants. Department took a view that the appellants were not discharging service tax liability on storage and warehousing services. In respect of service charges related to the sales, department took a view that the said amounts would attract service tax liability under auction of property service under Section 65 (7a) of the Finance Act, 1994. Accordingly, two SCNs were issued demanding service tax of Rs. 9,68,759/- for the period 01.05.2006 to 31.03.2007 and Rs. 14,84,929/- for the period 01.04.2007 to 31.07.2008. SCNs also proposed imposition of penalties under various provisions. On adjudication, the proposals made in the SCNs were confirmed by the adjudicating authorities. In appeal, by a common Order No. 100 & 101/2009 ST (SLM) dated 29.06.2009, the Commissioner (Appeals) upheld the orders of the original authorities. Hence, appellants are before this forum.
2. Today when the matter came up for hearing, on behalf of the appellants, Ld. Advocate, Ms. Sweta Giridhar and Sh. Balaji Sai Krishnan appeared and made oral and written submissions, which are summarized as under:-
a) The activity carried out by the appellants cannot be brought within the fold of Auction of property service. The term auction is not been defined either in Section 65 (7a) or in Section 65 (zzzr).
b) There is only a tendering process involved in the sale and no auction is conducted.
c) Sale by tender is not the same as sale by auction. Auction is defined in Section 64 of the Sale of Goods Act, 1930, wherein the scope of sale by auction has been laid down. Sale by tender conducted by the appellant will not come within the ambit of the said section.
d) Ld. Advocate takes us to the judgement of the Honble Supreme Court in the case of Gulab Singh Vs. Chandrapal Singh and Ors. - AIR 1987 BOM 90, wherein the scope of relative differences between the mode of sale by calling offers and that by way of auction has been elucidated by the Honble High Court.
e) Ld. Advocate also places reliance on the judgment of the Honble Apex Court in the case of Puxomoma Ramanata Quenin Vs. Makan Kalyan Tandel and Ors. AIR 1974 SC 651.
f) Ld. Advocate also submits that type-I auction there was an option for rejection of the highest bid whereas in an auction process the highest bid is always accepted.
3. On the other hand, Ld. AR, Shri R. Subramaniyam, AC, supports the impugned order. He submits that in type-II tenders the highest price is accepted. The purpose of the tendering process is only to secure the best price for the members of the society. Ld. AR takes us to the findings of the original authority to highlight that the appellants provide a facility for easy interaction between the manufacturers and buyers to provide short term storage services and also undertake pre-auction price assessment which are of essential ingredients of the auction of property service. Ld. AR also takes us to para5.4 of the impugned order wherein the adjudicating authority has analysed the activities of the appellants and has shown that they very much fall within the scope of Auctioneer service.
4. Heard both sides.
5.1 For better appreciation of the issue in dispute, the definition of Auction of Property Service under Section 65 (7a) is reproduced as under:-
auction of property includes calling the auction or providing a facility, advertising or illustrating services, pre-auction price estimates, short term storage services, repair or restoration services in relation to auction of property.
Taxable service in relation to this service under Section 65 (105) (zzzr) read as under:-
any service provided or to be provided to any person, by any other person, in relation to auction of property, movable or immovable, tangible or intangible, in any manner, but does not include auction or property under the directions or orders of a court of law or auction by the Government 5.2 The issue that poses for consideration is whether the activities of the appellant would fall within the definition of Auction of property service for the period from 01.05.2006 to 31.03.2007. The activity which is the subject matter of dispute is governed by the following terms and conditions between the appellant and the members of the society:
Without prejudice to any of the foregoing provisions or any other clause in these tender terms and conditions, sago serve will also conduct an alternate daily secret tender for sale of sago and starch in the following manner:
The samples of the lots put up for tender each day will also display the minimum price indicated in writing by the concerned member.
Merchants will bid for these lots as before subject to the conditions that any bid lower than the price will summarily rejected.
The lot or a portion thereof (as the case may be) shall be automatically confirmed in favour of the merchant who has quoted the higher price. Any member who wishes his samples to be displayed in this alternate tender system is deemed to have given his concurrence for such automatic confirmation of the sale in favour of the highest bidder.
Samples of lots will displayed either under the regular tender system or under the alternate tender system on a given day. In other words, no sample will be displayed simultaneously under both the systems during any day.
The member shall be at liberty to vary his minimum price from day to day and to request that his samples be displayed under either of the two tenders according to his convenience.
The regular tender system hereafter shall be designated as Type I tender and alternate tender system be designated as Type II tender. 5.3 The department is of the view that such tendering process would fall within the ambit of auctioneers service.
5.4 The lower appellate authority has, in para 5.4 of the impugned order, compared the definitions of tender and auction put forth by the appellants; interalia that advertisements or other invitations calling for tender for purchase of goods is not normally an offer but an invitation to treat and that there is no obligation to accept the highest or lowest tender or indeed any tender; on the other hand an auction is sale by competitive bidding, normally held in public, at which prospective purchasers are invited to make successively increasing bids for the property, which is then usually sold to the highest bidder. The bidding process is conducted in such a manner with all intending bidders are aware, immediately, and on real time basis and the bids made by others. That an auction sale is to be distinguished from a sale by fixed bidding when each bidder must specify a fixed amount and has no opportunity to adjust his bid by reference to rival bids.
5.5 We find merit in these contentions of the appellant. An auction is a live process where all prospective bidders are present at the same time and where the system is transparent enough for each bidder to be aware of the bids put forth by others. Per contra, the tendering process does not allow all prospective bidders to know of the bids made by others. In sale by auction, a bidder can make any number of bids by upping the ante vis-`-vis a rival bid. Auction signifies generally an increasing, an enhancement, and hence is applied to a public sale of property usually conducted by biddings, which enhances the price. (Smiths Dict. Of Antiq). The auction process will normally get culminated only when there are no more bids made for the goods auctioned. Whereas, in respect of tenders, there is only one bid that each bidder can make, the tendering process will be completed at the end of the appointed time and date and, only bids received till that cut off point will be considered for evaluation. However, in the traditional method of auctioneering, apart from the auction process per se the auctioneer also provides a gamut of other related services like providing a facility, advertising or illustrating the goods in auction, engage in pre-auction estimates, short term storage services, et al. In our view, this is precisely why the legislature has specifically brought all such activities under a separate Auction of Property Service w.e.f. 01.05.2006. Thus, while both sale by tender and sale by auction may have a common intendment of selling the goods, the modalities and the processes involved in each are very different.
5.6 Viewed in this light, we are unable to appreciate how the lower appellate authority in para-5.4 of the impugned order, has concluded that the definitions of tender and auction are similar. Further, although the authority has reasoned that the appellants have performed the services of providing facility for easy interaction between the manufacturers and the merchants, provided short term services and have also been involved in the pre-auction price estimation, however, no evidence is forth coming to substantiate such a finding.
5.7 A number of judicial decisions have also gone into the difference between auction and tender:-
(i) . Auction Vs. Inviting Tenders:- Former is a way of selling property by bids usually to the highest bidder by public competition. Latter is merely an attempt to ascertain whether an offer can be obtained within adoptable margin. It is an offer to receive offers, an offer to chaffer: 1974 SC 651-6.
(ii) . Auction Vs. Tender: In an auction, a number of persons attempt to outbid each other; in any system of tenders, though the spirit of outbidding by closed offer is inherent, yet one cannot complete for the 2nd and 3rd time. Moreover, when tender is given, the tenderer gives the bid in documents without knowing the offer or bid of the other tenderer: Kalyan Singh Vs. DAH 1981 NOC 24 Raj.
(iii) In Gulab Singh Vs. Chandrapal Singh and Ors. (supra), relied upon by the Ld. Advocate the Court had occasion to analyse whether the mode of sale by calling offers by advertisement can be said to be a form of a public auction, as follows:-
17. However, the principal question to be considered in the instant case is as to whether the mode of sale by calling offers by advertisement can be said to be a form of a public auction. In support of the contention that the mode of calling for offers by advertisement is not a sale by public auction the provisions of section 64 of the Sale of Goods Act q930 are brought to my notice by the learned counsel for the applicant to show what an auction sale means or how it is understood. The main feature distinguishing the auction sale from other sales which is pointed out therein is that the auction sale is on the spot and is by public competition. Everybody present at the time of the said sale is entitled to raise his own bid on the spot and that is how the highest bidder is determined. It is pointed out that in a case of sale by tenders or by calling for offers, there is no opportunity to the intending buyer to raise his own bid. It is, therefore, urged that sale by inviting offers cannot be a sale by public auction. It is also pointed out relying upon the provisions of section 6 of the partition Act that in an open spot sale everybody would know the reserved bid or the upset price fixed therein and the bid would be above that.
18. I may usefully refer in this regard to the Halsburys Laws of England Volume 2 Fourth Edition for what an auction means. Para 701 on page 360 is relevant. According to Halsburys Laws of England, the auction is a manner of selling or letting property by bids, usually to the highest bidder by public competition. The prices which the public are asked to pay are the highest which those who bid can be tempted to offer by the skill and tact of the auctioneer under the excitement of open competition. It is thus clear that an auction is held by public competition wherein every bidder has right to raise his own bid. It is also clear that in public auction, the atmosphere therein created by open bidding can tempt the bidder to raise his bid and thus enhanced price can be fetched by the said mode.
19. In a sale by tender, however, no such opportunity is available to the tenderer. Once he gives his offer that is final and cannot be raised, whereas in public auction each bidder knows the bid of the other person. In the mode of sale by calling for offers or tenders, none of the persons or tenders know the price offered by the other. In regard to the tenders, it is observed in Halsburys Laws of England, Volume 9, and Fourth Edition para 230 on page 101 that an advertisement that goods or services are to be bought or sold by tenders, is not prima facie, an offer to sell to the person making the highest tender. It is, therefore, clear that by sale by tender or by calling for offers, the highest bid need not be accepted.
20. There is thus a substantial distinction between the sale by calling for offers through advertisement and the sale by public auction. By no stretch of imagination a sale by calling for offers through advertisement can be said to be a sale by public auction. By relying upon the decision of this Court in Digambar Tatya Utpat vs. Hari Damodar Utpat (AIR 1927 Bombay 143), it is submitted on behalf of the non-applicant No. 7 that there can be a limited court auction in which the class of bidders can be restricted. In my view, the said analogy is not apt. Even in the case of limited auction the principal characteristic of an auction sale about raising a bid at the spot would remain present which is totally absent when there is sale by tender or by calling for offers. The above decision is, therefore, of no assistance to the non-applicant No.7.
(iv) The Honble Supreme Court in the case of Puxomoma Ramanata Quenin Vs. Makan Kalyan Tandel and Ors. (supra) has also brought forth the distinction between auction and tender as follows:-
The aforesaid paragraph, it would thus appear, relates to auction and not to calling of sealed tenders. An auction, as stated in Halsburys Laws of England, Third Edition, Vol. 2, page 69, is a manner of selling or letting property by bids and usually to the highest bidder by public competition. An invitation to tender is a mere attempt to ascertain whether an offer can be obtained within such margin as the building owner or employer is willing to adopt, or, in other words, is an offer to negotiate, an offer to receive offers, an offer to chaffer. There is in our opinion, difference between auction and invitation for tenders.
6. Hence, the impugned order upholding the orders of the adjudicating authorities concerned and holding that the impugned activities will be leviable to service tax under the scope of Auctioneer Service, cannot sustain. In the event, the impugned order requires to be set aside, which we hereby do. Both the appeals are therefore allowed with consequential benefits, if any, as per law.
(Order dictated and pronounced in the open Court)
(MADHU MOHAN DAMODHAR) (SULEKHA BEEVI C.S.)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
BB
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