2011 (4) TMI 580 - AT - Service Tax

Tribunal rules on commission agent status, upholds extended demand period, recalculates tax liability, and adjusts penalties.

CCE, CHANDIGARH Versus M/s KRISHNA AUTOMOBILES

The Tribunal partially allowed the Revenue's appeal, determining that the Respondent does not qualify as a commission agent under Notification 13/2003-ST. ... Commission Agent or not - Exemption under Notification 13/2003-ST Dated 20-06-2003 - Impugned period 01-07-2003 to 08-07-2004 - whether the service provided by the Respondent is eligible for exemption under Notification 13/2003-ST Dated 20-06-2003. notification provides exemption for services provided by Commission Agents - The Revenue contests that the Respondents were not acting as a commission agent - Revenue relies on covenant 32 of the agreement where it is specifically stated that either of the parties shall not act as an agent of the other - Since the Respondent could not have acted as an agent of JCBI, there cannot be a question of acting as a commission agent - On a careful scrutiny of covenant 25 of the agreement it can be seen that the Respondents are not causing the impugned sales - the covenant 25 starts with the words 'Notwithstanding anything to the contrary contained in this Agreement' - So it is argued that this covenant overrules covenant 32 which states that either of the party shall not act as the agent of the other - This is not an acceptable argument. Covenant 25 deals with dealer's margins - So the effect of the clause is that notwithstanding controls exercised by JCBI on final prices at which goods are sold, the Respondent will be eligible for a margin - Covenant 25 itself consists of 5 sentences. The notwithstanding clause applies only to the first sentence and not even to other sentences in the covenant. At any rate it cannot extend to covenant 32 - Held that in the case of impugned sales made directly by JCBI in the territory assigned to the Respondents for which respondent is receiving commission under covenant 25 of the agreement, the Respondent is not acting as an agent of JCBI and the service provided cannot be considered as services provided by a commission agent - Therefore the Appeal of revenue is allowed. Issues Involved:1. Eligibility for exemption under Notification 13/2003-ST for services provided by the Respondent.2. Interpretation of the term 'commission agent' under the notification.3. Applicability of extended period for demand due to non-reporting in ST3 returns.4. Re-computation of tax liability based on cum-tax amount principle.5. Imposition of penalties under sections 76 and 78 of the Finance Act, 1994.Detailed Analysis:1. Eligibility for Exemption under Notification 13/2003-ST:The core issue is whether the service provided by the Respondent qualifies for exemption under Notification 13/2003-ST, which exempts services provided by commission agents. The notification defines a 'commission agent' as a person who causes the sale or purchase of goods on behalf of another person for a consideration based on the quantum of such sale or purchase.2. Interpretation of the Term 'Commission Agent':The Respondent argued that they meet the criteria of a commission agent by causing the sale of goods on behalf of JCBI for a consideration based on the sales volume. However, the Tribunal scrutinized the agreement between the Respondent and JCBI, particularly covenant 25, which outlines that the Respondent receives a commission for sales directly made by JCBI in the assigned territory. The Tribunal concluded that the Respondent is not causing the impugned sales but is compensated for promotional efforts and opportunity loss. Therefore, the Respondent does not act as an agent of JCBI, and the service provided cannot be considered as that of a commission agent.3. Applicability of Extended Period for Demand:The Tribunal noted that the impugned commissions were not reported in the ST3 returns filed by the Respondent. The Respondent's self-interpretation of the law and failure to disclose relevant matters to the department justified invoking the extended period for demand.4. Re-computation of Tax Liability:The Respondent contended that the amounts realized should be considered as cum-tax amounts, and tax liability should be recalculated based on the principle laid down in CCE Vs. Maruti Udyog Ltd. The Tribunal agreed with this argument and directed the Revenue to re-compute the tax liability accordingly.5. Imposition of Penalties:The order-in-original imposed penalties under both sections 76 and 78 of the Finance Act, 1994. The Tribunal observed that since 10.5.2008, section 78 expressly prohibits simultaneous penalties under sections 76 and 78 for the same offense. Consequently, the Tribunal waived the penalty under section 76 while maintaining the penalty under section 78, which should be equivalent to the revised tax liability.Conclusion:The appeal by the Revenue is partially allowed. The Tribunal concluded that the Respondent does not qualify as a commission agent under Notification 13/2003-ST and upheld the extended period for demand. The tax liability should be recalculated on a cum-tax basis, and the penalty under section 76 is waived while maintaining the penalty under section 78.(Pronounced in the open Court on 7.4.2011.)