2013 (11) TMI 1010 - HC - Service Tax

Appellate Tribunal grants exemption on service tax for export agency commission & corporate guarantee, High Court upholds waiver.

The Customs, Excise and Service Tax Appellate Tribunal directed the appellant to deposit service tax on agency commission for export of agricultural ... Exemption under Notification No.8/2004-ST - exemption under Notification No.13/2003-ST - business auxiliary service - commission agent - prima facie satisfaction - waiver of pre-deposit - conditional pre-deposit - corporate guarantee not banking service - stay of proceedings - follow interim orderExemption under Notification No.8/2004-ST - exemption under Notification No.13/2003-ST - commission agent - prima facie satisfaction - waiver of pre-deposit - conditional pre-deposit - Tribunal's direction to remit entire service tax with proportionate interest as condition for waiver of pre-deposit despite its own prima facie findings favouring exemption. - HELD THAT: - The Tribunal had recorded a prima facie view that agency commission paid to overseas agents in relation to export of listed agricultural produce (including rice, sesame seeds, cashew nuts) was covered by the exemption regime established by Notification No.13/2003-ST as amended by Notification No.8/2004-ST and by the Circular clarification, and therefore the adjudication denying exemption was prima facie erroneous. The Tribunal also observed, following an interim order in a preceding case, that payments characterized as corporate guarantee could fall outside banking or financial services. Notwithstanding these favourable prima facie findings, the Tribunal imposed a condition requiring remittance of the entire assessed service tax plus interest within six weeks as a pre-condition to the waiver. The High Court held that once the Tribunal itself records prima facie satisfaction that the exemption applies (and is persuaded by the precedent on corporate guarantees), it was not justified to require the full pre-deposit; the appellant was entitled to complete waiver of pre-deposit. The Court answered the substantial question of law accordingly and quashed the conditional deposit direction. [Paras 7]Tribunal's conditional pre-deposit direction set aside; complete waiver of pre-deposit granted.Final Conclusion: The appeal is allowed: having recorded prima facie satisfaction in favour of the appellant on the exemption and related characterization issues, the Tribunal's order requiring remittance of the entire assessed service tax with interest as a condition for waiver is set aside and complete waiver of pre-deposit is granted. Issues involved:1. Whether Customs, Excise and Service Tax Appellate Tribunal was correct in directing the appellant to deposit entire service tax along with proportionate interest within six weeks from the date of the order despite earlier findingsRs.Analysis:Issue 1: Service Tax on Agency Commission for Export of Agricultural ProduceThe appellant sought waiver of pre-deposit for their appeal against adjudication orders related to agency commission remitted to the parent company for facilitating export of agricultural produce. The tribunal found that the adjudication order erred in denying the benefit of exemption under specific notifications. It was observed that the overseas agents facilitating the export of agricultural commodities fell within the scope of commission agents as defined in the notifications. The tribunal concluded that the commission paid for export facilitation of agricultural produce was entitled to exemption under the relevant notifications. Consequently, the appellant was granted exemption/waiver of pre-deposit based on the prima facie opinion in their favor.Issue 2: Corporate Guarantee CommissionThe second issue involved corporate guarantee commission paid by the appellant to the foreign principal. The tribunal considered this commission payment as a service provided for facilitating business activities related to procurement of agricultural produce for export. While initially forming a prima facie view on the nature of this service, the tribunal referred to an interim order in another case regarding corporate guarantees provided to a bank. Despite this reference and acknowledging the persuasive value of the interim order, the tribunal directed the appellant to deposit a specific amount along with proportionate interest within six weeks, failing which the appeals would be dismissed for non-compliance. However, the tribunal's own observations indicated that the provision of corporate guarantee fell outside banking or financial services, suggesting a possible exemption from service tax liability.In conclusion, the High Court answered the substantial question of law in favor of the appellant, granting complete waiver of pre-deposit based on the findings and observations made by the tribunal.