Agricultural produce exemption under service tax not available prima facie to exporter using overseas commission agents; partial pre-deposit relief granted.

The exemption under Notification No. 13/2003-S.T. for Business Auxiliary Services connected with sale or purchase of agricultural produce was found, prima facie, unavailable where the appellant was a rice producer-exporter using overseas commission agents to procure orders, rather than itself acting as a cultivator undertaking the relevant processes. On that reading, the service tax liability on the recipient-side arrangement arose under Section 66A(1) of the Finance Act, 1994 read with Rule 2(1)(d) of the Service Tax Rules, 1994. As a result, full waiver of pre-deposit was declined and partial relief was granted with 50% of the demand directed to be deposited.

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Issues: Whether the appellant was entitled, prima facie, to the benefit of Notification No. 13/2003-S.T., dated 20-6-2003, in respect of service tax demanded on services of overseas commission agents, and consequently to waiver of full pre-deposit.

Analysis: The notification exempted Business Auxiliary Services provided by a commission agent in relation to sale or purchase of agricultural produce from service tax under Section 66 of the Finance Act, 1994. The appellant was not itself a cultivator of agricultural produce but a rice producer-exporter using overseas commission agents for procurement of orders. On a prima facie reading of the notification and its explanation, the benefit was available only where the relevant processes on agricultural produce were undertaken by the cultivator himself. The liability to pay service tax on the recipient-side arrangement was traced to Section 66A(1) of the Finance Act, 1994 read with Rule 2(1)(d) of the Service Tax Rules, 1994.

Conclusion: The benefit of the exemption notification was held not available to the appellant at the prima facie stage, and only partial waiver of pre-deposit was granted with deposit of 50% of the demand directed.

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