2015 (9) TMI 53 - AT - Service Tax

Tribunal rules in favor of appellants on service tax classification for commission received

Sri Sabarey Enterprises, Sri Vasavi Jeans, LNGS Pvt. Ltd. Versus Commissioner of Central Excise, Coimbatore

Sri Sabarey Enterprises, Sri Vasavi Jeans, LNGS Pvt. Ltd. Versus Commissioner of Central Excise, Coimbatore - TMI Issues:- Classification of service tax on commission received by appellants under Clearing & Forwarding Agency Service for the period September 1999 to March 2004.- Applicability of Sections 78, 76, 75A, and 77 of the Finance Act in confirming the demand and penalty.Analysis:Issue 1: Classification of Service TaxThe primary issue in this case revolves around the classification of service tax on the commission received by the appellants under Clearing & Forwarding Agency Service. The appellants argued that they acted as commission agents, primarily engaged in the sale and marketing of goods on behalf of the principal manufacturer. They relied on relevant agreements and circulars to support their position. The key contention was whether the appellants' activities should be classified under Business Auxiliary Service as commission agents or as Clearing & Forwarding Agents. The Tribunal analyzed the agreements between the appellants and the principal manufacturer, noting clauses that specified the appellants' role in marketing and selling goods, entitling them to a commission based on sales. The Tribunal referred to the definition of 'commission agent' under the Act, emphasizing that the appellants' principal activity was sales and marketing, even though they also handled goods for storage and distribution. Citing precedents and the Tribunal's order in a similar case, it was concluded that the appellants' activities aligned more with commission agents rather than Clearing & Forwarding Agents.Issue 2: Applicability of Sections 78, 76, 75A, and 77Regarding the applicability of Sections 78, 76, 75A, and 77 of the Finance Act in confirming the demand and penalty, the adjudicating authority had confirmed the demand and imposed penalties under these sections. The LAA upheld the demand and penalty, except for setting aside the penalty under Section 78. The appellants challenged these penalties in the present appeals. After hearing arguments from both sides, the Tribunal focused on the core issue of service tax classification. By analyzing the nature of the appellants' activities and the agreements in place, the Tribunal concluded that the demand under Clearing & Forwarding Agent service was not sustainable. Citing a Tribunal decision upheld by the Hon'ble Supreme Court, the Tribunal set aside the impugned orders, allowing the appeals and rejecting the service tax demand confirmed under Clearing & Forwarding service.In conclusion, the Tribunal's detailed analysis and reliance on legal provisions, agreements, and precedents led to the classification of the service tax demand in favor of the appellants as commission agents rather than Clearing & Forwarding Agents. The decision highlighted the importance of understanding the nature of services provided and the specific terms of agreements in determining the appropriate tax classification.