2017 (2) TMI 1355 - AT - Service Tax

Tribunal Upholds Service Tax Demands on GTA, Renting Property, & Foreign Agents; Remands Penalties

The Tribunal set aside demands of service tax on Business Auxiliary Service (BAS) and allowed related appeals. However, demands of service tax on Goods ... Business Auxiliary Service (BAS) - processing of goods for, or on behalf of the client - exemption 'in relation to agriculture' under Notification No. 14/2004 (as amended) - negative list entry - carrying out intermediate production process as job work in relation to agriculture - Goods Transport Agency / GTA service and consignment note requirement - renting of immovable property for use in the course or furtherance of business - reverse charge mechanism for services received from an agent outside India - administrative clarification - Board Circular No. 143/12/2011 (processing of tobacco and raw cashew)Business Auxiliary Service (BAS) - processing of goods for, or on behalf of the client - exemption 'in relation to agriculture' under Notification No. 14/2004 (as amended) - administrative clarification - Board Circular No. 143/12/2011 (processing of tobacco and raw cashew) - negative list entry - carrying out intermediate production process as job work in relation to agriculture - Demands of service tax on Business Auxiliary Service (BAS) in respect of threshing and redrying of tobacco - HELD THAT: - The Tribunal held that threshing and redrying of tobacco undertaken for or on behalf of clients falls within the expression 'processing of goods for, or on behalf of the client ... provided in relation to agriculture' in Notification No. 14/2004 (as amended by Notification No. 19/2005). The Board's Circular No. 143/12/2011, after examining representations, clarified that client processing operations such as threshing and drying of tobacco retain the essential characteristics of the agricultural produce and are covered by the exemption. The Tribunal also relied on the legal treatment of agricultural produce (as discussed in CIT v. Cynamid India Ltd.) and the Tribunal's decision in Tasty Bite Eatables Ltd. which applied the Board's clarification to processing of agricultural produce. Having regard to these authorities and the Ministry of Agriculture's communication describing threshing as post harvest agricultural operation that does not change the product's essential character, the Tribunal concluded that the activities are 'in relation to agriculture' and not liable to service tax as BAS, both before and after introduction of the negative list. Consequentially, demands and related penalties attributable to BAS were set aside.Demands of service tax on BAS in the listed appeals are set aside and appeals on that issue are allowed; departmental appeals against orders setting aside BAS demands are dismissed; penalties related to BAS extinguished.Goods Transport Agency / GTA service and consignment note requirement - GTA service - service recipient paying freight - Demands of service tax under GTA for transportation of tobacco bundles to threshing factories - HELD THAT: - The Tribunal rejected the appellants' contention that absence of a formal consignment note or that private truck operators cannot constitute a GTA would exempt them. It observed that the statutory definition of 'goods transport agency' contemplates issuance of a consignment note 'by whatever name called' and that documents accompanying the goods (invoices/vouchers describing truck number, amount and load) can constitute a consignment note. The Tribunal found that the appellants were service recipients who paid freight and that the facts supported application of GTA. Reliance was placed on prior Tribunal reasoning that consignment note need not follow a prescribed format and on evidentiary documents available in the record.Demands of service tax under GTA are upheld in the listed appeals and those appeals are dismissed.Renting of immovable property for use in the course or furtherance of business - Demands of service tax on renting of immovable property given for commercial activities - HELD THAT: - The Tribunal recorded that it was undisputed the immovable properties were given for commercial use. Under the statutory definition of taxable service in the Finance Act, renting of immovable property for use in the course or furtherance of business is a taxable service. On the undisputed facts, the Tribunal found no infirmity in the demands confirmed by the lower authorities.Demands of service tax on renting of immovable property are upheld in the listed appeals and those appeals are dismissed.Reverse charge mechanism for services received from an agent outside India - taxability of commission paid to foreign agent - Liability to service tax on commission paid to a foreign agent and applicability of reverse charge - HELD THAT: - The Tribunal accepted the adjudicating authority's conclusion that services rendered by the foreign agent, who acted outside India in relation to sale of processed tobacco, are classifiable as a taxable service under the Finance Act. The Tribunal held the commission paid is liable to service tax and that the liability rests on the assessee under the reverse charge mechanism in terms of the Service Tax Rules. No infirmity was found in the impugned adjudication on this point.Demand of service tax on commission paid to foreign agent is upheld and the appeal on this issue is dismissed.Penalties - de novo consideration and applicability where tax paid - Whether penalties in respect of demands under GTA, renting of immovable property and commission to foreign agents are leviable and, if so, their quantum - HELD THAT: - The Tribunal noted that in several cases service tax (with interest) had already been paid and referred to a decision (Sethi Tools) indicating penalty consequences where tax is paid within prescribed timelines. Given divergent facts across appeals as to payment, timing and circumstances, the Tribunal remanded all cases for de novo consideration limited to the issue of penalties in respect of GTA, renting of immovable property and commission paid to foreign agents. The remand requires the adjudicating authorities to afford full opportunity to appellants, to admit additional evidence where permissible, and to determine liability and quantum of penalties in accordance with law.Issue of imposition and quantum of penalties in respect of GTA, renting of immovable property and commission to foreign agents is remanded for de novo consideration; authorities to afford opportunity and admit additional evidence as per law.Final Conclusion: The Tribunal partly allowed the appellants by setting aside service tax demands classified as Business Auxiliary Service for threshing and redrying of tobacco (and extinguishing related penalties), while upholding demands under Goods Transport Agency, renting of immovable property and service tax on commission to foreign agents (with those appeals dismissed). The question of penalties relating to GTA, renting and foreign agent commission is remanded for fresh adjudication in accordance with law. Issues Involved:1. Demand of service tax on Business Auxiliary Service (BAS)2. Demand of service tax on Goods Transport Agency (GTA) service3. Demand of service tax on Renting of Immovable Property Service4. Demand of service tax on commission paid to foreign agents5. Imposition of penaltiesIssue-wise Detailed Analysis:1. Demand of Service Tax on Business Auxiliary Service (BAS):The appellants argued that their activities of threshing and redrying tobacco leaves are agricultural in nature and should be exempt from BAS under Notification No. 14/2004 and subsequent amendments. They cited Circular No. 143/12/2011 which clarified that such activities are related to agriculture and thus exempt. The Tribunal agreed, noting that these activities do not alter the essential characteristics of the agricultural produce. The Tribunal cited the Supreme Court's definition of agricultural products and previous cases supporting the exemption. Consequently, demands of service tax on BAS were set aside, and related departmental appeals were dismissed.2. Demand of Service Tax on Goods Transport Agency (GTA) Service:The appellants contended that they engaged private truck operators who did not issue consignment notes, thus not qualifying as GTA. However, the Tribunal noted that consignment notes can be issued in any form and that the appellants, as service recipients, paid the freight charges. The Tribunal upheld the demands, referencing the definition of GTA in Section 65(50)(b) of the Finance Act, 1994, and previous Tribunal decisions. Therefore, the appeals on this issue were dismissed.3. Demand of Service Tax on Renting of Immovable Property Service:The Tribunal found that the appellants had rented out immovable property for commercial purposes, making them liable for service tax under Section 65(105)(zzzz) of the Finance Act, 1994, effective from 1-6-2007. The Tribunal upheld the demands, noting that the property was indeed used for commercial activities. Hence, appeals on this issue were dismissed.4. Demand of Service Tax on Commission Paid to Foreign Agents:In the case of DTE Exports (P) Ltd., the Tribunal upheld the demand of service tax on commission paid to foreign agents, classifying it as a taxable service under Clause (19)(1) of Section 65 of the Finance Act, 1994. The liability was on the appellant under the reverse charge mechanism as per Rule 2(1)(d)(iv) of the Service Tax Rules. The appeal on this issue was dismissed.5. Imposition of Penalties:The Tribunal noted that in some cases, the service tax was paid along with interest, questioning the imposition of penalties. Citing the case of Sethi Tools Pvt. Ltd. v. CCE, CC & ST, Vadodara-II, the Tribunal observed that penalties might not be leviable if the tax was paid within six months. The Tribunal remanded the issue of penalties for de novo consideration, directing the authorities to reassess the imposition and quantum of penalties concerning demands on GTA, Renting of Immovable Property, and commission paid to foreign agents.Conclusion:- Demands of service tax on BAS were set aside, and related appeals allowed.- Demands of service tax on GTA and Renting of Immovable Property were upheld, and related appeals dismissed.- Demand of service tax on commission paid to foreign agents was upheld, and related appeal dismissed.- The issue of penalties was remanded for reconsideration.(Order pronounced and dictated in open Court)