Subsidiary acting as consignment agent for goods clearance not liable for service tax under Section 66A

The CESTAT Ahmedabad ruled in favor of the appellant regarding service tax liability on payments to its USA subsidiary. The appellant exported books to its subsidiary, which cleared them through customs, invoiced customers, collected payments, and retained 15% commission before transferring 85% to the appellant. The Revenue argued this constituted taxable Business Auxiliary Services under Section 66A of Finance Act, 1994. The CESTAT distinguished between commission agents and consignment agents, finding the subsidiary acted as a consignment agent handling goods movement and customs clearance rather than marketing activities. Since no marketing or promotional services were provided, the subsidiary was not a commission agent, making the service tax demand unsustainable. Appeal allowed.

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Issues Involved:
1. Classification of services provided by the subsidiary company.
2. Applicability of service tax under 'Business Auxiliary Services'.
3. Invocation of the extended period of limitation.

Summary:

1. Classification of Services Provided by Subsidiary Company:
The primary issue was whether the subsidiary company of the appellant in the USA acted as a Clearing and Forwarding (C&F) Agent or a Commission Agent. The appellant contended that the subsidiary acted as a consignment cum C&F agent, not a commission agent. The subsidiary received goods on a consignment basis, cleared them from customs, and forwarded them to customers in the USA, retaining a 15% commission from the ultimate sale price. The tribunal found that the subsidiary company's activities were consistent with those of a consignment agent, as clarified by the Board Circular No. 59/8/2003-ST dated 20.06.2003.

2. Applicability of Service Tax under 'Business Auxiliary Services':
The revenue alleged that the subsidiary company's services fell under 'Business Auxiliary Services' and were thus taxable. However, the tribunal noted that the revenue failed to specify under which sub-clause of 'Business Auxiliary Services' the demand was raised. The tribunal referenced several judgments (United Telecoms Ltd., Sharma Travels, and Balaji Enterprises) and concluded that without specifying the exact sub-clause, the demand could not be sustained. Additionally, the tribunal emphasized that the subsidiary did not undertake any marketing or promotional activities, further supporting the classification as a consignment agent rather than a commission agent.

3. Invocation of the Extended Period of Limitation:
The appellant argued that the extended period of limitation should not apply since there was no suppression of facts with intent to evade tax. The appellant maintained regular books of accounts and disclosed all transactions. However, since the tribunal decided the matter on merits, it did not address the limitation issue and kept it open for future consideration.

Conclusion:
The tribunal set aside the impugned order, concluding that the appellant was not liable to pay service tax under 'Business Auxiliary Services'. The appeal was allowed with consequential relief in accordance with the law. The decision was pronounced in open court on 03.11.2023.

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