2025 (9) TMI 66 - AT - Service Tax

Commission agent services for rice found exempt under Notification No.13/2003-ST; refund of reverse-charge service tax directed

M/s Bharat Industrial Enterprises Ltd. Versus Commissioner of Central Excise and Service Tax, Panchkula

M/s Bharat Industrial Enterprises Ltd. Versus Commissioner of Central Excise and Service Tax, Panchkula - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether services provided by commission agents in relation to export/domestic sale of rice qualify for exemption under Notification No.13/2003-ST by virtue of the definition of 'agricultural produce'. 2. Whether 'rice' falls within the inclusive clause of the definition of 'agricultural produce' in Notification No.13/2003-ST when read with the Explanation thereto and applicable administrative clarifications. 3. Whether refund of service tax paid under Reverse Charge Mechanism is permissible where such tax was paid due to a mistaken understanding but the underlying services are exempt under Notification No.13/2003-ST. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of Notification No.13/2003-ST to commission agent services in relation to rice (Business Auxiliary Services) Legal framework: Notification No.13/2003-ST exempts service tax on specified services relating to 'agricultural produce'. The relevant service in dispute is commission agent services (classified as Business Auxiliary Services) engaged for export/domestic sale of rice. The Explanation to the Notification defines 'agricultural produce' and contains an inclusive list. Precedent Treatment: The Court considered administrative clarification in CBIC Circular No.143/12/2011-ST (26-05-2011) which treats commission agent services provided to promote export of rice as covered by Notification No.13/2003-ST because 'rice' is cited in the Explanation. Interpretation and reasoning: The Explanation's inclusive clause expressly enumerates items including cereals, and also specifically lists 'rice'. The nature of the exempted services (business auxiliary services by commission agents) is directly linked to the produce specified in the Explanation. Where a service is ancillary to an exempted 'agricultural produce', the Notification's exemption applies. The administrative clarification reinforces the plain-meaning reading that rice is covered. Ratio vs. Obiter: Ratio - The exemption under Notification No.13/2003-ST applies to commission agent (business auxiliary) services in relation to rice. Obiter - None additional on this point. Conclusion: The services of commission agents engaged for sale/export of rice fall within the exemption under Notification No.13/2003-ST. Issue 2 - Whether 'rice' is included within the term 'agricultural produce' as per the Explanation to Notification No.13/2003-ST Legal framework: The Explanation defines 'agricultural produce' to include produce resulting from cultivation on which no further processing is done or only such processing as does not alter essential characteristics, and then includes an inclusive list: 'all cereals, pulses, fruits... rice ...' while excluding manufactured or processed products such as sugar, edible oils, processed food and processed tobacco. Precedent Treatment: The Court relied on the CBIC Circular which explicitly recognizes 'rice' under the Explanation's inclusive list. Earlier tribunal decisions were cited by counsel; the Court treated the administrative clarification as directly supportive of the textual interpretation. Interpretation and reasoning: The plain text of the Explanation demonstrates inclusion of cereals and specifically names 'rice' in the list. The qualifying clause restricts exclusion to manufactured or processed products; by contrast rice, as listed, is an agricultural produce (not a manufactured product) so long as processing does not alter its essential characteristics. The inclusive enumeration and the express mention of rice leave no ambiguity that rice is covered. Ratio vs. Obiter: Ratio - 'Rice' is an 'agricultural produce' under the Explanation to Notification No.13/2003-ST. Obiter - N/A. Conclusion: 'Rice' is included within the definition of 'agricultural produce' in Notification No.13/2003-ST; consequently services relating to rice qualify for the Notification's exemption subject to the processing proviso in the Explanation. Issue 3 - Entitlement to refund of service tax paid under Reverse Charge Mechanism where services are exempt Legal framework: Where tax has been paid on services that are subsequently found to be exempt, the payer is entitled to refund in accordance with law. The dispute concerns service tax paid under Reverse Charge Mechanism and whether refund previously granted could be set aside on revision. Precedent Treatment: The Court considered the original authority's grant of refund and the revenue's revision disallowing the refund; administrative clarification and statutory text were applied to determine entitlement. Interpretation and reasoning: Because the services in question qualify for exemption under Notification No.13/2003-ST (see Issues 1-2), payment of service tax under Reverse Charge Mechanism was inapplicable. The earlier grant of refund was consistent with the Notification and applicable clarifications; the revisional disallowance was contrary to the correct legal interpretation of the Notification's scope. No contrary statutory provision or binding precedent was found that would justify denial of refund where exemption clearly applies. Ratio vs. Obiter: Ratio - Where services are exempt under Notification No.13/2003-ST, a refund of tax paid under Reverse Charge Mechanism is due; a revisional order denying such refund is not sustainable. Obiter - Interest/other consequential aspects should follow as per law. Conclusion: The refund of service tax paid under Reverse Charge Mechanism for commission agent services in relation to rice is sustainable; the revisional order disallowing refund is set aside and the appeal is allowed with consequential relief as per law.