2025 (11) TMI 601 - AT - Service Tax

Black tea deemed agricultural produce; commission agent services fall under Section 66D negative list, exports not taxable

Glenworth Estate Ltd. Versus Commissioner of GST & Central Excise, Coimbatore

CESTAT CHENNAI - AT held that black tea retains the basic characteristics of an agricultural produce; therefore services of commission agents for sale of ... Levy of service tax - appellant has paid commission to their foreign agents for sale of their black tea - black tea, an agricultural produce and services provided thereon by the Commission Agent would be covered under the Negative List or not - export commission paid to foreign commission agent for export of black tea is liable for service tax under Reverse Charge Mechanism or not - levy of interest and penalties - HELD THAT:- The question whether black tea is an agricultural produce has been examined by this Tribunal in the appellant’s own case [2023 (5) TMI 1193 - CESTAT CHENNAI] where it was held that 'even the processes involved in converting Green Tea into Black Tea does not alter the basic characteristic of the Tea as such and the same could not be considered as a non-agricultural product under any stretch of imagination.' Neither of the parties have brought to notice that the said Order of the Tribunal has been modified or set aside. Hence the same is binding. Further, even as per Board’s circular dt. 26.05.2011 which is binding on the department, client processing in which the essential characteristics of the agriculture produce is retained should be considered as covered by the expression ‘in relation to agriculture’. Once the black tea is found to be agricultural produce, services provided by a commission agent for sale or purchase of agricultural produce is covered by the negative list as per Section 66D of the Finance Act, 1994 and is not exigible to Service Tax. The impugned orders are set aside - appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether black tea qualifies as 'agricultural produce' within the meaning of the Finance Act and related notifications, such that services provided by a commission agent in relation to sale or purchase of black tea fall within the negative list (Sec.65B(5) and Sec.66D(vii)) and are not liable to service tax. 2. Whether export commission paid to a foreign commission agent for export of black tea is exigible to service tax under the reverse charge mechanism when no service is rendered in India. 3. Whether demands of interest and imposition of penalties under Sec.76 and Sec.77 of the Finance Act are sustainable in the facts where taxability, place of provision of service, and exemption issues were contested and there was no finding of suppression. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Qualification of black tea as 'agricultural produce' and taxability of commission agent services (Sec.65B(5) & Sec.66D(vii)) Legal framework: 'Agricultural produce' is defined to include produce of agriculture on which either no further processing is done or such processing as is usually done by a cultivator/producer which does not alter its essential characteristics but makes it marketable for primary market (Sec.65B(5)). Services by a commission agent for sale or purchase of agricultural produce are included in the negative list (Sec.66D(vii)). Precedent treatment: A prior Tribunal order in the same appellant's matter held that processes converting green tea into black tea do not alter the essential character of tea and thus black tea remains agricultural produce; that decision has not been shown to have been modified or set aside. A Board circular (CBEC Circular dated 26.05.2011) treats client processing that retains essential characteristics (examples: tobacco threshing/drying; cashew roasting/shelling/peeling) as processing 'in relation to agriculture'. Interpretation and reasoning: The Tribunal applied the statutory definition and the Board circular to conclude that the processes involved in producing black tea do not change the essential nature of the agricultural product; they merely render it marketable (e.g., withering, fermentation, drying/heating) and fall within processes usually undertaken by a cultivator or producer. The existence of entries for tea products in the Central Excise Tariff (Chapter 9/Vegetable Products) does not convert an agricultural produce into a non-agricultural/ manufactured product for the purpose of the Finance Act definition. The Board circular reinforces that client processing retaining essential characteristics is to be regarded as 'in relation to agriculture'. Ratio vs. Obiter: Ratio - black tea is an 'agricultural produce' under Sec.65B(5), and consequently services by commission agents relating to sale or purchase of black tea fall within the negative list (Sec.66D(vii)) and are not exigible to service tax. Observational/ancillary points referencing tariff classification and examples in the circular are supportive reasoning (obiter to the extent they are explanatory rather than determinative beyond the case facts). Conclusions: Commission agent services for sale/purchase of black tea are covered by the negative list and not taxable; thus any demand of service tax on such commission is untenable. Issue 2 - Liability of export commission to service tax under reverse charge when service provided by foreign agent outside India Legal framework: Reverse charge can apply when a taxable service is received in India; place of provision and situs of service are relevant to determine liability. Precedent treatment: The Tribunal noted prior authority holding that export commission paid to foreign commission agents is not taxable in India where no service is provided in India (example cited of Tribunal decision finding no service provision in India for foreign-located agents). Interpretation and reasoning: Once black tea and attendant commission-agent services are held non-taxable by virtue of being services in relation to agricultural produce under the negative list, consideration of reverse charge becomes redundant. Separately, where the service is performed wholly outside India by an agent located abroad and no service is provided in India, the service would not attract Indian service tax under reverse charge principles. Ratio vs. Obiter: Obiter in this judgment to the extent it discusses reverse charge is subordinate to the primary ratio that the service is non-taxable under the negative list; however, the principle that a foreign-located commission agent providing services wholly outside India is not taxable in India is affirmed as applicable. Conclusions: No service tax liability arises on export commission to a foreign agent where (a) the service falls within the negative list as relating to agricultural produce, and/or (b) no service is provided in India by the foreign agent; the reverse charge contention need not be decided further in light of the negative list finding. Issue 3 - Sustainablity of interest and penalties (Sec.76, Sec.77, Sec.80) Legal framework: Interest can be demanded on tax shortfall; penalties under Sec.76/77 are attracted when specified conditions (e.g., suppression, fraud, misrepresentation) are met; waiver may be considered under Sec.80 where there is reasonable cause or absence of suppression. Precedent treatment: The Tribunal relied on the absence of any finding of suppression by the adjudicating authorities and on the contested nature of taxability and place-of-service issues to assess penalty liability. Interpretation and reasoning: Because the principal question of taxability was litigable and determined in favour of the appellant (black tea being agricultural produce and commission services not taxable), demands of service tax fail. Penalties premised on taxability likewise cannot stand where no suppression was found; in such factual/legal circumstances, imposition of penalties is unjustified and waiver would be appropriate. Interest demand is consequential upon tax demand and falls away if tax demand is set aside. Ratio vs. Obiter: Ratio - where a tax demand is unsustainable because the service is non-taxable and there is no finding of suppression, penalties under Sec.76/77 are not sustainable and may be waived under Sec.80; interest claims are rendered redundant by setting aside the tax demand. Observations about revenue neutral Cenvat credit/refund claims are ancillary. Conclusions: Interest and penalties linked to the impugned service tax demands are not sustainable in the circumstances; penalties may be waived and interest demands set aside as consequential relief. Overall Conclusion The Court set aside the impugned orders imposing service tax, interest and penalties on commission paid in respect of black tea, holding that black tea is an agricultural produce and commission-agent services for its sale/purchase fall within the negative list (Sec.66D(vii)), with ancillary findings that reverse charge and penalties need not be sustained in view of the primary conclusion. Appellant is entitled to consequential relief as per law.