Professional tea taster of tea is liable for service tax

By | January 28, 2016

Held

Appellant’s activities are not only restricted to sale, but includes host of other activities including assisting in the system of grading and standardization of tea for the purpose of export and also deals with details such as colour, taste, quality and quantity for export of tea and are professional tea taster. They also monitor the shipment of the goods and verify shipment documents, port regulations and other formalities for export of tea. Therefore, we find that the above activities do not fall within the meaning of commission agent. Accordingly, we hold that the appellant’s activities are rightly covered under the category of “BAS” other than commission agent. Therefore, the question of appellant claiming tea as agricultural produce, which is applicable for only commission agent and not applicable to the appellant assessee’s case. Accordingly, we hold that the demand along with interest is liable to be upheld.

CESTAT, CHENNAI BENCH

Container Tea & Commodities

v.

Commissioner of Central Excise, Salem

R. PERIASAMI, TECHNICAL MEMBER
AND P. K. CHOUDHARY, JUDICIAL MEMBER

FINAL ORDER NOS. 41455-41457/2015
ST/40294/2013 (BY ASSESSEE)
ST/40440/2013 (BY DEPTT.)

OCTOBER  29, 2015

P.C. Anand, CA for the Appellant. B. Balamurugan, AC (AR) for the Respondent.

ORDER

P.K. Choudhary, Judicial Member – All the three appeals, two by the assessee M/s. Container Tea and Commodities and one by Revenue, are taken up together as the issue involved is common. The details of the appeals are as under:—

Appeal No. O/O No. & Date O/A No. & Date Duty (Rs.) Period
ST/40294/2013 7/2012 dt. 30.10.2012 1,35,53,523/- 37,16,942/- + Penalty Oct. 04 to Sep. 09 and Oct. 09 to March 2011
ST/40440/2013 (Deptt. Appeal) 7/2012 dt. 30.10.2012 37,16,942/- Appeal for non-imposition of penalty u/s.76 for the SCN dt. 14.03.2012
ST/41579/2014 15/2014- JC(ST) dt.  20.3.2014 125/2014 (ST) dt. 15.5.2014 26,17,995/- + penalty 26,17,995/- April 2011 to March 2012

2. The brief facts of the cases are that the appellant M/s. Container Tea and Commodities (CT & C for short) is a partnership firm acting as an agent for a number of South Indian Tea Estates in the marketing and sale of their tea overseas and are professional tea taster. Vide orders of the adjudicating authority tax was demanded on the assessee under the category of “Business Auxiliary Service”.

3. The learned Counsel for the appellant-assessee, Shri P.C. Anand, submits that the appellant was undertaking the service on behalf of the tea exporters in various ways in respect of export of tea which is an agricultural produce and therefore, the demand of tax is unsustainable. He also submits that they have already paid an amount of Rs. 3.00 crores during investigation. He relied on the following citations:

1. CST v. D.S. Bist [1979] 044 STC 0392
2. Olam Agro India Ltd. v. CST [ST Appeal No. 57667 & 57100 of 2013, dated 18-9-2013]
3. Olam Agro India Ltd. v. CST [2014] 46 GST 678  (Delhi)
4. Suresh Kumar & Co. v. CCE [Order No. 56194/2013 (PB), dated 26-4-2013]
5. Mahi Agro Products (P.) Ltd. v. CCE & ST [2013] 38 STT 521  (Bang.)
6. CCE, C & ST v. Parkson Estates & Industries [2012] 21 taxmann.com 195 (Tri.-Bang.)
7. MNC Corpn. v. CCE [Stay Order No. 91 of 2009, dated 6-2-2009]
8. Circular No. 143/12/2011-ST, dt. 26.05.2011

4. He further submits that the appellant-assessee believed and continues to believe that they are commission agents in respect of agricultural produce and that tea is not a manufactured commodity but agricultural produce and no liability arises to pay service tax on any commission received. Further he submits that the service of a commission agent were wholly exempt from the levy of service tax vide Notification No. 13/2003-ST dated 20.6.2003. The “Explanation” to this Notification defines “Commission Agent” meaning a person who causes sale or purchase of goods, on behalf of another person for a consideration which is based on the quantum of such sale or purchase.

5. The learned AR for Revenue reiterated the findings of the adjudicating authority and the first appellate authority in respect of the assesee’s appeal and also the grounds of appeal in respect of the Revenue appeal and submits that ‘agricultural produce’ means any produce resulting from cultivation or plantation on which either no further processing is done or such process is done by the cultivator like tending, pruning, cutting, harvesting, drying which does not alter its essential characteristics but makes it only marketable. He further submits that the appellant-assessee is trying to take shelter under Notification No. 13/2003-ST dated 20.6.2003 (as amended) which defines agricultural produce. Further, tea leaves require various stages of processing by the required machinery in order to convert the leaves into black tea. Hence, the plea of the appellant-assessee that the product is an agricultural produce and for which exemption is available under the said notification is not tenable. The plea of the appellant-assessee that they are canvassing business of the cultivator/growers is not correct. In fact, they are promoting/enhancing the business of cultivators/growers who are ultimate manufacturers. In fact, the activity of the appellant-assessee is nothing to do with agricultural produce and they are dealing with the manufactured commodity which is black tea. He further submits that the service provider is not covered under commission agent category. As the functions of the commission agent as defined under Section 65(19) strictly means that he has entered into an agreement with the principals for sale and purchase of goods for consideration. The goods marketed by them (tea) is an agricultural produce and the service rendered by CT&C for various tea estates includes host of other activities and not related to anyone company and is well covered under the category of Business Auxiliary Service for the amount received from their clients and hence they are liable to pay the appropriate service tax along with penalty.

6. After hearing both the sides at length and on perusal of the records, we find that the services of the appellant-assessee include fixing the value of tea, completion of negotiation of the prices between the buyer and the exporter and finalization of the contract between them. We also find that the appellant assists in the system of grading and standardization of the tea for the purpose of export and also deals with details such as colour, taste, quality and quantity for export of tea. They also render their services in fixing the price for tea and after completion of negotiation they actively participate in the finalization of the contract. Subsequently, they keep monitoring the shipment of the goods. They also verify shipment documents, port regulations and other formalities for export of goods. In some cases they engage themselves to collect the sale proceeds, if any, pending due from the buyers end. Appellant’s contention is that they have entered into MOU with the exporters of tea and the exporters paid service charges for the services rendered by the appellant-assessee for having carried out sales effectively as given below:—

(i) 2.5% to 3% of export value depending upon the age of business connection
(ii) Rs. 0.50 per kg. towards defragment of partial cost pertaining to fax, phone, e-mail, courier, sampling charges and other specified items. There is no such MOU/agreement available on the records.

7. The above activities show that in the whole process of export of tea, they guide exporters suitably in achieving the objectives to fulfil the contractual obligation. The activity is undertaken by the service provider to market ‘tea’ among foreign buyers as covered under the scope of Business Auxiliary Service. The appellant assessee provides the services of BAS for their clients and the same has been defined under Section 65(19) of the statue as under:—

‘Section 65(19): “business auxiliary service” means any service in relation to,

(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
Explanation – For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “service in relation to promotion or marketing of service provided by the client includes any service provided in relation to promotion or marketing of games of chance, organized, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo; [Explanation insertedvide Finance Bill, 2008 w.e.f. 16th May, 2008]
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
Explanation. – For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;
(v) production or processing of goods for, or on behalf of the client; or
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any activity that amounts to “manufacture” of excisable goods.

Explanation. – For the removal of doubts, it is hereby declared that for the purposes of this clause,—

(a) “commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person (i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services
(b) “Excisable Goods” has the meaning assigned to it in clause (c) of Section 2 of the Central Excise Act, 1944.
(c) “Manufacture” has the meaning assigned to it in clause (f) of Section 2 of the Central Excise Act, 1944″.

As seen from the above definition of “Business Auxiliary Service” which include host of activities undertaken by the person on behalf of the client. One of the activity is “Commission Agent”. In this regard, it is relevant to see that explanation D ofNotification 13 of 2003 dated 20.06.2003 as amended by Notification 8 of 2004 dated 09.07.2004, which is reproduced as under:—

Notification No: 08/2004, Dated: July 09, 2004

Sub: Sections 66, 93—Amends 12/2001; 13/2003 and 2/2004

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby directs that the following notifications of the Government of India in the Ministry of Finance (Department of Revenue), as specified in column (2) of the Table below, shall be amended or further amended, as the case may be, in the manner and to the extent specified in the corresponding entry in column (3) of the said Table, namely:

TABLE

S. No. Notification No. and date Amendments
(1) (2) (3)
2. 13/2003-Service Tax, dated the 20th June, 2003 (G.S.R. 504 (E) dated the 20th June, 2003) In the said notification,—

(i) in the preamble, for the words “commission agent from the service tax leviable thereon under sub-section (2) of section 66 of the said Act”, the words “commission, agent in relation to sale or purchase of agricultural produce from the service tax leviable thereon under section 66 of the said Act” shall be substituted;

(ii) for the Explanation, the following shall be substituted, namely:—

“Explanation. For the purpose of this notification,—(i) “commission agent” means a person who causes sale or purchase of goods, on behalf of another person for a consideration which is based on the quantum of such sale or purchase.

(ii) “agricultural produce” means any produce resulting from cultivation or plantation, on which either no further processing is done or such processing is done by the cultivator like tending, pruning, cutting, harvesting, drying which does not alter its essential characteristics but makes it only marketable and includes all cereals, pulses, fruits, nuts and vegetables, spices, copra, sugar cane, jaggery, raw vegetable fibres such as cotton, flax, jute, indigo, unmanufactured tobacco, betel leaves, tendu leaves, rice, coffee and tea but not include manufactured products such as sugar, edible oils, processes food and processed tobacco.’

From the above definition, it is abundantly clear that the commission agent is a person who causes sale or purchase of goods on behalf of the principal company for a consideration which is normally governed by an agreement between the principal and the agent. Whereas, in this present case, we find that, as already explained in the above paragraphs, appellant’s activities are not only restricted to sale, but includes host of other activities including assisting in the system of grading and standardization of tea for the purpose of export and also deals with details such as colour, taste, quality and quantity for export of tea and are professional tea taster. They also monitor the shipment of the goods and verify shipment documents, port regulations and other formalities for export of tea. Therefore, we find that the above activities do not fall within the meaning of commission agent. Accordingly, we hold that the appellant’s activities are rightly covered under the category of “BAS” other than commission agent. Therefore, the question of appellant claiming tea as agricultural produce, which is applicable for only commission agent and not applicable to the appellant assessee’s case. Accordingly, we hold that the demand along with interest is liable to be upheld.

8. The citations relied on by the appellant assessee are not related to the present case, as they are only related to commission agents. Hence, the same are not applicable to the present case. As regards the penalty, we find that the assessee has paid the entire dues. Since, there was ambiguity in the initial period of service tax and taking into overall circumstances of the case, there was a bona fide doubt in the mind of the assessee that they are exempted as they are dealing in tea which is an agricultural produce. Accordingly, we waive the penalty under Sections 76 and 78, by invoking Section 80 of the Finance Act. Accordingly, the Revenue appeal is rejected and assessee’s appeals are partly allowed in the above terms.

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