whether benefit of notification No. 13/2003-S.T. be denied to commission agents if he is involved in other activities also?

Case-CHAHABRIA MARKETING LTD. Versus COMMISSIONER OF SERVICE TAX, MUMBAI
Citation-2016 (43) S.T.R. 193 (Tri. - Mumbai)
Issue-whether benefit of notification No. 13/2003-S.T. be denied to commission agents if he is involved in other activities also?
Brief Facts-The relevant facts of the case for consideration are appellant herein, during the period July, 2003 to 8 July, 2004 was alleged to have been engaged in marketing and selling of Indian Made Foreign Liquor (IMFL) for BDA Ltd. It is the case of the Revenue that in lieu of services rendered by appellant they were eligible for commission which was paid on per case of IMFL sold. The services which were rendered by the appellant to BDA Ltd., were in furtherance of contract/agreement entered in 1992 in which appellant had been appointed by BDA Ltd., for marketing services and for consultancy to effectively promote the sale of IMFL/Beer belonging to BDA Ltd. On examination and outcome of an inquiry conducted by the Officers of Preventive Section, Mumbai-I Commissionerate, it was noticed that appellant had received an income as commission on which Service Tax liability arised under the category of Business Auxiliary Service as per the Section 65(105)(zzb) of the Finance Act, 1994. Show cause notice was issued for the demand of Service Tax liability, interest thereof and for imposition of penalties. The show-cause notice was resisted on merits as well as on limitation. The adjudicating authority after following due process of law confirmed the demands raised, appropriated the amount paid by the appellant during the pendency of the proceedings and also imposed penalties under Sections 76, 77 and 78 of the Finance Act, 1994.
Appellant’s Contention-Learned Counsel appearing on behalf of the appellant took through various clauses of Manufacturing Agreement entered by them during the period in question. He would draw our attention to the specific clauses and submit that the appellant had in fact, did not promote any goods produced or provided or belonging to the clients. It was the submission that substance of the agreement was not appreciated by the adjudicating authority and though the amounts received were actually accounted as commission but were for the higher sales effected by appellant, they were entitled to consideration on per case sale of IMFL/Beer. It was the submission that the impugned order has overlooked the real intent of agreement. It was the submission that appellant had to procure orders only from those stockist who hold valid permit/intent as the sale of IMFL/Beer were restricted and the impugned order had overlooked various clauses in agreement, and has considered the same as merely a marketing initiative; the adjudicating authority has read the agreement in isolation and had not considered it in a holistic manner. It was the further submission that the Notification No. 13/03-S.T. granted exemption in respect of services rendered by the commission agents. Assuming that the appellant had rendered the services of commission agents, the appellant satisfy the pre-requisite for being a commission agent in terms of Notification No. 13/2003-S.T. while the denial of said exemption Notification by the adjudicating authority was only on the ground that the appellant was doing more than the commission agent’s work. It was the submission that doing additional work as commission agent cannot deny the exemption available to the appellant. It was the submission that the adjudicating authority had not considered the binding Tribunal’s judgment. It was also the submission that the findings of the adjudicating authority that the appellant had by appointing various bottlers had manufactured IMFL/Beer and if it was so there cannot be any Service Tax liability as the activity per se does not amount services. Alternate submission was that having discharged the said Service Tax liability, provisions of Section 73(3) will be attracted and no notice was required to be issued and the learned Counsel prays to set aside the impugned order.
Respondent’s Contention-Learned DR on the other hand, drew attention to the very same agreement submitted that the agreement specifically required the appellant herein to undertake the marketing activity. It was his submission that the commission agent did not undertake marketing activity and the functioning of the commission agent needed to be considered as is given in the Notification which was that if he caused sale or purchase of the goods on behalf of another person, but in the case in hand the entire marketing set up was being done by the appellant herein. He would submit that the decision of the Tribunal in the case of Aditya Birla Nuvo Ltd. v. CCE Vadodara - 2011 (22)S.T.R.41 (Tri.-Ahmd.) will be applicable in its full force. He would also submit that the judgment of the Tribunal in the case of CCE, Raipur v. Raj Wines - 2012 (28)S.T.R.46 (Tri.-Del.) may also be considered.

Reasoning Of Judgement-The short issue involved in this appeal was whether the services rendered by the appellant to BDA Ltd., during the period July, 2003 to 8-7-2004 were eligible for exemption from Service Tax in terms of Notification No. 13/2003-S.T., dated 20-6-2003. The said Notification exempts from payment of Service Tax the ‘Business auxiliary services’ provided by a ’commission agent’. The expression ‘commission agent’ had been defined in an Explanation under the said Notification to mean ‘a person who causes sale or purchase of goods on behalf of another person for a consideration which was based on the quantum of such sale or purchase’. In the impugned order the Commissioner had denied the benefit of exemption on the ground that the activities performed by the appellant were much wider than that of a ‘commission agent’ as defined in the Notification. He had observed that though the commission was fixed with reference to the quantity of goods actually sold, the activities of the appellant were not confined to sale only but covered various other services starting from arranging the production of goods by engaging bottlers/distillers upto collection of sale proceeds. The Commissioner proceeds on the premise that the benefit of the exemption was available to a ‘commission agent’ who provides services ‘only’ in respect of sale or purchase of goods. In our view, this was an incorrect reading of the Notification as the exemption under this Notification applies to all Business auxiliary services provided by a ‘commission agent’, and not merely to the services of selling or purchasing goods on behalf of the client. No doubt a ‘commission agent’ as defined under this Notification was a person who provides service in relation to purchase or sale of goods, this was only for defining the eligibility criterion and was relevant only for determining whether or not an assesse claiming the benefit of this Notification was a ‘commission agent’ or not. Once it was held that the assessee was a ‘commission agent’ by virtue of being engaged in the activity of causing sale or purchase for a consideration which was linked to the quantum of sale or purchase, the benefit of this Notification will cover all business auxiliary services rendered by such a ‘commission agent’. The activities which were covered under the head ‘Business auxiliary services were the following :-
“(19) Business auxiliary servicemeans 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
(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
(v)        Production of goods 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 information technology service and any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944)”.
It was clear from the above extracted definition that business auxiliary services include, in addition to services in relation to sale of goods, several other services too such as those in relation to promotion or marketing of goods belonging to the clients, services for procurement of goods or service for the client or any customer care service provided on behalf of the client or production of goods on behalf of the client or provision of service on behalf of the client or any incidental or auxiliary service such as billing, issue or collection or recovery or cheques, payments, maintenance of accounts and remittance, including inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, etc.
The other services, apart from the services of actually selling goods, which the appellant was allegedly to have rendered to BDA Ltd., are all services covered by the definition of ‘Business Auxiliary Service’. The activity of engaging bottlers for production of liquor (IMFL/Beer) was an activity of procurement of goods on behalf of the client covered specifically by clause (iv). The activity of collection/recovery of payment was also specifically covered under the inclusive part of the definition of “Business auxiliary service”. These services, if rendered by a ‘commission agent’ were exempt under the Notification.
The Commissioner in Para 36 of the impugned order did not dispute that the appellant was engaged in the activity of selling IMFL/Beer for BDA Ltd. The Commissioner also did not dispute that the consideration which the appellant was to receive for such services was linked to the quantum of goods actually sold. Thus, the twin requirement of the definition of ‘commission agent’ viz., that the agent should cause sale or purchase of goods on behalf of another person and that the consideration should be linked to the quantum of such sale or purchase, stand fully satisfied. In view of the specific definition of the expression ‘commission agent’ in the Notification, we were not inclined to look at the common parlance meaning of the said expression or its meaning in the VAT Laws as argued by the ld. Representative of the Department.
Bench held thatthe Bangalore Bench of the CESTAT in the case of Premier Enterprises v. CCE, Hyderabad reported in 2009 (16)S.T.R.158 (Tri.-Bang.) was dealing with a somewhat similar situation where an assessee claiming to be a ‘commission agent’ within the meaning of the same Notification, was not only causing sale of liquor but also performing many other activities of promoting or marketing of goods. The Revenue had denied the benefit of Notification No. 13/2003-S.T., dated 26-3-2003 by holding that the assessee therein was performing activities which were wider in scope than actually causing sale of liquor. The Tribunal did not accept this contention of the Revenue in view of the fact that consideration payable to the assessee therein was based on the quantum of sale. In this case too, the consideration received by the appellant was based on the actual quantity of liquor sold through them.
The ld. Representative for the Revenue also cited a Tribunal decision in the case of Aditya Birla (supra) wherein the benefit of the same exemption was denied and the decision of the Bangalore Bench of the CESTAT in the case of Premier Enterprise cited supra was distinguished. Bench did not found this decision to be of any relevance to the present case as this decision was rendered in the context of some peculiar facts prevailing in that case viz that the consideration received by the assesse therein was not really linked to the quantum of sales effected as was the requirement of the Notification, but was really a trading margin being retained by the said assessee by claiming it as a commission. The Tribunal, in Paras 15 to 17 of the said order, took note of this peculiar feature of the arrangement of the assessee in that case and the manufacturer whose goods were being sold. The earnings of the appellant therein varied from 5% to 94% of the sale price which itself indicated that the assessee was not really working on commission basis, which was usually a fixed rate but was earning a trading margin and claiming the same to be a commission. Further, the argument that the Notification No. 13/2003-S.T., dated 20-6-2003 exempts all services covered under the ‘Business auxiliary services’ as has been urged before us in the present case, was never canvassed or dealt with in that case.
Another decision cited by the ld. Representative of the Revenue is the case of Raj Wines (supra) wherein the benefit of exemption was denied on the ground that the consideration received by the assessee in that case was not merely based on the volume of sales. The Tribunal, in Para 12, rightly observed that such an arrangement was not covered under the Notification. No support can be drawn from this decision as in the present case, the commissioner has himself found in Para 36 that the consideration received by the appellant was linked to the quantity of goods sold.
At this stage it was noted that the ld. Counsel for the appellant pointed out that though the agreement dated 10-12-1992 between the appellant and the BDA Ltd., contemplate that the appellant will help BDA Ltd., in procurement of liquor by appointing distillers/bottlers on behalf of BDA Ltd., no such activity of arranging appointment of distillers/bottlers between the appellant and the BDA Ltd., was actually carried out during the period July, 2003 to 8-7-2004 for which demand has been raised in the present case. It was submitted that that all the 16 bottlers appointed by the appellant on behalf of BDA Ltd., a fact cited in the order of the Commissioner, were appointed long ago and not during the 1 year period to which the demand relates. Clause 6 of the agreement dated 10-12-1992 which states that the consideration payable to the appellant will be determined from time-to-time depending inter alia upon the extent of services rendered from time-to-time itself shows that the activities enumerated therein are merely indicative of the kinds of services which the appellant ‘could’ render to BDA Ltd., at a future point of time and does not conclusively describe the services actually rendered during a particular period. Bench attention in this regard was drawn to a letter dated 23-3-2000 addressed to the Appellant by BDA Ltd., wherein the appellant’s service charges were fixed with reference to the quantum of products marketed by it. The debit advice annexed to the appeal shows that the consideration received was always linked to the quantum of sales affected. This evidence seems to lend support to the aforesaid contentions of the appellant and in the absence of any specific finding in the impugned order or any allegation to the contrary in the Show Cause Notice, bench held that during the period relevant to this appeal, there is no evidence to show that the appellant had indeed carried out any activity other than the activity of selling goods belonging to BDA Ltd. On this factual ground also, the appellant is entitled to succeed. However, as observed by us earlier, even if the appellant has rendered services relating to procurement of goods on behalf of BDA Ltd., or helped in collection or recovery of payments, it would remain entitled to the benefit of exemption.
In view of foregoing and in facts and circumstances of this case, bench held that impugned order is liable to be set aside and therefore impugned order was set aside and the appeal is allowed with consequential relief, if any.
Decision-Appeal allowed
Comment- The kernel of the case is that Commission agent was involved in not only sale and purchase of goods but also arranging production of goods upto collection of sale proceeds. It was held that Benefit of Notification No. 13/2003-S.T. could not be denied on the ground that it was available only in respect of sale or purchase of goods. It extends to all Business Auxiliary Services provided by commission agent and not merely to services of selling or purchasing goods on behalf of client.
Prepared By-Arundhati bajpai

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