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PJ/Case Laws/2011-12/1128

Whether the exemption under notification no. 8/2004 is available to tea considering as Agricultural Produce.

Prepared by
CA Rajani Thanvi
Bharat Rathore



Case:Container Tea & Commodities Vs Commr. of Service Tax, Salem

Citation:2011(22) S.T.R. 3 (Mad.)

Issue: Whether the exemption under notification no. 8/2004 is available to tea considering as Agricultural Produce.

Brief Facts: The Appellant is a small family running the business in the form of partnership firm. The Appellant firm received 2.5% to 3% commission on sales. As such, the Appellant would fall within the category of 'Commission Agent', under the head Business Auxiliary Services. The Commission Agents, in general, were exempt from the payment of service tax, under the head of Business Auxiliary Services', during the period from July, 2003 to July, 2004, vide notification No.13/2003. The said notification had been amended, on 9.7.2004, vide notification No.8/2004, whereby the exemption was restricted to the commission received by the Commission Agent, in relation to the sale or purchase of 'Agricultural Produce', from the service tax leviable thereon, under Section 66 of the Finance Act, 1994.

Superintendent of Central Excise and Service Tax, Conoor, raised query that the appellant had written a letter, dated 22.6.2009, claiming exemption on the ground that the service rendered by the appellant’s firm relates to 'Agricultural Produce'. The Superintendent of Central Excise and Service Tax, Conoor, vide letter, dated 13.8.2009, had misquoted the definition found in the notification No.8/2004, stating that it is specified unmanufactured tea as in the case of unmanufactured tobacco. Therefore, it was insisted that the Appellant should give the details of the commission received by it, from 1.7.2003, till the date of the said communication.

Appellant’s Contention:  The Appellant submit that the respondent does not have the authority or the power to levy the service tax on the commission received by the Appellant in connection with the export of 'Agricultural Produce', such as tea.  The appellant had also submitted that the respondent had not passed a speaking order on the representation made by the appellant, The respondent and the other authorities concerned do not have the jurisdiction to levy serviced tax on the commission received by the appellant, in respect of the export of tea, which has been exempted, vide notification No.13/2003, as amended by notification No.8/2004. The definition of 'Agricultural Produce' in the concerned notification, specifically, includes tea, while excluding items, such as sugar, edible oils, processed food and processed tobacco. Since, the tea sold by the appellant’s clients is merely dried and not processed further to be made into tea bags or flavoured tea, or masala tea or as tea powder, it would be exempted from the payment of service tax. However, the respondent had issued the communication, without properly analysing the definition of 'Agricultural Produce', as in the amended notification, dated 9.7.2004.

 

Respondent’s contention:-A counter affidavit had been filed on behalf of the respondent denying the averments made in the affidavit filed in support of the writ petition. It has been stated that, as per Section 65 of the Finance Act, 1994, 'Business Auxiliary Service' includes services rendered as a commission agent, but does not include any activity that amounts to manufacture of excisable goods. The Government had provided exemption from service tax for Business Auxiliary Service' provided by the commission agent, from 1.7.2003, to 8.7.2004, vide notification No.13/2003-ST, dated 20.6.2003. Subsequently, such exemption was restricted to commission agents, who were engaged in the activity of sale or purchase of 'Agricultural Produce'. The definition of 'Agricultural Produce' included tea. However, it had been stated that it does not include manufactured product, such as sugar, edible oils, processed food and processed tobacco.

The  respondent further submit that the contention of the appellant is that the product tea is exempted from the payment of service tax, as it is not manufactured, cannot be accepted, as the tea, which the appellant deals in is a manufactured product, which is subjected to a number of processes in the tea factories. Since, the appellant provides the services in respect of black tea, which is a fully manufactured product, the exemption from service tax would not be applicable to the appellant.

It had been further stated that the appellant has approached this Court by filing the present writ petition even before the respondent had issued a show cause notice to the petitioner in respect of the service tax liable to be paid by it. Hence, the writ petition is premature in nature and therefore, it is liable to be dismissed. The respondent had submitted that a notice would be issued to the appellant asking the appellant   to show cause as to how it would not be subjected to the payment of service tax. He had also submitted that an opportunity of hearing would also be given to the appellant before arriving at a final conclusion. Respondent also relying on the decision of the Supreme Court, reported in COMMISSION OF SALES TAX, LUCKNOW Vs. D.S.BIST AND OTHERS (1979) 44 STC 392 (SC), while deciding the issues arising for his consideration .

Reasoning of Judgment: - The Hon’ble High Court view of such submissions made by the respondent and finds that it appropriate to direct the respondent to issue a show cause notice and to give an opportunity of hearing to the petitioner before deciding the issues arising for his consideration relating to the payment of service tax by the appellant. It would be open to the appellant to substantiate its claims, by producing the necessary records. Thereafter, the respondent may pass appropriate orders on merits and in accordance with law, taking into consideration all the relevant aspects, including the decisions of the supreme Court cited by the appellant, as expeditiously as possible. The writ petition is ordered accordingly.

Judgment:No costs, matter closed.

***********

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