M/S Emtici Engineering Ltd vs Commissioners Of Central Excise

[ Arising out of i) OIO-02/SERVICETAX/COMMR-I/2006 dtd 31/08/2006, ii) OIO-16/STX/COMMR/BRC-I/2012 dtd 31.12.2012 Passed by Commissioners of Central Excise, Customs and Service Tax-VADODARA ]

M/s Emtici Engineering Ltd - Appellant(s)

Vs

Commissioners of Central Excise, Customs and Service Tax-VADODARA - Respondent (s)

Represented by :

For Assessee : Shri S K Dixit, Advocate For Revenue : Shri K Shivkumar, Authorised Representative

For approval and signature :

Mr. P.K. Das, Hon'ble Member (Judicial) Mr. P.M. Saleem, Honble Member (Technical)

1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

No 3 Whether their Lordships wish to see the fair copy of the Order?

Seen 4 Whether Order is to be circulated to the Departmental authorities?

Yes

CORAM :

Mr. P.K. Das, Hon'ble Member (Judicial) Mr. P.M. Saleem, Honble Member (Technical)

Date of Hearing : 23/6/2015 Date of Decision : 22/7/2015

ORDER No. A/11073-11074/2015 dtd 22/7/2015

Per : Mr.P.K. Das,

Common issue is involved in these appeals and therefore, both are taken-up together for disposal.

2. The relevant facts of the case, in brief, are that the appellants were engaged in the business of providing various services on Sales Promotion, Marketing and After Sales and Services etc., to their clients in terms of the agreement between the parties. A show cause notice dated 1.9.2004 was issued by the Asstt. Commissioner, Central Excise & Customs, Anand, proposing a demand of Service Tax alongwith interest and to impose penalty under the category of Business Auxiliary Services (BAS) for the period 1.7.2003 to 31.3.2004. The show cause notice was issued on the basis of agreement between the appellant and one of the clients viz., M/s EIMCO Elecon (I) Ltd, Vallabh Vidyanagar.

2.1 Officers of the DGCEI, Regional Unit, Vadodara, investigated the matter and a show cause notice dated 20.10.2004 was issued by the Dy. Director of Directorate General of Central Excise Intelligence (DGCEI), Vadodara proposing demand of Service Tax alongwith interest and to impose penalty under the category of Clearing and Forwarding Agency (C&F) Service, for the period from Oct. 1999 to Jun 2004 on the basis of the agreements of all six clients, including M/s EIMCO Elecon (I) Ltd, against which earlier show cause notice was issued.

3. By OIO No 02/ST/Commnr/2006 dated 31.8.2006, the Commissioner, Central Excise & Service Tax, Vadodara-I decided the show cause notice dtd 1.9.2004 and confirmed the demand of Service Tax alongwith interest and imposed penalties under the Finance Act 1994. The demand of Service tax was confirmed under the category of Business Auxiliary Service and denied the benefit of exemption Notification No 13/2003-ST dated 20.6.2003 as claimed by the appellant. The appellant filed appeal No ST/2/2006 (in short 1st appeal) against the impugned adjudication order dated 31.8.2006.

3.1 By OIO NO 16/S.Tax/Commnr/VRC-1/2012 dtd 31.12.2012, the Commissioner of Central Excise, Customs and Service Tax, Vadodara I decided the show cause notice dated 20.10.2004 and confirmed the demand of Service Tax alongwith interest and imposed penalties under the various provisions of the Finance Act 1994 under the category of Clearing and Forwarding Agents service for the period Oct. 1999 June 2004. The appellants filed appeal No.ST/10408/2013 (in short 2nd appeal) against the impugned adjudication order dtd 31.12.2012.

4. The Learned Advocate on behalf of the appellants submits that they were rendering services to their clients as Commission Agent for the purpose of sale of the goods. They entered into agreement with their clients as Commission Agents, which was termed as Dealers Agreement. The agreement would clearly indicate that they were rendering the services to their clients as Commission Agent for the purpose of sale of goods and there was incidental activities in relation to the said sale. He drew the attention of the Bench to the relevant portion of the agreement to substantiate that the predominant character of agreement is sale of goods and therefore they are eligible for the benefit of exemption of Notification No 13/2003-ST(supra). He is not disputing the classification of the service under Business Auxiliary Services and claiming the benefit of exemption Notification in respect of the first appeal filed in 2006. He submits that the Adjudicating Authority denied the benefit of exemption notification on the ground that the incidental activities in relation to the sale of the goods are predominant nature, which is contrary to the various decisions of the Honble Supreme Court and Tribunals as under:

i) Philips (I) Ltd vs Collector of CE, Pune [1997(91)ELT.540 (SC)]

ii) Assam Small Scale Ind. Dev.copn. Ltd & Others Vs J D Pharmaceuticals in their judgment [AIR2006SC131 dated 7.10.2005]

iii) Premier Enterprises vs CCE, Hyderabad [ 2009(16)STR.158 (Tri.Bang.)]

iv) CCE, Vadodara I vs M A Menon & Co [2009(13)STR.653(Tri.Ahmd)]

v) CCE, Allahabad vs Chandan Chemicals [2007(7)STR.578(Tri.Del.)]

4.1 He submits that when the assessee is entitled to exemption benefit as per the notification, then, the liberal interpretation of the notification should be given. He relied upon the decision of the Honble Supreme Court in the case of Novapan India Ltd vs. Collector of CE & Customs , Hyderabad, [1994(73)ELT.769(SC)].

4.2 He also submits that Notification No 13/2003-ST (supra) covers all the services under the definition of BAS. He submits that without prejudice, the imposition of penalty is not warranted, as the issue involved the classification of the service and claim of benefit of exemption notification.

4.3 In respect of appeal No. ST/10408/2013 ( i.e., 2nd appeal) the Learned Advocate submits that in the earlier show cause notice, the adjudicating authority confirmed the demand of Service Tax under the category of BAS and the confirmation of demand of tax on the same period for the same activity under the category of C&F agent cannot be sustained. He relied upon the decision of the Tribunal in the case of CCE, Mumbai vs K C Shah [2004(171)ELT.467 (Tri. Mum.)]. He further submits that the agreements disclose the activities of sale of goods in pre-dominant nature and handling of the goods is incidental thereto. It is submitted that agreement should be read as a whole and the substantial predominant nature of activities would prevail rather than incidental activities. He relied upon the decision of the Honble Supreme court in the case of Super Poly Fabirics Ltd Vs CCE, Punjab [2008(10) STR.545(SC)].

4.4 The entire demand of tax is barred by limitation. It is clearly evident from the record that the Dept was well aware of the activities of the appellant as per earlier show cause notice dtd 1.9.2004 which is issued for the normal period.

4.5 He relied upon the decision of the Tribunal in the case of CCE, Allahabad vs Chandan Chemicals [2007(7)STR.578(Tri.Del.)]. In that case, the demand was raised under the category of BAS and the Tribunal allowed exemption benefit under notification No 13/2003-ST (supra). The Dept. has already registered them under the category of BAS and therefore demand of Service Tax under C&F Agent for the same service cannot be sustained.

5. On the other hand, the Learned Authorised Representative for the Revenue reiterates the findings of the Adjudicating Authorities. He drew the attention of the Bench to the agreements between the parties. He submits that Clause 5 of the agreement dtd 1.1.2003 would clearly show that the appellant discharged activities of the sales and the service. Thus, it is not a case of mere agreement of sales. He further drew the attention of the Bench to Clause 7 of the agreement. It is submitted that the after reading the clauses of the agreement, it is not only for sales of the goods, but also for various services, installation, placing proper operation of all new equipments etc. It is submitted that the agreement should be read with proper perspective, in so far as, in the present case, the appellant entered into an agreement for sales and services in respect of special type of equipments, machinery.

5.1 He placed copy of the letter No F. Anand/STC/EMICI/2014-2015/747 dtd 18.5.2015 of the Joint Commissioner, Central Excise, Customs and Service Tax, Anand, addressed to Additional Commissioner (AR), CESTAT before the Bench. It is stated in the said letter that the demand of tax for the period prior to 1.7.2003 would be classifiable under C&F Agent Service and the subsequent period would be classifiable under BAS Services which was introduced in the Service Tax net on 1.7.2003.

5.2 He submits that the Adjudicating Authority had given clear finding that the appellants were maintaining warehouse in 14 locations for storing the goods and employed 250 persons. The facts of the case would show that the appellants were handling and storing the goods and also distributing to their clients and therefore it would be covered under C&F Agent Service.

6. The Learned Advocate on behalf of the appellant, in rejoinder, placed copy of the statement of Shri Ramanlal Shah, Asstt. General Manger (Accounts) of the appellant and particularly drew the attention of Bench Para 5 of the statement. It is submitted that the appellants received the commission for the sales and after sales services, and no remuneration was paid for storing and handing of the goods.

7. After hearing both the sides and on perusal of the records, we find that the Adjudicating Authority vide Order dt 31.8.2006 in first appeal observed that in terms of the different clauses of the agreements, the appellants were providing after sales service in relation to the equipments sold to the clients within the appellants territory, installation, maintenance, care etc., of such equipments which are major components of the services, to be rendered by the appellant to the client. In fact, the payment of service charge to the appellant is depending on the appellants satisfactorily discharging after sales service components of the agreement. Pertinently, all these components of services are covered under Business auxiliary Services (BAS) in their own right and covered under Clause 3 (iii) and (iv) of the definition of BAS. Clause 3(iii) and (iv) of the definition of BAS provides any Customer Care Service provided on behalf of the client or any incidental or auxiliary support service such as billing, collection or recovery of cheques/accounts and remittance, evaluation of prospective customer and public relation service.

8. In the second appeal, the Adjudicating authority vide order dtd 31.12.2012, observed that the appellant provided facility for storage of goods manufactured by the principals with the help of 250 personnel posted in 14 branches all over India. They were executing the instructions of the principals. The appellant provided to the principal the report covering the stock of goods supplied by the principal in the current month, forecast of sale, such other and or further information or particular such principal may from time to time required. The Adjudicating Authority has observed the activities undertaken by the appellant covered under Clearing and Forwarding Agent Service. The CBEC vide circular 39/2/2002 dtd 20.2.2002 clarified the scope of C&F agents. Normally, C&F agents job of clearing and forwarding, in a typical situation of C&F agents are appointed in outstation location by manufactures of whole sales distributors, so that they may clear the goods, stored them and then forward the goods according to their instructions as per the owner.

9. On perusal of the findings of the Adjudicating Authorities in both the appeals, we are unable to understand the facts of the case in so far as the activities of the appellants for the purpose of determining the classification of the Service Tax. In the first appeal, the Adjudicating Authority observed that the appellants were rendering after sales service. In the second appeal, the Adjudicating Authority observed that the appellants were rendering the service as agent of the principal for warehousing the goods, clearing and forwarding and acted as C&F agent. The Learned Advocate, during the course of hearing on behalf of the appellants submitted that they have not received any remuneration in respect of warehousing of the goods. It is difficult to accept the contention of the Learned Advocate that they have rendered the services to their clients without remuneration. In any event, both sides failed to place facts of the case in roper manner for the purpose determination of the classification of the service and to extend the benefit of exemption notification. There is no clarity on the facts of the cases in the impugned orders.

10. We find that in the first appeal, the appellants requested the Adjudicating Authority to decide the second show cause notice as the period of the demand was partly covered in both the show cause notices, which was rejected by the Adjudicating Authority. We are unable to accept the findings of the Adjudicating Authority. The show cause notice dtd 1.9.2004 was issued for the period 1.7.2003 to 31.3.2004 proposing demand of tax under the category of BAS. But, the second show cause notice dtd 21.10.2004 was issued for the period October 1999 to June 2004 proposing the demand of tax under the category of C&F agent for the same activities, rendered by the appellant. The facts of the case in both the adjudication orders are contrary and misconceived. The Learned Authorised Representative on behalf of the Revenue placed the letter dtd 8.5.2015 of the Joint Commissioner of Central Excise where it is stated that prior to 1.7.2003 it would be classified under C&F agent services and subsequent period it would be classifiable under BAS services. We find that the findings of both the adjudicating authorities are contrary on facts and law of the case, which cannot be improved by letter dtd 18.5.2015 of the Joint Commissioner of Central Excise, Customs and Service Tax. In our considered view, the Adjudicating Authority should have decided both the show cause notices together and after determining the facts of the case in proper manner, the classification of the service would be decided. It should be noted that reasons are the links between the materials on which certain conclusions are based and the actual conclusions. So, both the impugned orders cannot be sustained.

11. In view of the above discussions, we set aside the impugned orders. Both the appeals are remanded to the Adjudicating Authority to decide afresh after considering the submissions of the appellants. Needless to say that the Adjudicating Authority shall give proper opportunity of hearing before passing order. Both the appeals are allowed by way of remand. As the cases are old one, the adjudicating authority is requested to decide as expeditiously as possible.

(Pronounced in the Court 22.7.2015)

(P.M. Saleem) (P.K. Das) Member (Technical) Member (Judicial)

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