By TIOL News Service

MUMBAI, NOV 10, 2016: THE appellant assessee is registered as a service provider under the category of "Business Auxiliary Services".

The services provided are -

a) Promotion, marketing and selling of chicks for and on behalf of M/s. Venco Research Farm Pvt. Ltd. ("Venco") and M/s Venkateshwara Research & Breeding Farms Pvt. Ltd. ("VRB") who are their group companies.

b) Veterinary services such as services of veterinary doctors to Venco and VRB. The doctors shall provide services in connection with brooding, growing and laying of birds including creation of proper hygienic environment, medication, vaccination and feed recommendation, etc.

c) Laboratory Analysis and Testing services such as conducting various laboratory analysis and tests in respect of the birds and relation to the brooding, growing, laying, etc .

The appellant is receiving 10% of the total cost of parent stock sold on behalf of the Venco/VRB in respect of services listed at (a) above.

And were receiving ‘commission' also in respect of services listed at (b) and (c) above at the rate of 3% & 7% of sale value respectively.

ST on the services listed at (a) above was paid since 09/07/2004 and on services listed at (b) and (c) is paid since 10/09/2004.

Prior to these dates, the appellant had,in respect of these services, claimed exemption under Notification No. 13/2003-ST dated 20/06/2003 as 'commission agent'.

A demand notice was issued alleging that the assessee had wrongly claimed exemption in respect of services provided under clause (b) and (c) above. Inasmuch as what was provided was "services of customer care" and the impugned exemption notification did not cover such services, the department contended.

The ST demand was confirmed by the CCE, Pune but penalties were waived.

So, both the assessee and Revenue are aggrieved and before the CESTAT.

The appellant inter alia submitted that since the commission was received as percentage of the sale value, it was a commission for sale of goods which was exempted vide Notification No. 13/2003-ST; that extended period has been invoked for the period 2003-2004 by issuing a SCN in the year 2009.

The AR submitted that since the Commissioner had invoked and upheld the provisions of Section 73(1) of the Finance Act, 1994 for demanding duty upto five years, it cannot be said that there wasa reasonable cause for non-payment of duty so as to invoke s.80 of FA, 1994 and waive penalties.

The Bench extracted the agreement entered with Venco/VRB and after adverting to and reproducing the definition of "BAS", the CESTAT observed –

"8. … it is clear that business auxiliary services had many dimensions while the first dimension of the said service was promotion or marketing or sale of goods produced or provided by or belonging to the client. It is also had another dimension in the shape of any customer care services provided on behalf of the client. From the agreement between the appellant and Venco/VRB it is clear that in respect of services specified in clause (b) & (c) there was a clear agreement to provide certain services on behalf of the customers, namely, Venco/VRB to the customers of Venco/VRB. In these circumstances, the appellants were liable to service tax in respect of clauses (b) & (c) of the agreement … It is seen that the exemption Notification No. 13/2003 provides exemption to business auxiliary services provided by a commission agent from the service tax leviable thereof. However, the said notification clearly defines the commission agent to mean a person who causes sale or purchase of goods on behalf of another person for a consideration which is based on quantum of sale or purchase. In the instant case, it is clear that while the consideration is based on the quantum of sale, the services provided is not "sale or purchase of goods" but is in the nature of customer care on behalf of the Venco/VRB. Thus, the notification No. 13/2003 is not applicable in respect of clauses (b) & (c) of the contract."

The demand, therefore, was held to be sustainable but was limited to the quantum of service provided to customers of Venco/VRB.

Insofar as the Revenue appeal is concerned, the Bench observed that in the definition of Business auxiliary services, there is no doubt that the service provided to a third party on behalf of the client is specifically covered & leave no scope for doubt and, therefore, invocation of Section 80 by the adjudicating authority was incorrect.

Conclusion: Only the demand in respect of services provided to customers of Venco/VRB needs to be confirmed. The appeal of Revenue is partly allowed and penalty equivalent to revised duty demanded is upheld under Section 78 of the Finance Act. No penalty is imposed under Section 76 of the Finance Act, 1994.

The appeals were disposed of.

(See 2016-TIOL-2924-CESTAT-MUM)