Business auxiliary service provided by commission agent is relation to black tea is exempt

Glenworth Estate Limited Vs Commissioner of Central Excise and Service Tax (CESTAT Chennai)

CESTAT Chennai held that black tea classifiable as agricultural product within the definition or meaning under notification no. 13/2003-S.T. dated 20.06.2003 as amended vide notification no. 08/2004-S.T. dated 09.07.2004. Hence, business auxiliary service provided by a commission agent in relation to sale or purchase of black tea is exempt from service tax.

Facts- The appellant is manufacturing ‘Black Tea’ falling under Chapter Sub-Heading 09024060 of the First Schedule to the Central Excise Tariff Act (CETA), 1985. The appellant had engaged foreign agents to help the appellant in promoting / marketing / sale of such manufactured Black Tea in foreign countries, for which they were paid commission. It was held that the same falls under “business auxiliary service” as per Rule 2(i)(d)(iv) of the Service Tax Rules, 1994, by terming the same as import of service in terms of the Taxation of Service (Provided Outside India and Received in India) Rules, 2006 read with Section 66A of the Finance Act, 1994.

The Adjudicating Authority, however, appears to have not accepted the pleadings of the appellant, consequent to which the Order-in-Original came to be passed, thereby confirming the demands proposed in the Show Cause Notice.

The Commissioner (Appeals) dismissed the appeal of the appellant. Accordingly, being aggrieved, the present appeal is filed.

Conclusion- We find that the production of Black Tea involves processes for which there is no bar in the said Notification. Further, the said Notification does not distinguish between Tea or Green Tea or Black Tea, and it is also well understood that there is no alteration to the essential characteristic other than, perhaps, making it marketable as either Green Tea or Black Tea.

In our considered view, even the processes involved in converting Green Tea into Black Tea does not alter the basic characteristic of the Tea as such and the same could not be considered as a non-agricultural product under any stretch of imagination.

In view of the above, therefore, we are of the considered view that the demand raised against the appellant is not sustainable, for which reason the impugned order is set aside.

FULL TEXT OF THE CESTAT CHENNAI ORDER

This appeal is filed against the Order-in-Appeal No. 41/2013-S.T. dated 25.02.2013 passed by the Commissioner (Appeals), Salem, whereby the demand, inter alia, of Service Tax has been upheld.

2. Ms. Pavithra M., Learned Advocate, appeared for the appellant and Shri M. Ambe, Learned Deputy Commissioner appeared for the respondent.

3.1 Brief undisputed facts, as could be gathered from the impugned Order-in-Appeal, Order-in-Original, etc., are that the appellant is manufacturing ‘Black Tea’ falling under Chapter Sub-Heading 09024060 of the First Schedule to the Central Excise Tariff Act (CETA), 1985. It appears that the appellant had engaged foreign agents to help the appellant in promoting / marketing / sale of such manufactured Black Tea in foreign countries, for which they were paid commission. This was held to be falling under “business auxiliary service” as per Rule 2(i)(d)(iv) of the Service Tax Rules, 1994, by terming the same as import of service in terms of the Taxation of Service (Provided Outside India and Received in India) Rules, 2006 read with Section 66A of the Finance Act, 1994.

3.2 Consequent thereto, they were alleged to be liable to pay Service Tax and the appellant, not having remitted the Service Tax, the same came to be proposed to be demanded vide Show Cause Notice C. No. V/BAS/30/17/2011-ST(ADJ) dated 27.06.2011 by the Assistant Commissioner, Coonoor Division. It also appears that while issuing the said Show Cause Notice, the larger period under Section 73(1) of the Finance Act, 1994 was invoked, thereby proposing inter alia to demand the Service Tax on the business auxiliary service rendered by the appellant during 2007-08 to 2009-10.

3.3 It appears that the appellant replied to the above Show Cause Notice denying any Service Tax liability and claiming exemption in terms of notification no. 13/2003-S.T. dated 20.06.2003, as amended by notification no. 08/2004-S.T. dated 09.07.2004, whereby business auxiliary service provided by a commission agent in relation to sale or purchase of agricultural produce was exempted. They also appear to have inter alia contended that Tea, per se, being an agricultural produce, stands covered in the definition of “agricultural produce” as defined under Notification No. 08/2004 ibid.

4. The Adjudicating Authority, however, appears to have not accepted the pleadings of the appellant, consequent to which the Order-in-Original No. 04/2012 dated 22.02.2012 came to be passed, thereby confirming the demands proposed in the Show Cause Notice.

5. It appears that the appellant preferred an appeal before the First Appellate Authority by reiterating the grounds urged before the Adjudicating Authority, but however, even the Commissioner (Appeals) having dismissed their appeal vide Order-in-Appeal No. 41/2013- S.T. dated 25.02.2013, the present appeal has been filed before this forum.

6. We have heard the rival contentions and we have perused the orders of lower authorities as well as the documents placed on record. After hearing both sides, we find that the only issue to be decided by us is: whether the appellant is eligible to exemption as claimed by it?

7.1 Notification No. 08/2004-S.T. dated 09.07.2004 came to be issued by amending various Notifications and one of such Notifications being Notification No. 13/2003- S.T.   dated 20.06.2003, to which an amendment was
brought in vide this Notification, to the following effect: –

(Emphasis supplied by us in bold)

 7.2 From a reading of the meaning, as provided in the above Notification, we find, as the same is also undisputed by either of parties, inter alia, that ‘coffee and tea’ would get covered under the meaning of agricultural produce.

8. The impugned Order-in-Appeal has upheld the denial of benefit of the above Notifications on the ground that ‘Black Tea’ is manufactured by the appellant after multiple processes wherein green tea leaf is converted into Black Tea, which would fall under Chapter 9 of the CETA, 1985 and that the same would no longer remain an agricultural produce of green leaf tea. It has also been held that the same is a commercially different product having distinct name, character and usage as well. The First Appellate Authority has also referred to various decisions to hold that the manufacture would result in bringing into existence a new substance since the same is a result of one or more processes through which a different article would emerge; that Black Tea is capable of being marketed as such and is known in the market as having a distinct identity and therefore, Black Tea could not be considered as an agricultural produce within the definition or meaning under Notification No. 13/2003- S.T.   dated 20.06.2003 as amended vide Notification No. 08/2004-S.T. dated 09.07.2004.

9. We find that it is too difficult for us to agree with the above findings of the First Appellate Authority for the following reasons.

10.1  The meaning of “agricultural produce”, as extracted in the above paragraphs per Notification No. 08/2004 ibid. undoubtedly covers, inter alia, Tea, but, as specified therein, does not include manufactured products such as sugar, edible oils, processed food and processed tobacco. Therefore, the activity of manufacture is limited to products such as sugar, edible oils, processed food and processed tobacco and nothing beyond that.

10.2 We find that the production of Black Tea involves processes for which there is no bar in the said Notification. Further, the said Notification does not distinguish between Tea or Green Tea or Black Tea, and it is also well understood that there is no alteration to the essential characteristic other than, perhaps, making it marketable as either Green Tea or Black Tea.

10.3  In our considered view, even the processes involved in converting Green Tea into Black Tea does not alter the basic characteristic of the Tea as such and the same could not be considered as a non-agricultural product under any stretch of imagination.

11. In view of the above, therefore, we are of the considered view that the demand raised against the appellant is not sustainable, for which reason the impugned order is set aside.

12. The appeal is allowed with consequential benefits, if any, as per law.

(Order pronounced in the open court on 26.05.2023)