Case Law Details
Namakkal Agricultural Producers Co-Operative Marketing Society Vs Commissioner of Central Excise (CESTAT Chennai)
CESTAT Chennai held that non-payment of service tax under GTA by assessee (Co-operative Society) was due to bonafide belief and there was no deliberate intention for not paying tax. Accordingly, extended period of limitation not invocable.
Facts- M/s. Namakkal Agricultural Producers Co-Operative Marketing Society, the appellant herein is a society formed by Agriculturists and as the name suggests is registered as a Co-operative Society under the Tamil Nadu Co-operative Societies Act, 1983.
The contention of the Department is that the society is engaged in conducting auction of goods for monetary consideration, collecting appraising charges for sanction of jewel loans to its members and also making payment of freight for transport of goods. As the society is involved in rendering taxable services for consideration falling under (i) Auctioneer’s service, ii) GTA service and iii) Business Support Service of the Finance Act, 1994, without obtaining registration, without payment of appropriate service tax and without filing ST-3 returns as mandated.
Accordingly, a Show Cause Notice demanding service tax under Auctioneer’s Service, BSS and GTA service invoking extended period, apart from demanding interest u/s. 75 of the Finance Act, 1994 and proposing levy of penalties u/s. 76, 77 and 78 of the Finance Act, 1994 was issued to the appellants and also proposing penal action for non-payment of tax and for contravention of various provisions of the Finance Act, 1994, for the period from April, 2011 to June, 2012.
After due process of law, these were adjudicated confirming the demand of tax plus interest and imposing penalties. On filing appeals to the Commissioner (Appeals), Salem, impugned Order-in-Appeal No.61/2013-ST dated 23.03.2013 and OIA No. 187/2014-ST dated 08.10.2014 came to be passed rejecting the appeals and hence the appellants came before this forum.
Conclusion- The marketing and other services rendered by the appellant to their farmer members in selling their agricultural produce through tender process would not be coming under “Auctioneer’s Service under Section 65 (105)(zzzr) of the Finance Act, 1994.
The services rendered by the appellant are relatable only to its members and not to the bank and the charges collected for appraising jewels before sanctioning of loans are in the nature of cost incurred by the appellant for sanctioning of loans. As such, there is no BSS rendered in the instant case. As such, we hold that the demands raised under the impugned orders demanding service tax under “Auctioneer Service” and BAS are not maintainable.
Held that the appellant is a Co-operative Society and the issue is interpretational in nature. There were various notifications giving exemption and abatement in respect of GTA service during the relevant time. The appellants have put forth that no malafide can be attributed to evade payment of service tax and non-payment of service tax was due to the bonafide belief and there was no deliberate intention for not paying tax and it is the responsibility of the Revenue to discharge the burden that the appellants have deliberately omitted to pay tax.
FULL TEXT OF THE CESTAT CHENNAI ORDER
1.1 M/s. Namakkal Agricultural Producers Co-Operative Marketing Society, the appellant herein is a society formed by Agriculturists and as the name suggests is registered as a Co-operative Society under the Tamil Nadu Co-operative Societies Act, 1983. The main aim of the society is to provide services to the agriculturists who are members of the society for marketing of the agriculture produce at remunerative prices, distribution of farm inputs, provision of produce pledge loans and processing and other value addition measures as possible. The society is involved in arranging facilities for storing, processing and marketing of the agricultural products like cotton, groundnuts, banana and turmeric. Besides, the society is providing marketing facilities such as auction yards, Drying place and short term storage facilities in the open yard and also rendering jewel loans to its members.
1.2 The contention of the Department is that the society is engaged in conducting auction of goods for monetary consideration, collecting appraising charges for sanction of jewel loans to its members and also making payment of freight for transport of goods. As the society is involved in rendering taxable services for consideration falling under (i) Auctioneer’s service, ii) GTA service and iii) Business Support Service of the Finance Act, 1994, without obtaining registration, without payment of appropriate service tax and without filing ST-3 returns as mandated, a Show Cause Notice dated 21.10.2011 for the period from 2006-2007 to 2010-2011 for demanding service tax of an amount of Rs. 17,12,985/- under Auctioneer’s Service, an amount of Rs. 40,530/- under BSS and an amount of Rs. 7,26,770/- under GTA service invoking extended period, apart from demanding interest under Section 75 of the Finance Act, 1994 and proposing levy of penalties under Section 76, 77 and 78 of the Finance Act, 1994 was issued to the appellants and a statement of Demand No. 4/2013 dated 03.04.2013 had followed on similar charges demanding service tax of Rs. 7,11,066/- under Auctioneer’s service and BSS along with interest and also proposing penal action for non-payment of tax and for contravention of various provisions of the Finance Act, 1994, for the period from April, 2011 to June, 2012. After due process of law, these were adjudicated confirming the demand of tax plus interest and imposing penalties vide OIO No. 31/2012-ST dated 28.09.2012 and OIO No. 31/2012-ST dated 28.04.2014. On filing appeals to the Commissioner (Appeals), Salem, impugned Order-in-Appeal No.61/2013-ST dated 23.03.2013 and OIA No. 187/2014-ST dated 08.10.2014 came to be passed rejecting the appeals and hence the appellants came before this forum.
1.3 The substance of allegations in these notices is that the appellants who are a registered co-operative society is providing Auctioneer’s service under 65(105)(zzzr) of the Finance Act,1994 by marketing the agricultural produce of its farmer members by arranging facilities like space, storage, auction yard, prefixing auction prices of the goods and conducting auction duly managed by its personnel. By arranging jewel loans to its members by charging appraisal charges, the society is involved in providing BSS under Section 65(105)(zzze) of the Finance Act, 1994. By undertaking the work of lifting and delivering the goods to the ration shops under Public Distribution System, the appellants are involved in providing transportation of goods by road service under 65(105)(zzp) of the Finance Act, 1994.
2.1 Learned Counsel for the appellant has submitted that the nature of their activities would not fall under “Auctioneer’s Service” as they are not auctioning any property. They are a co-operative society formed with an objective of facilitating/marketing of agricultural produce of its members at remunerative prices through a process of Tender. The process followed for marketing the agricultural produce has been explained in detail. The farmer members bring their agricultural produce to the society for auction on the scheduled dates and on receipt of the produce they are given an inward receipt with an identification lot number for the goods and the same is stacked in the auction yard. Before commencement of auction of the said produce, a base price for the same is quoted by the society. A person who is well versed in the auction proceedings engaged by the society, announces the base price fixed for those lots. On examining the goods, the buyers/traders quote their prices for the said lots. On getting concurrence from the farmers concerned for the prices offered by the traders, the goods are sold to the highest bidder for the said produce and on completion of sale, the sale proceeds are disbursed to the farmers immediately after deducting a service charge of 2% on cotton and groundnut and 2.5% on turmeric on the value of the produce sold in auction which is accounted as “Marketing of service charges from farmers”. Further, they are also collecting 1% from the traders/merchants as “Handling charges” on the sale prices of these lots.
2.2 For conducting the auction, the traders are informed in advance through various media. Auction register is maintained by the society, wherein lot numbers, name of the farmer, quantity, auctioned price, bidder’s name are clearly mentioned. On completion of auction, a weighment slip is given to the farmer wherein the name and address of the farmer, lot number, commodity, agreed auctioned price, service charges, advance if any paid, handling charges and final disbursement amount are entered. The society is providing facilities like advertisement through different media, short term storage in the open yard and providing clean and safe auction yard and fixing pre-auction sale prices for various commodities. As far as the demand in respect of the Auctioneer service is concerned, the learned Advocate has submitted that the taxability is there only on auctioning service and not on tendering service. The services rendered by the appellant in facilitation of sale of agricultural produce of its members through sealed tenders are not classifiable under “Auctioneer’s Service” according to her.
2.3 Learned Advocate also submitted that the traders and the bidders had to mention their prices only in a secret tender form. The other prospective bidders will not be knowing the bids made by the other bidders. Under the tender system, the bidders have made only one bid and the tendering process gets completed at the end of the appointed time and date and the bids received up to a particular cut-off period are only considered. The most important distinctive principle differentiating an auction from a tender is that, in an auction, all prospective bidders are present at the same time and the system is transparent enough for each bidder to be aware of each of the other’s bid put forth by the other bidders. The auction process will get culminated only when there are no more bids made for the goods auctioned. Whereas, in respect of tenders, there is only one bid that each tenderer can make and the tendering process will get completed at the end of the appointed time and bids received only upto a cut-off point are considered for evaluation. Thus, the aforesaid activity cannot be brought to service tax under the category of “Auctioneer’s Services”. The learned Advocate has drawn our attention to the decisions rendered in this regard as given below:-
1. M/s. Salem Starch and Sago Manufacturing Service Industrial Co-operative Society Ltd. Vs. CCE and ST, Salem 2018 (3) TMI 192 – CESTAT, Chennai
3. M/s. Rasipuram Agricultural Producers Co-operative Marketing Society Ltd., M/s. Attur Agricultural Producers Cooperative Marketing Society Ltd. Vs. CCE 2021 (3) TMI 218 – CESTAT, Chennai.
4. M/s. Attur Agricultural Producers Vs. CCE 2019 (8) TMI 262 – CESTAT, Chennai.
Further, the learned Advocate has also raised a plea that the services rendered by the society are more appropriately classifiable under “Business Auxiliary Service” (BAS in short), as the BAS refers to promotion, marketing or sale of goods provided or produced/ belonging to the clients and included a commission agent. The definition of Commission Agent is a person who acts on behalf of another and causes sale or purchase of goods for consideration. As the appellant caused the sale or purchase of agricultural produce, the services rendered by the society are more in the nature of a commission agent under BAS. It is pointed out that the above service is exempted under Notification No. 13/2003-ST dated 20th June,2003, as the commission agent rendering service relating to sale or purchase of agricultural goods are exempted under this notification. Thus, it is the assertion of the appellant that their services are not classifiable under “Auctioneer Service” because the agricultural produce is sold through a tender process.
2.4 On the issue of demand of service tax under BSS, Learned Advocate has contended that the society provides gold loans against jewels pledged by the farmer members. At the time of sanctioning of loans, appraising charges of 3% on the amount of loan sanctioned subject to a maximum of Rs. 100/- per loan as per the direction given by M/s. Salem District Central Co-operative Finance Bank is collected. Appellants are getting loans from the bank and lending money to their members on interest. Therefore, she has asserted that this is the service rendered to themselves and not to the bank and they are not rendering any service to support the business of M/s. Salem District Central Co-operative Finance Bank. For lending money, they are collecting interest and for appraising the value of the jewels brought by the farmer members, appraising charges of 3% subject to maximum of 100/- per loan are collected. It is argued that the service rendered in giving jewel loans to the farmers is not classifiable under BSS.
2.5 On the issue of demand of service tax under GTA services, learned Advocate has put forth that the assessee who were liable to pay service under reverse charge as per Rule 2(1)(d)(v) of the Service Tax Rules, 1994 (STR, 1994 in short), cannot be asked to produce the proof of non-availment of cenvat credit in order to avail the benefit of Notification No. 32/2004-ST dated 03.12.2004. In support of this argument, she has relied upon the decision in the case of M/s. Mutual Industries Limited Vs. CCE and ST, Vapi – 2016 (1) TMI 889-Cestat Mumbai. It was also submitted that it is a settled legal principle that the services availed from individuals/proprietary concerns are not covered within the ambit of “GTA” service by relying on the decision in the case of CCE & ST, Aurangabad Vs. Jaikumar Fulchand Ajmera-2017 (48) STR 52 (Tri.-Mum.). It is also submitted that vide Notification dated 27.02.2010, exemption under GTA service for transport of pulses and food grains by road has been exempted and as such an amount of Rs. 1,12,319/- out of the total demand pertains to transport of food grains and pulses which should have been reduced from the total demand.
2.6 On the issue of invoking extended period of limitation, Learned Advocate contended that there was no allegation in the SCN that they knew their liability and yet withheld to disclose the same in their ST-3 returns. There is no finding also that they have intentionally suppressed facts relating to their activities. So in terms of the principles laid down by the Hon’ble Supreme Court in its judgment in the case of Tamil Nadu Housing Board Vs. Collector of Central Excise (Mad.)-74 ELT 9 (SC), invoking the extended period of limitation was clearly illegal and without jurisdiction.
3. Learned DR Shri M. Ambe has reiterated the findings of the Lower Adjudicating authorities. He has argued that the appellant is engaged in providing space, infrastructure and receipt of goods from the members, facility of short term storage of goods, grading of the goods, advertisement about the auction dates in various media, fixing pre-market prices for the commodity in auction, conducting the auction by its own employees, confirming the sale amount and delivery of the auctioned goods to the bidders and as such all the ingredients of the auction services are fulfilled in respect of the services rendered by the appellant and so the demands are liable to be confirmed. In case of tender, all the above services are not provided and so the correct classification of services will be under “Auctioneer’s Service”.
4. Heard both sides and have gone through the records as available in these appeals.
5.1 The main issue which requires consideration in the instant case is as to whether the appellants are rendering “Auctioneer’s Service” in respect of marketing and other services rendered for selling agricultural produce of its farmer members? The other issues are demand of service tax under BSS and GTA services. Regarding the taxability of appellant’s services under “Auctioneer’s Service”, a numerous judicial decisions have already gone into the differences between Auction and Tender. The Tribunal in M/s. The Salem Starch & Sago Manufacturers Service Industrial Co-operative Society Ltd. Vs. CCE& ST, Salem reported in 2018 (3) TMI 192-Cestat Chennai, has analysed the differences between “auction” and “tender” as under:-
5.7 A number of judicial decisions have also gone into the difference between “auction” and “tender”:-
(i) Auction Vs. Inviting Tenders:- Former is a way of selling property by bids usually to the highest bidder by public competition. Latter is merely an attempt to ascertain whether an offer can be obtained within adoptable margin. It is an offer to receive offers, an offer to chaffer: 1974 SC 651-6.
(ii) Auction Vs. Tender: In an auction, a number of persons attempt to outbid each other; in any system of tenders, though the spirit of outbidding by closed offer is inherent, yet one cannot complete for the 2nd and 3rd time. Moreover, when tender is given, the tenderer gives the bid in documents without knowing the offer or bid of the other tenderer: Kalyan Singh Vs. DAH 1981 NOC 24 Raj.”
(iii) In Gulab Singh Vs. Chandrapal Singh and Ors. (supra), relied upon by the Ld. Advocate the Court had occasion to analyse whether the mode of sale by calling offers by advertisement can be said to be a form of a public auction, as follows:-
“17. However, the principal question to be considered in the instant case is as to whether the mode of sale by calling offers by advertisement can be said to be a form of a public auction. In support of the contention that the mode of calling for offers by advertisement is not a sale by public auction the provisions of section 64 of the Sale of Goods Act are brought to my notice by the learned counsel for the applicant to show what an auction sale means or how it is understood. The main feature distinguishing the auction sale from other sales which is pointed out therein is that the auction sale is on the spot and is by public competition. Everybody present at the time of the said sale is entitled to raise his own bid on the spot and that is how the highest bidder is determined. It is pointed out that in a case of sale by tenders or by calling for offers, there is no opportunity to the intending buyer to raise his own bid. It is, therefore, urged that sale by inviting offers cannot be a sale by public auction. It is also pointed out relying upon the provisions of section 6 of the partition Act that in an open spot sale everybody would know the reserved bid or the upset price fixed therein and the bid would be above that.
18. I may usefully refer in this regard to the Halsbury’s Laws of England Volume 2 Fourth Edition for what an ‘auction’ means. Para 701 on page 360 is relevant. According to Halsbury’s Laws of England, “the auction is a manner of selling or letting property by bids, usually to the highest bidder by public competition. The prices which the public are asked to pay are the highest which those who bid can be tempted to offer by the skill and tact of the auctioneer under the excitement of open competition. “It is thus clear that an auction is held by public competition wherein every bidder has right to raise his own bid. It is also clear that in public auction, the atmosphere therein created by open bidding can tempt the bidder to raise his bid and thus enhanced price can be fetched by the said mode.
19. In a sale by tender, however, no such opportunity is available to the tenderer. Once he gives his offer that is final and cannot be raised, whereas in public auction each bidder knows the bid of the other person. In the mode of sale by calling for offers or tenders, none of the persons or tenders know the price offered by the other. In regard to the tenders, it is observed in Halsbury’s Laws of England, Volume 9, and Fourth Edition para 230 on page 101 that “an advertisement that goods or services are to be bought or sold by tenders, is not prima facie, an offer to sell to the person making the highest tender”. It is, therefore, clear that by sale by tender or by calling for offers, the highest bid need not be accepted.
20. There is thus a substantial distinction between the sale by calling for offers through advertisement and the sale by public auction. By no stretch of imagination a sale by calling for offers through advertisement can be said to be a sale by public auction. By relying upon the decision of this Court in Digambar Tatya Utpat vs. Hari Damodar Utpat (AIR 1927 Bombay 143), it is submitted on behalf of the non-applicant No. 7 that there can be a limited court auction in which the class of bidders can be restricted. In my view, the said analogy is not apt. Even in the case of limited auction the principal characteristic of an auction sale about raising a bid at the spot would remain present which is totally absent when there is sale by tender or by calling for offers. “
Further, Learned Advocate has drawn our attention to the Tribunal’s Final Order No. 40978/2019 dated 30.07.2019 rendered in respect of M/s. Attur Agricultural Producers Co-operative Marketing Society Ltd. Vs. CCE, Salem, wherein it has been held as under:-
“10. We have considered the arguments on both sides and perused the records. As far as Auctioneers‟ Service is concerned, it can be levied on the service of auctioning. Undisputedly, in the present case, as recorded in the impugned order itself, the appellants are selling goods through tender and NOT through auctions. The Auctioneer’s service does not cover the service of tender. As far as the demand under BSS is concerned, evidently, the cooperative society is engaged in the business of lending money to their members and have been collecting some charge towards appraising the value of the pledged jewels in the process. This is not service rendered to anybody at all. It is true that, in turn, the appellant has been borrowing money from their bank but it does not mean that the appellant is supporting service of the bank. They are borrowing money from the bank on their account and in turn lending it to their members. In view of the above, we find that demands on both these counts are not sustainable and need to be set aside and we do so. Consequently, the demand of interest and penalties also deserve to be set aside. The impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law.”
We find that the facts for our consideration in these two appeals are identical. The marketing and other services rendered by the appellant to their farmer members in selling their agricultural produce through tender process would not be coming under “Auctioneer’s Service under Section 65 (105)(zzzr) of the Finance Act, 1994.
5.2 On the issue of BSS, the facts indicate that the appellants are taking loans from M/s. Salem District Central Co-operative Finance Bank and utilizing this money in providing jewel loans to their farmer members. Thus, the appellant is borrowing the money from the bank on its account and in turn lending it to their farmer members on interest. The services rendered by the appellant are relatable only to its members and not to the bank and the charges collected for appraising jewels before sanctioning of loans are in the nature of cost incurred by the appellant for sanctioning of loans. As such, there is no BSS rendered in the instant case. As such, we hold that the demands raised under the impugned orders demanding service tax under “Auctioneer Service” and BAS are not maintainable.
5.3 Regarding non-payment of service tax on transport of goods by road, the appellants have undertaken the work of lifting and delivering of goods to the ration shops under the Public Distribution System. The service is covered under GTA and in terms of Rule 2(1)(d)(v) of STR,1994, read with Notification No. 36/2004-ST dated 31.12.2004, the liability to pay service tax is on the person who pays the freight where the consignor or consignee of goods is any co-operative society. As such, the appellant is covered under the provisions of Section 65 (50b) of the Finance Act, 1994. The period of dispute in this appeal is from April,2006 to March,2011 and reportedly the appellant has undertaken transportation of not only food grains and pulses but also sugar and other articles. The exemption for transport of food grains and pulses is available only with effect from 29th February, 2010. We note that there is a finding in the Order-in-Original that the appellant has failed to give any evidence in order to claim exemption under Notification No. 32/2004-ST which provides for 75% abatement if the transporter has certified as to non-availment of cenvat benefit and also the benefit of Notification No. 34/2004-ST where freight paid on individual consignment upto Rs. 750/- and multi-consignment freight upto Rs. 1500/- exempted from payment of tax. The appellants have failed to submit consignment notes, freight vouchers, ledger account details etc. in order to substantiate their claim for these exemptions.
5.4 We find that learned advocate has relied upon the decision rendered in the case of M/s. Mutual Industries Ltd. Vs. Commissioner of CST, Vapi (supra), wherein it was held that denial of benefit of 75% exemption under GTA services for want of endorsement on the consignment note to the effect of non-availment of Cenvat credit is not maintainable. Considering this decision, we have to hold that the appellant is eligible for the benefit of Notification No. 32/2004-ST dated 03.12.2004 in computation of the demand of service tax payable for GTA service rendered.
5.5 On the issue of invoking the extended period, we find that the appellant is a Co-operative Society and the issue is interpretational in nature. There were various notifications giving exemption and abatement in respect of GTA service during the relevant time. The appellants have put forth that no malafide can be attributed to evade payment of service tax and non-payment of service tax was due to the bonafide belief and there was no deliberate intention for not paying tax and it is the responsibility of the Revenue to discharge the burden that the appellants have deliberately omitted to pay tax. GTA service was introduced w.e.f. January 2005 and the understanding was that individual truck owners engaged would not fall under GTA service. The appellants had mostly undertaken carrying food and other items as part of PDS. So it cannot be said that appellant has wilfully suppressed any facts and so demand in respect of GTA invoking extended period cannot be sustained. As such, penalties imposed under Sections 77 & 78 of the Finance Act, 1994 are not warranted.
6. For the above detailed reasoning and in view of the discussions, we hold that the demands confirmed against the appellant under “Auctioneer’s Service” and “Business Support Service” are not justified and we order to set aside the impugned orders dated 22.03.2013 and dated 08.10.2014 to this extent. Consequently, demand of interest and imposition of penalties are also set aside. However, demand of service tax in respect of GTA Service provided is confirmed for the normal period which needs to be computed after according the benefit of Notification No. 32/2004-ST dated 03.12.2004.
7. These two Appeals are allowed as above with consequential benefits, if any, as per law.
(Order pronounced in the Open Court on 25.04.2023)
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