Case Law Details
Federal Bank Ltd. Vs Commissioner of Central Excise (CESTAT Bangalore)
Profit Margin on Imported Gold Not Taxable as No Consignment Agent Service Was Rendered; Imported Gold Profit Margin Escapes Service Tax Because No Consideration Was Received for Services; CESTAT Sets Aside Tax Demand Because Sale of Consignment Gold Did Not Constitute Agent Service; No Service Tax on Gold Trading Margin Because Bank Was Not Acting as Clearing and Forwarding Agent.
The appellant, a banking company, imported gold bullion on a consignment basis in terms of RBI Master Circular No. 7/2011-12 dated 01.07.2011. The imported gold remained in the bank’s vaults and was sold at a later stage. After such sales, the supplier was settled, and the difference between the sale price and the import price was retained by the bank as profit margin.
The Revenue treated this profit margin as “commission” received for providing Consignment Agent Services and, accordingly, confirmed service tax demand along with interest and penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
The appellant contended that the trading margin earned from the sale of imported gold could not be subjected to service tax by treating it as consideration for consignment agent services. It argued that its activities did not fall within the definition of Clearing and Forwarding Services and relied upon earlier Tribunal decisions.
The Tribunal noted that the Commissioner had treated the net income earned from the sale of imported gold coins as the value of taxable services. It further referred to its earlier decision in an identical matter involving another bank, where the RBI circulars and the terms of the consignment agreement were examined.
The earlier decision had found that the imported gold remained the property of the foreign supplier until purchase and payment were completed. It was also held that the bank was not rendering any service to the supplier. Instead, the bank sold the imported gold and subsequently settled the supplier in accordance with the agreement. The profit earned by the bank arose from the sale of gold and not from any service rendered to the supplier.
The Tribunal observed that although the definition of Clearing and Forwarding Agency includes a consignment agent, no such service was being rendered by the appellant and no consideration was received from the supplier. Therefore, the profit margin earned on the sale of imported gold could not be treated as taxable value for service tax purposes.
Following its earlier decision on identical facts, the Tribunal found no merit in the impugned order, set it aside, and allowed the appeal.
FULL TEXT OF THE CESTAT BANGALORE ORDER
Briefly the facts are the appellant ‘The Federal Bank Ltd.’ is engaged in providing Banking Services. The issue, in the present appeal, is that the appellant imports gold bullion on consignment basis in terms of the RBI Master Circular No.7/2011-12 dated 01.07.2011. The gold imported remains in the bank’s vaults and the sales are affected at a later period and based on these sales, the supplier is settled and the difference between the sales price and import price is retained as profit margin. This amount is considered by the Revenue as ‘commission’ received by them treating these services as Consignment Agent Services. Accordingly, the Commissioner in the impugned order confirms demand of service tax along with interest and imposes penalties under Sections 76, 77 and 78 of the Finance Act, 1994. Hence, this appeal.
2. The Learned Sr. Counsel appearing before us submits that the levy of service tax on the trading margin of the gold imported and sold by the appellant on the ground that the Bank acts as a consignment agent to the foreign supplier cannot be sustained. Referring to the definition of ‘Clearing and Forwarding Services’, he submits that the services rendered by the appellant does not fall under the category of consignment agent. He further submits that the issue is settled in the case of M/s. Indian Overseas Bank vs. Commissioner of C. EX. & S.T., LTU, Chennai: 2021 (46) G.S.T.L. 75 (Tri. – Chennai) dated 10.02.2020 and in the case of M/s. B.K. Sales Corporation vs. Commissioner of C. Ex. Rohtak, Haryana: 2014 (36) STR 1281 (Tri.-Del.) dated 11.09.2014.
3. The learned Authorised Representative (AR) reiterated the findings of the Commissioner in the impugned order.
4. Heard both sides. We find that in the impugned order the Commissioner observes as follows:
“29.I find that in the show-cause notice, the net income earned by the bank from the sale of imported gold coins has been taken as the value of taxable services provided by them and service tax has been worked out according…………”
5. This Tribunal in an identical set of facts, in the case of M/s. South Indian Bank vs. The Commissioner of Central Excise and Service Tax, Calicut vide Final Order No.20304/2026 dated 13.03.2026, has observed as follows:
“6. We have also perused the ‘Consignment Agreement for Gold Coins’ dated 18.05.2011 between MKS Finances, Switzerland and the appellant. The relevant clauses are reproduced below:
“2.3 The consignee undertakes to obtain, at its own expense, all import licenses, permits, clearances and other documents necessary for the transport of the CPM (Consignment Precious Metals) to, and for its import into, India and to promptly pay all duties, taxes and other dues in connection with the import of the CPM.
2.4 MKS’s Agent shell perform the customs clearance for the CPM and deliver the CPM to the vaults.
………..
3.1 ………………. The CPM remains in full with MKS until such time as the CPM is purchased and paid for by the Consignee and the funds received by MKS’s Clearing Bank in New York.
Thus, from the RBI Circulars read with the clauses of the Agreement, we find that there is no service being rendered by the appellant to the supplier; instead the appellant sells the gold imported by him and after sales, the same is settled with the supplier based on the payment terms in the Agreement. The appellant is benefited by making a profit margin on the sale of these gold coins and this value cannot be in any terms considered as the taxable value as there is no service as such being rendered. There is no doubt that the definition of ‘Clearing and Forwarding Agency’ includes consignment agent but in the instant case, there is no such service being rendered by the appellant and moreover, no consideration is being received from the supplier. Therefore, even post 2012, the question of service being rendered does not arise. In view of the above, we do not find any substance in sustaining the impugned order, the same is set aside.”
5. In view of the above, we do not find any substance in the impugned order, the same is set aside.
Appeal is allowed.
(Operative portion of the order was pronounced in Open Court on conclusion of hearing.)
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