After finding Prima facie case in favour of assessee, Tribunal orders pre-deposit of service tax and interest!
YES. You read it right. After going through this order, we initially thought our typist made a mistake in the last part of the order. We checked it with the hard copy several times, tried to find out if any ROM was filed. After ruling out all such possibilities, we decided to carry this.
The issue involved is demand of service tax on services received from outside India under reverse charge. Show cause notices were issued to the petitioner proposing levy of service tax, interest and penalties. According to the show cause notice, the petitioner received two categories of Services, both classified as Business Auxiliary Service. Corporate Guarantee was one category of service, received by the petitioner from an overseas corporate entity M/s Olam International ltd., Singapore, of which the petitioner is a 100% subsidiary. Another category of service is agency commission remitted by the petitioner in foreign currency for facilitating export of cotton, rice, cashew and sesame claimed to be agricultural produce by the petitioner, a claim contested by Revenue. After due process of law, the demands were confirmed with interest and penalty. The petitioner filed stay application against the adjudication order.
In respect of agency commission paid by the petitioner to agents abroad for services provided in relation to the export business of the petitioner's agricultural produce, the petitioner claimed benefits of exemption Notification No.8/2004-ST dated 9.7.2004, a notification issued in modification of an earlier Notification No.13/2003-ST dated 20.6.2003. The claim for exemption was negatived by the adjudicating authority.
Service tax liability confirmed in respect of corporate guarantee in the two appeals is Rs.2,83,04,550/- and Rs.66,77,289/- respectively.
The Tribunal prima facie held –
The adjudication order is in error to the extent benefits of exemption under Notification No.8/2004-ST for the agency commission paid by the petitioner was denied. The petitioner, inter alia exported rice, sesame, seeds cashew nuts etc.
On true and fair construction of the provisions of Notification No.8/2004-ST, it is clear that all agricultural products enumerated in the inclusive part of the definition such as cereals, pulses, fruits, nuts, rice, etc per-se are agricultural produce. The further clause in the definition of 'agricultural produce' which brings agricultural produce processed by the cultivator also into the ambit of agricultural products is not applicable nor operates to define products enumerated in the inclusive portion of the definition.
On the above prima facie construction, the conclusion by the adjudicating authority that commission paid by the petitioner to its overseas agents for facilitating export of rice, sesame seeds, cashew nuts etc. is not entitled to the benefit of exemption Notification No.8/2004-ST, is unsustainable.
With regard to Corporate Guarantee, the Tribunal held –
The Singapore corporate entity was neither a Bank nor had provided a bank guarantee. It provided a guarantee on the basis of its own resources assets to Indian banks to facilitate lending of money by Indian banks to the petitioner. This would not, constitute bank guarantee within the meaning of the expression in Section 65(12) of the Act.
Counsel for the petitioners refers to interim orders by this Tribunal granting complete waiver of pre-deposit where service tax apart from interest and penalties were assessed in respect of corporate guarantees provided by the appellant therein to a nationalized bank for loans availed by another entity. Revenue had assessed liability to "Business Support Services" (BBS) during 1.5.06 to 31.12.07 in view of the interim order in Kaveri Agri Care Pvt. Ltd. vs. C.S.T., Mysore (), this Tribunal found considerable merit in the submission of the appellant therein that corporate guarantee provided to a bank for loans taken by another entity falls within Section 65(12) of the Act and not under BSS as defined in Section 65(104(c). We are persuaded to follow this interim order for the reason that provision of corporate guarantee clearly falls outside banking or financial services.
And finally, the Tribunal ordered:
On the aforesaid analyses, we grant waiver of pre-deposit and stay all further proceedings pursuant to the adjudication orders impugned in these two appeals, on condition that the petitioner remits Rs.2,83,04,550/- plus proportionate interest on this amount in ST Appeal No.57100/2013; and the petitioner in ST Appeal No.57667/2013; shall remit Rs.66,77,289/- along with proportionate interest thereon, within six weeks from today and report compliance by 5.11.2013. In default, the appeals shall stand dismissed for failure of pre-deposits.