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F. No. STC / 4 – 59 / O & A / 11-12.OIO in the case of M/s.Freshtrop Fruits Ltd .

BRIEF FACTS OF THE CASE

1. M/s. Freshstrop Fruits Ltd., situated at A-603,Shapath VI S.G.ROAD Ahmedabad- 380 015 (hereinafter referred to as the “M/s Freshstrop”), is engaged in providing taxable service falling under the Category of “Goods Transport by Road Service” and “Technical Testing and Analysis Service” as defined under Section 65 of the Finance Act, 1994. M/s Freshtrop is registered with the service tax department and is holding Service Tax Registration No.AAACF2885PST001.

2. During the scrutiny of ST-3 Returns of M/s. Freshstrop it was observed that they had not filed the ST-3 returns for the period from April 08 to March 10.Therefore, a letter dated 10.08.2010 followed by reminder dated 10.11.2010 was issued to M/s Freshtrop asking them to file the pending ST-3 returns and to submit Income Tax Return, Statement of Income and profit & loss account for the said period.

3. Vide their reply dated 18.11.2010 M/s Freshtrop submitted that they had filed all ST-3 returns with Range IX, Division: II, Service Tax Commissionerate, Ahmedabad. They also produced the copies of ST-3 returns along with Income Tax Return and profit & loss account for the F.Y. 2008-09 and 2009-10.

SCRUTINY OF ST -3 RETURNS AND INCOME TAX RETURN FOR F.Y. 2008-09 AND 2009-10 OF M/S FRESHTROP:

4. During the scrutiny of their ST -3 returns and Income Tax return for F.Y. 2008-09 and 2009-10, it was noticed that they had shown Foreign Selling Expenses during the period 2007-08,2008-09 and 2009-10 and Foreign Sea Freight during the period 2009-10. As Foreign Selling Expenses and Foreign Sea Freight incurred by M/s Freshtrop appeared taxable under section 66A and M/s Freshtrop has not paid Service Tax on the foreign selling expenses and sea freight expenses paid in foreign currency, a letter dated 03.12.2010 was issued to the assessee followed by reminder dated 20.12.2010 asking them to produce the details of the same.

5. In their reply dated 18.2.2011 M/s Freshtrop submitted that; there was no liability on them to pay any service tax on foreign selling expenses as

Section 66A was not attracted to their case. the expenses shown in their Income tax returns were related to foreign selling

expenses for the commodities like Grapes and Pomegranate which were exported by them to super markets through their consignment agents such as M/s Olympic Fruits B.V. Netherlands, M/s International Produce Ltd., U.K., M/s British and Brazilian Produce Ltd., U.K., M/s Malet Azoulay(UK) Ltd., U.K. and M/s Carmexco B.V. Neatherlands who were the distributers of above fruits in European Countries.

The expenses shown under the head of “foreign selling expenses” were in nature of reimbursement of sea/air freight, storage and warehousing, import duty paid by the said distributors, quality costs and testing expenses incurred by the said distributors and packing tax paid by the said distributor receiving the fruits and fruit products in foreign countries.

all elements of expenses arise after goods leave India. Therefore, these foreign selling expenses were not in the nature of any service received by them from any foreign service providers and hence these were not taxable under section 66A of the Act.

the foreign selling expenses also included commission paid to the distributors for the sales made by them and money collected by them for such sales in foreign countries. But there was no service tax on commission because it was related to the activities taking place in foreign countries, and in any case, such services of commission agent were exempted under Notification No. 13/2003-ST dated 20.6.2003,as amended.

Business auxiliary service of a commission agent in relation to sale or purchase of agricultural produce is fully exempted under that notification. Since grapes and pomegranates are agricultural produce, any service for purchase or sale of such fruit was exempted.

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Foreign Sea Freight was transportation charges paid to ships and vessels for transferring of fruits from India to foreign countries and thus foreign sea freight was also an element of expenditure incurred after the goods leave the country. There was no service tax on such foreign sea freight because it was beyond the territory of India and therefore foreign sea freight was not a service received by them from the foreign service providers and hence not taxable under section 66A of the Act.

6. A letter dated 09.03.2011 was issued to the assessee requesting them to submit the copies of contracts/agreements with the foreign distributors and copies of invoices raised by their distributors. They were further requested to give the details/documents regarding the procurement, receipt, storage, grading & sorting, packing, pre-cooling, cold storage, manufacturing process and dispatch of their products.

6.1 Vide their reply dated 19.7.2011 M/s Freshtrop submitted the followings documents:

(i) Month wise and year wise details and documents of foreign selling expenses and foreign sea freight incurred during F.Y. 2006-07 to 2010-11.

(ii) Income tax return with computation sheet and balance sheet, Profit and Loss account for F.Y. 2006-07 to 2007-08.

6.2 They further submitted that they send the goods on consignment basis to various agent in Europe and United

Kingdom. The agents sell the goods on behalf of them and send them the Account sales of the goods sold. They enclosed a copy of account sale.

Agents charge them commission on the Gross Sales value and other expenses incurred by them. Sales realization is remitted to them after deducting the expenses and commission.

they did not have any written agreement with their consignment agents. they procured grapes during grapes season from February to April from the

farmers. They enclosed a copy of the purchase challan. The grapes purchased from the farmers are sorted and packed in their factory which were thereafter pre-cooled and stored in their cold storages. These goods were sent on consignment basis to their agent through refrigerated containers. They also enclosed a copy of excise invoice.

8. Statement of Shri Chirag Malviya, Senior Manager (Accounts) of M/s Freshtrop was recorded on 1.8.2011

8.1 Shri Chirag Malviya, Senior Manager (Accounts) of M/s Freshtrop has in his statement inter-alia stated that:

- they procure grapes and pomegranates from Global Gaap certified farmers; that this certificate is issued by Foodcert India Pvt. Ltd., Hyderabad. Foodcert India Pvt. Ltd issue certificates to the farmers on behalf of Isacert B.V., Netherland (Europe).

- they purchase grapes and pomegranates from Global Gaap certified farmers; - they send their workers to these farms to harvest grapes and pomegranates

from farms and bring it to their factory in their trucks in plastic crates; - in their factories grading and sorting is done by their workers. Grapes are

graded and sorted in fix sizes such as 18 mm, 20mm and 22mm and rotten and yellow berries are removed. Then grapes are packed in punnets of 500gms. Punnets are imported by them. Then 10 punnets of 500gm each are packed in one corrugated box. There are two varieties of grapes one is green and other is black and green. Then bar code stickers are fixed as per the buyer’s specific requirement. Bar code stickers are prepared by them as per specification given by the buyers.

- In case of pomegranates, fruits eaten by birds and having sun burns are sorted and fruits of best quality are packed in the boxes of 12 and 18 numbers. These fruits are kept in pre cooling room for pre cooling process which is mandatory process for exporting these fruits since these fruits are perishable items in nature and these fruits require pre- cooling before storing in cold storage. These fruits are pre-cooled in our pre -cooling room. In the process of pre cooling we

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pre-cool the fruits at 0 to 5 degree centigrade. These pre-cooled fruits are then stored in cold storage to maintain the temperature till they are exported. 2300 boxes are sent in one container after their pre-cooling. These boxes are sent in 20 pellets of 115 boxes in one refrigerated container.

8.2 On being asked he stated that they get export order during foreign tour of their Director and also on e-mail from M/s Olympic Fruits B.V. Netherland based on market requirement.

8.3 On being asked he stated that they send the goods on consignment basis to M/s Olympic Fruits B.V. Netherland in Europe. From their factory containers are sealed by Excise Authority which is then sent to Nhava- Sheva port of Mumbai and then the containers are loaded on vessel. It normally takes 20-25 days to reach Europe. The consignment is then released by M/s Olympic Fruits B.V. Netherland after paying the custom duty and freight charges. The goods are warehoused by M/s Olympic Fruits B.V. Netherland in their warehouse and later on sold by them to super markets. M/s Olympic Fruits B.V. Netherland gives them advance payment of approximately 30% of the sale value against their documents of export. M/s Olympic Fruits B.V. Netherland sells the goods and sends them the Account sales of the goods sold. M/s Olympic Fruits B.V. Netherland charges them commission on the Gross Sales value and other expenses incurred by them. Sales realization collected from the super market is remitted to them after deducting the advance payment, expenses and commission. They have no written agreement with M/s Olympic Fruits B.V. Netherland. M/s Olympic Fruits B.V. Netherland also followed the same practice from different suppliers from different countries.

8.4 On being asked he stated that they are engaged in purchasing, harvesting, grading, sorting, packing, pre-cooling of fresh pomegranates and grapes at their three units situated in Maharashtra. The first unit is at Gate no. 171, Vill. Jaulke Dist. Nasik, the second one is at Survey no, 1366, Savlej-Wayfale Road, Dist. Sangli, The third unit situated at Gat No. 2425/26/30/31, Malharpet-Pandharpur Road, Dist Satara. At their fourth unit which is situated at Gate No. 598/1, Vill Janori, Dist. Nasik, they are purchasing and processing of mango, guava, pomegranate and tomato. For processing they have an automatic plant in which final products are pulp and concentrate which are packed in aseptic bags of 215 kgs to 270 kgs which are then packed in barrels of food grade quality. These drums are stored under normal temperature and sold as per order mainly in domestic market. In case of export of processed fruit it is directly sold to the parties in European countries. In some cases orders are procured by agents to whom commission is paid by them.

8.5 He was shown Income Tax return and Balance sheet for F.Y. 2006-07 wherein under head “schedule-S” they have shown selling and distribution expenses amounting to Rs. 10,88,71,394/-. On being asked about the foreign selling expenses he stated that these are for foreign commission, foreign custom duty, foreign sea freight and foreign storage and ware housing expenses.

8.6 Further, he was shown balance sheet for the period 2007-08 to 2009-10 wherein under the head expenditure in foreign currency they have shown foreign selling expenses, foreign testing expenses, and foreign sea freight. On being asked about these charges paid in foreign currency he further stated that foreign selling expenses includes commission, foreign clearing and forwarding charges, foreign custom duties, foreign storage and warehousing expenses.

8.7 On being asked he stated that they have paid services tax only on foreign commission paid to agents for getting orders of export for mango pulp, guava pulp and pomegranates concentrate.

9. From the above paragraphs it appeared that(i) M/s. Freshstrop used to send goods to their consignment agents to be sold in

super markets on their (M/s Freshstrop’s) behalf.(ii) The consignment agents were paying some amount as an advance to M/s.

Freshstrop.

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(iv) Consignment agents were getting the goods released from the ports by paying certain expenses such as Customs Duty, Port transportation, packing charges etc. These expenses were paid by the consignment agents first and then they recovered the same from M/s. Freshstrop as reimbursement.

(v) Consignment agents were storing the goods at their warehouses.(vi) Consignment agents were getting goods tested for quality standards in

compliance to the European standard and these charges also reimbursed to them by M/s. Freshstrop.

(vii) The consignment agents were forwarding the goods from warehouse to the supermarkets and were paying road transport charges.

(viii) The consignment agents were selling goods to supermarkets according to the instructions of M/s. Freshstrop.

(ix) The consignment agents then prepared and sent statement to M/s. Freshstrop showing details of sales expenses, advance paid by them, their commission amount and balance amount due.

10. That the consignment agents such as M/s Olympic Fruits B.V. Netherlands, M/s International Produce Ltd., U.K., M/s British and Brazilian Produce Ltd.,U.K., M/s Malet Azoulay (UK) Ltd., U.K. and M/s Carmexco B.V. Netherlands apart from acting as a distributers of fruits in European Countries also perform the following functions:

a. Clearance of consignment from the port.b. Payment of Duty, Freight, Packing Charges, Port Handling charges etc.c. Storage/ Storage at Portd. Transportation of the consignment to the consumers.

10.1.1 It is thus evident that over and above the commission amount, the consignment agent are also charging sea/air freight, storage and warehousing charges, quality assurance charges, road freight, packing charges, distribution charges, terminal handling, port handling etc which are being reimbursed by M/s Freshstrop to them (consignment agents).

10.1.2 The amount so collected (except foreign custom duty) should have been considered as part of the gross value charged for providing service as the services provided by the consignments agents are nothing but the services provided by Clearing and Forwarding Agents.

10.1.3 The services provided by the foreign based consignment agents are therefore classifiable under the category of “Clearing and Forwarding Agents Services” as defined under Section 65(25) of the Finance Act, 1994.

LEGAL PROVISIONS:

11. A clearing and forwarding agent normally undertakes the following activities:(a) receiving the goods from the factories or premises of the principal or his agents; (b) warehousing these goods; (c) receiving dispatch orders from the principal; (d) arranging dispatch of goods as per the directions of the principal by engaging

transport on his own or through the authorized transporters of the principal; (e) maintaining records of the receipt and dispatch of goods and the stock available

at the warehouse.

12. Section 65(25) of the Finance Act, 1994 defines “Clearing and forwarding agent” means any person who is engaged in providing any service, either directly or indirectly, concerned with the clearing and forwarding operations in any manner to any other person and includes a consignment agent.

12.1 Section 65 (105) (j) of the Finance Act, 1994 defines “Taxable Service” means any service provided or to be provided [to any person], by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner;

13. Further, as per sub-section (3) of section 67 of the Finance Act, 1994 as

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amended, “The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.”

14 The inclusion in or exclusion from value of certain expenditures or costs, have been provided under Rule 5 of the Service Tax (Determination of Value) Rules, 2006, effective from 19.04.2006.

14.1 Under sub rule (1) of the Rule 5, it is provided that where any expenditure or cost are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax in the said service. However, exclusion of certain expenditure or costs, from the taxable value has been provided under sub-rule (2) of the rule 5 ibid, where the expenditure or costs incurred by the service provide as a pure agent of the recipient of service, has been allowed to be excluded from the value of the taxable service subject to fulfillment of conditions (i) to (viii) stipulated therein.

15. The Finance Act, 1994 was amended by the Finance Act, 2006 introducing new Section 66A, which came into force on 18.4.2006. The Central Government also introduced the Taxation of Services (Provided from outside and Received in India) Rules, 2006 under Section 66A. As per these new provisions, if a taxable service is rendered by a person outside India and if the said service is received by a person in India or by a person located in India, the person in India shall be deemed to be the provider of such service, for the purposes of payment of service tax. Section 66A is based on the reverse charge method, where a legal fiction is created by which the recipient of service is made liable to pay the tax as if he alone had provided the services domestically. In such a case, the recipient of service is treated as ‘deemed service provider’.

15.1 Further as per provision of Rule 2(1) (d) (iv) of the Service Tax Rules, 1994, the service receiver is the person liable for paying service tax for the service received from outside India. As per sub-rule (iii) of Rule 3 of Taxation of Services ( provided from outside India and received in India) Rules 2006, “Clearing and Forwarding Agent’s Service” specified under sub clause (zzzq) of section 65(105) of Finance Act, 1994 are covered under criteria of recipient located in India and used in relation to business or commerce. Therefore, a service so received from outside India was chargeable to service tax under the category of ‘Clearing and Forwarding Agent’s Service’.

16. In the instant case no such expenditure, claimed as exclusion, has been incurred by the consignment agents as a pure agent of their client. These reimbursed expenses incurred by the consignment agents are the expenses necessitated to be incurred in connection with and related to the taxable service provided by them in the category of Clearing and Forwarding Agents Service’. In view of the above, the reimbursed expenses (except foreign custom duty) are an additional consideration collected / received by the consignment agents from M/s Freshstrop to whom they provided taxable Clearing and Forwarding Agents Service’, which should be included in the value of taxable service for discharging service tax liability.

16.1 M/s Freshstrop Fruits Ltd had neither declared the payment particulars in S.T. 3 returns nor paid service tax payable thereon and nor obtained service tax registration for such services. Thus, it was mandatory on part of M/s Freshstrop to discharge service tax amounting Rs. 4,10,38,988/- (including Education Cess and Secondary higher education cess) on the amount of Rs. 35,65,06,709/- paid by them to their Foreign Service providers under the category of “Clearing and Forwarding Agents’ Service” under Section 66A. The Service tax liability is calculated as per Annexure A attached to the Show Cause Notice:

17. Scrutiny of the ST-3 return filed by M/s Freshstrop Fruits Ltd during the corresponding period reveals that they have not declared the payment particulars in their ST-3 returns nor discharged their Service Tax liabilities as discussed in the foregoing paras of this Show Cause Notice. Thus, it appears that M/s Freshtrop has suppressed the material facts from the department and evaded the payment of service tax amounting to Rs. 4,10,38,988/- .

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18. Thus, it appeared that M/s Freshstrop Fruits Ltd have contravened the provisions of:

18.1 Section 68 of the Finance Act, 1994 provides that every person providing taxable service to any person shall pay service tax at the specified rates and in such manner and within such period as may be prescribed. Further, Rule 6 of the Service Tax Rules, 1994 stipulates that service tax shall be paid to the credit of the Central Government, by the 5th of the month immediately following the calendar month, in which the payments are received, towards the value of taxable services. M/s Freshstrop has contravened the provisions of the said section as they have failed to make the payment of Service Tax amounting to Rs. 4,10,38,988/- including Ed. Cess as explained in foregoing para for the services received as a recipient during the Year 2006-07 and 2010-11 to the credit of the Government within the stipulated time limit.

18.2 Section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 provides that every person liable to pay service tax should make an application within a period of thirty days from the date on which the service tax under Section 66 of the Finance Act, 1994. M/s Freshstrop has contravened the provisions of the said section in as much as they failed to obtain service tax registration under “Clearing and Forwarding Agent’s Service” within the stipulated time period.

18.3 Section 70 of the Finance Act, 1994, provides that every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed. Rule 7 of the Service Tax Rules, 1994, prescribes that every assessee shall submit a half-yearly return in Form ST-3 or ST-3A as the case may be, along with a copy of the Form TR-6, in triplicate for the months covered in the half-yearly returns. Further sub-rule [2] thereto also provides that every assessee shall submit the half yearly return by the 25th of the month following the particular half-year. M/s Freshstrop has contravened the provisions of the said section in as much as they had failed to self assessee correct service tax liability under the category “Clearing and Forwarding Agent’s Service”.

18.4 All the above acts of contravention on the part of M/s Freshtrop appear to have been committed by way of suppression of facts with an intent to evade payment of service tax and, therefore, the said service tax not paid/short paid is required to be demanded and recovered from them under Section 73(1) of the Finance Act, 1994 by invoking extended period of five years. All these acts of contravention of the provisions of Section 68, 69 and 70 of the Finance Act,1994 read with Rule 6, 4 and 7 of Service Tax Rules,1994 appears to be punishable under the provisions of Section 76, 77 and 78 of the Finance Act,1994 as amended from time to time.

18.5 Moreover, in addition to the contravention, omissions and commissions on the part of M/s Freshstrop as stated in the foregoing para, it appears that they have willfully suppressed the facts, nature and value of taxable service provided by them with an intent to evade payment of Service Tax, rendering themselves liable for penalty under Section 78 of the Finance Act, 1994 as amended.

18.6 M/s Freshstrop is also liable to pay interest at the appropriate rates for the period from due date of payment of Service Tax till the date of actual payment as per the provisions of Section 75 of the Finance Act, 1994.

19. Therefore an SCN bearing F. No STC/4–59/O&A/11–12 dated 07/10/2011 answerable to the Commissioner, Service Tax, Ahmedabad was issued to M/s. Freshtrop Fruits Ltd., calling upon them to show cause as to why: -

(i) Services received by them from foreign based service providers who has no office in India should not be considered as taxable service under the category of Clearing and Forwarding Agent’s Service as defined under Section 65 of the Finance Act, 1994 and Rs.35,65,06,709 /- should not be considered as taxable value and the Service Tax amounting to Rs. 4,10,38,988/- under the category

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of Clearing and Forwarding Agent’s Service should not be demanded and recovered from them under the proviso to Section 73 (1) of the Finance Act, 1994, invoking the larger period of five years as discussed herein above.

(ii) Interest at the appropriate rate on the amount of their service tax liability should not be recovered from them for the delay in making the payment under Section 75 of the Finance Act, 1994.

(iii) Penalty should not be imposed upon them under Section 76 of the Finance act, 1994 for the failure to make payment of Service Tax payable by them within the time stipulated.

(iv) Penalty should not be imposed upon them under Section 77 of the Finance act, 1994 for the failure to apply to add the category of Clearing and Forwarding Agent’s Service in their service tax registration and to file prescribed service tax return within the stipulated time.

(v) Penalty should not be imposed upon them under Section 78 of the Finance act, 1994 for suppressing the value of taxable service provided by them before the Department with intent to evade payment of Service Tax.

19.1 Vide the 2nd show cause notice bearing F. No STC/4-26/O&A/ADC/12-13 dated 05/10/2012 for the period 2011-2012, answerable to the Additional Commissioner, Service Tax, Ahmedabad, M/s. Freshtrop was called upon to show cause as to why Services received by them during the period 2011-2012 from foreign based service providers / consignment agents / distributers who has no office in India should not be considered as taxable service under the category of Clearing and Forwarding Agent’s Service as defined under Section 65 of the Finance Act, 1994 and the amount of Rs.4,56,80,255/- in foreign currency paid to them should not be considered as taxable value and the Service Tax amounting to Rs. 47,05,066/- under the category of Clearing and Forwarding Agent’s Service should not be demanded and recovered from them under the proviso to Section 73 (1) of the Finance Act, 1994, along with interest under section 75 and penalty under section 76 and 77 of the Finance Act, 1994.

DEFENSE REPLY and PERSONAL HEARING:

20.1 M/s. Freshtrop submitted the written defense reply vide letter dated 07/12/2011.

20.2 In the defense reply M/s. Freshtrop contented and submitted that the entire proceedings initiated against them is clearly illegal and without any justification and therefore, they deserve to be withdrawn at once in the interest of justice. They submitted that the provision of Section 66A of the said Act, which is the basis for the present SCN is not even applicable in the facts of the present case in as much as the services have been admittedly, rendered in foreign countries. M/s. Freshtrop also further submitted that the amounts paid to the distributors were in the nature of commission for the sales made by them and money collected by them for such sales made to supermarkets in the foreign countries and therefore, correctly fall under the category of "Business Auxiliary Services" and have been exempted under Notification No. 13/2003-ST dated 20.06.2003, as the same were with regards to services undertaken for sale and purchase of agricultural produce. Therefore, the question of any duty liability on their part would even otherwise not arise. Therefore, the proposals leveled against them in the subject Show Cause Notice are ex-facie illegal and without jurisdiction and may be withdrawn in the interest of justice.

20.3 In their defense reply M/s Freshtrop submitted that before moving on to the legal submission, it would be pertinent to note the factual matrix of the case.

20.4 M/s. Freshtrop submitted that they procure grapes and pomegrantes from Global Gaap certified farmers which are then brought back to their factory and subjected to various processes like grading and sorting. After the completion of such grading and sorting, the batch of such fruits is subjected to pre-cooling process and stored in the cold storage whereupon, the same are sent to their distributors in various countries for sale in the supermarkets abroad. Their distributors after receiving the said goods store them in their warehouse and sell them to the supermarkets as and when the orders are placed with them. Accordingly, commission is paid by them to their distributors on the basis of such sales made by them to the supermarkets. Therefore, from the above explained

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arrangement between them and their overseas distributors two important facts which clearly come out are that firstly, the services rendered by their overseas distributor were entirely in the foreign countries and secondly, that the commission was paid to their overseas distributors for causing sale of subject goods exported by them.

20.5 Keeping in mind the aforesaid facts, M/s. Freshtrop submitted that the services rendered by their overseas distributor were clearly in the nature of services rendered by a commission agent and were therefore, correctly classifiable under Business Auxiliary Services. The amount of foreign selling expenses on which the demand in the present matter has been raised against them also included the amount paid as commission to the said distributors for the sales made by them and money collected by them for such sales in foreign countries and as such no service tax on such commission was liable to be paid on two grounds. Firstly, the entire scope of services being rendered by their overseas distributors in foreign countries, could not be subjected to provision of Finance Act, 1994 and secondly because, assuming that provision of Section 66A were applicable to such services rendered abroad even then such services were exempt under Notification No. 13/2003-ST dated 20.6.2003, as amended whereby, Business Auxiliary Services provided by a commission agent in relation to sale or purchase of agricultural produce were exempted from the service tax leviable under Section 66 of the said Act. Therefore, on this count itself, it is clear that the Department has raised the present proposals in a completely erroneous and arbitrary manner and consequently, the same are liable to be dropped in the interest of justice.

20.6 M/s. Freshtrop also submitted that as the entire demands have been raised on the basis of expenses shown in their Income Tax Returns, it would also be necessary to note that the said expenses shown in their Income Tax Returns are related to the commodities like Grapes and Pomegranate exported by them to Messrs Olympic Fruits B.V., Netherlands, M/s International Produce Ltd., U.K., M/s British & Brazilian Produce Ltd., U.K., M/s Malet Azoulay (UK) Ltd., U.K., M/s Carmexco B.V., Netherlands, who are the distributors of the above fruits in European countries. The expenses shown under the head of “foreign selling expenses” are in the nature of sea / air freight, storage and warehousing by the said distributors, import duties paid by the said distributors, quality costs and testing expenses incurred by the said distributors and packaging tax paid by the said distributors upon receiving the above fruits at their end. Thus, all the above expenses are incurred in foreign countries and they are all the elements of expenses arising after the goods leave India. Therefore, these foreign selling expenses are not in the nature of any service received by them from any Foreign Service provider and hence, they are not taxable under the Service Tax law nor under Section 66A of the Act.

20.7 M/s Freshtrop also contended that foreign sea freight is also transportation charges paid for the ships and vessels for transferring the above fruits from India to foreign countries, and thus, foreign sea freight is also an element of expenditure incurred after the above fruits leave our country. There is no service tax on such foreign sea freight because it is beyond the territory of India and therefore, foreign sea freight is also not a service received by us from the foreign service providers; and hence, not taxable under Section 66A of the Act.

20.8 M/s. Frestrop also contended that without prejudice to the aforesaid submissions, assuming but not admitting that the services received by them from their overseas distributors were in the nature of "Clearing and Forwarding Agent's Services", even then the proposals raised against them in the show cause notice are equally baseless and without any justification in as much as the Department has wrongly proceeded on the belief that the criteria / condition for ascertaining the applicability of the legal fiction created under Section 66A for "Clearing and Forwarding Agent's Services" was that the recipient of such services was to be located in India and such services were to be used in relation to business or commerce. Even on a mere perusal of the subject notice, it would be clear that a glaring error is committed by the Department as the "Clearing and Forwarding Agent's Services" was specified under sub clause (j) of Section 65 (105) and not sub clause (zzzq) of the said section and therefore, the condition as believed by the Department was completely inapplicable to the present case and the condition precedent in applying the

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provision of Section 66A to such services was that these services were required to be performed either wholly or partly within the territory of India.

20.9 M/s. Freshtrop also contended that the Constitution of India permits the UOI to levy and collect taxes on any activities taking place in India and therefore, service tax could also be levied and collected only when the taxing event i.e. providing service or receiving service took place within the territory of the UOI. In the present case, the service is received by us in a foreign country and this service or assistance is provided by the concerned persons in a foreign country and therefore, service tax being an Indian levy could not be imposed on such activities. The Appellate Tribunal, Mumbai has rendered two Stay Orders in the cases of Welspun Gujarat Stahl Rohren Limited – 2007 (5) STR 38 and Bharat Forge Limited – 2008 (9) STR 67 wherein the Appellate Tribunal has held prima-facie that services rendered by foreign companies in countries outside India were not covered under the service tax law, and hence, not liable for service tax. The Hon’ble CESTAT in the matter of Intas Pharmaceuticals reported in 2009(16)STR 748 has also held that service tax levy was applicable only to services rendered in India and where taxable event takes place in India and the recipient was not liable to pay service tax if the services were fully performed outside India. The subject show cause notice seeking to fasten the service tax liability on them when the taxing event has taken place within foreign territories is therefore, wholly illegal and unconstitutional.

20.10 M/s. Freshtrop also contended that by Circular No. 36/4/2001 dated 8.10.2001, the Government has clarified that services provided beyond the territorial waters of India were not liable to service tax as service tax had not been extended to such areas like the Continental Shelf and the Exclusive Economic Zones of India. Though this clarification is with regard to the services rendered in Economic Zones and the Continental Shelf areas, the issue that the levy was only for the services rendered within the country, and not for the services rendered in a foreign country stands clarified by this Circular also. Reference may also be made to the Letter F. No. 354/11/2011-TRU dated 22.03.2011, issued by the Government of India, Ministry of Finance, whereby certain clarification on applicability of Service Tax on overseas Trade Fairs/Exhibition under ‘Business Exhibition Services’ has been issued. It has been noted that organizing a business exhibition involves three activities viz. (a) hiring of premises outside India, (b) arranging/coordinating installation of stalls and (c) renting of stalls to Indian Exhibitors. The first two activities are the services received by CII from outside India and third activity is service provided by CII within India. It is further provided that the first two activities are services performed entirely outside India and thus will not qualify for taxation as per Taxation of Services (Provided from Outside India & Received in India) Rules, 2006, being Category I and Category II services respectively. Whereas, the third activity is service provided by CII to Indian Exhibitors to participate in exhibition held abroad and does not qualify as export as the consideration is not received by CII in convertible foreign currency as provided under Rule 3(2)(b) of the Export of Services Rules, 2005. Therefore, in light of this clarificatory letter issued by the Department, it is clear that the activities undertaken by their distributor being similar to activities as described in clause (a) and (b) therein, were performed entirely outside India.

20.11 M/s. Freshtrop also contended that provision of Rule 3 sub rule (ii) of Taxation of Services (Provided from outside and received in India) Rules, 2006, which has been introduced vide Notification No. 11/2006 dated 19.04.2006 provides that the taxable services provided from outside India and received in India, in relation to "Clearing and Forwarding Agent's Services" shall be services as are performed in India. Further the proviso to the said sub rule also provides that if such services are partly performed in India then it shall be treated as the same have been performed in India. The services of their overseas distributors in the present case have been rendered only in foreign countries and therefore, the question of them being the deemed service provider under the provision of said Rules would not even arise. Therefore, proceeding on the assumption that they have provided Clearing and Forwarding Agent's Services, is evidently baseless as the Department has committed an apparent mistake by categorizing the alleged services under the wrong sub-rule of Rule 3 of the said Rules thereby, being under the impression that they as service recipient, were liable for discharging service tax liability for receiving services which have been entirely performed in the foreign country. Hence, the proposals leveled

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against them on the basis of such blatant mistakes are clearly without any justification or jurisdiction, and hence, they deserve to be withdrawn on this ground as well.

20.12 M/s. Freshtrop further submitted that the entire situation is evidently revenue neutral as any amount of service tax recovered from them under the provision of Section 66A will be simultaneously available to them as refund under the scheme of Notification No. 17/2009 dated 07.07.2009 and Rule 5 of Cenvat Credit Rules. The said notification provides exemption to taxable services specified therein received by an exporter of goods and used for export of goods from whole of service tax leviable thereon under Section 66 or 66A of the Finance Act. Whereas, serial no. 15 to the said Notification provides for services provided by a clearing and forwarding agent in relation to export goods exported by the exporter. This being the case, the entire situation is clearly revenue neutral and as such no financial loss would be caused to the department in the present case.

20.13 M/s Frestrop also contended that the Revenue has acted without jurisdiction in demanding service tax from them though the entire transaction is even otherwise revenue neutral. If they had to pay service tax, then they were eligible for the refund of the amount paid as service tax because the said services were included under the purview of Notification No. 17/2009 and Rule 5 of the said Rules. Therefore, no proceedings are required to be initiated against them in view of revenue neutrality as held by the Hon’ble Supreme Court in cases like Narmada Chematur Pharmaceuticals Ltd., as reported in 2005 (179) ELT 276 (S.C.) and CCE, Pune V/s Coca-Cola India Pvt. Ltd., as reported in 2007 (213) ELT 490 (SC) and also by the Appellate Tribunal in cases like SRF Ltd. - 2007 (81) RLT 479, PTC Industries Ltd. – 2003 (159) ELT 1046 and Reliance Industries Ltd. – 2009 (244) ELT 253 (paras 21, 34 and 35 of the decision); and in view of the matter also, the entire proceedings against them is wholly unjustified.

20.14 M/s. Freshtrop also submitted that the Hon'ble Supreme Court has held in cases like Narmada Chematur Pharmaceuticals Ltd. (supra) and CCE, Pune V/s Coca-Cola India Pvt. Ltd. (supra) and also by the Tribunal in cases like SRF Ltd. (supra, PTC Industries Ltd. (supra) and Reliance Industries Ltd. (supra) that the Revenue cannot initiate proceedings for recovery of duty / tax when the transaction was Revenue neutral, and therefore the proceedings initiated against them is not at all permissible in the facts of this case. The demand made against them notwithstanding the Revenue neutrality is therefore illegal and liable to be dropped.

20.15 M/s. Freshtrop also submitted that the invocation of extended period of limitation is also an unjustified action in the facts of this case. As has been sufficiently established herein above, they were under no obligation to have taken any service tax registration as the entire scope of services received were admittedly rendered and performed beyond the territorial limits of India and thereby beyond the purview of Service Tax Legislation. Moreover, in light of the aforesaid fact, it is also clear that the question of them being deemed service provider as envisaged under Section 66A of the said Act, would also not arise. Therefore, under this circumstance, an allegation of suppression on their part with an intention to evade duty is clearly presumptuous and imaginary. Therefore, even on count of limitation, the proceedings initiated against them is clearly time barred and liable to be dropped.

20.16 M/s. Freshtrop also submitted that for invoking extended period of limitation, the Revenue must show that the assessee was guilty of suppression of facts and / or willful misstatement and / or contravention of the provisions of the Act and Rules with intention to evade payment of duty. However, it is not shown in these proceedings as to what was the suppression of facts or willful mis-statement or contravention of the provisions of the Service-tax law on their part and therefore, invocation of extended period of limitation is wholly illegal.

20.17 M/s. Freshtrop also submitted that the transactions have been recorded in their books of account and balance-sheet. The balance-sheet of a company like theirs is a public document because the balance-sheets are filed with various Government agencies including the office of the Registrar of Companies. It is held by the Appellate Tribunal in cases like Hindalco Industries reported in 2003 (161) ELT 346, Kirloskar Oil Engines Ltd.

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Vs. CCE, Nasik reported in 2004 (178) ELT 998 and Martin & Hariss Laboratories Ltd. Vs. Commissioner, reported in 2005 (185) ELT 421 that balance sheet being a public document, when any information was disclosed or recorded in the balance-sheet, then the assessee could not be accused of suppressing the fact because a balance-sheet was a public document open to scrutiny of all and therefore, any information disclosed in a balance-sheet was not a case of suppression of any facts by the assessee. When all the payments made in foreign currency to persons located in foreign countries was declared by them in balance-sheets and the books of account including ledger, the allegation of suppression of facts would even otherwise not be justified. Invocation of extended period of limitation is therefore, illegal and without jurisdiction.

20.18 M/s. Frestrop also submitted that as pointed out above, it is an admitted position of fact that the payment details of commission to their distributor were recorded in their balance sheet which is a statutory document. Since there was no column in the return prescribed by the Government to show details of such payments made in foreign currency to our distributors located abroad separately, we could not have shown such details separately in the returns although details of such payment were duly shown in the books of accounts, and therefore, allegations of suppression of facts could not be raised against them on the ground that details of such payment were not declared in their ST-3 returns. However, as pointed out above, the said details were duly reflected in their statutory documents like the balance sheet which are in the nature of public documents; and hence, there was no suppression of any fact on their part.

20.19 M/s. Frestrop also submitted that what is “suppression” is considered by the Hon’ble Supreme Court in the case of Continental Foundation Jt. Venture Vs. CCE, Chandigarh, reported in 2007 (216) ELT 177 (SC), and it is held by the Hon’ble Supreme Court with regard to the proviso to Section 11A of the Central Excise Act, 1944, which is akin to the proviso to Section 73 of the Finance Act, 1944, that mere omission to give correct information was not suppression of facts unless it was deliberate and to stop the payment of duty. In the previous case like Messrs Jaiprakash Industries Ltd., reported in 2002 (146) ELT 481 (SC) also, the Hon’ble Supreme Court has held that a bonafide doubt as to non-dutiability of goods was sufficient for the assessee to challenge the demand on the point of limitation. Thus, it is a totally settled legal position that extended period of limitation by invoking proviso to the main Section for demanding duty or tax beyond the normal period of limitation would be justified only when the assessee knew about the duty / tax liability and still however, he did not pay the tax and deliberately avoided such payment, and it was only in such a situation where suppression of facts on part of the assessee could be justifiably alleged by the Revenue. However, mere failure in giving correct information would not be a case where the Revenue can invoke extended period of limitation. In fact, the present one is a case where all the facts discussed in the show cause notice issued to us were within the knowledge of the Department right from day one.

20.20 M/s. Freshtrop also submitted that when there is no justification in demand of service tax in this case, the proposals to impose penalty and charge interest are also not sustainable.

20.21 M/s Freshtrop also submitted that the proposal for imposition of penalty is also bad in law inasmuch as there is no violation of any nature committed by them. They have not acted dishonestly or contumaciously and therefore, even a token penalty would not be justified. No malafide intention on their part is also alleged in this notice. There is also no specific reason or ground spelt out in the notice for proposing to impose penalty and thus, penalty could not be imposed on hearsay or presumption. In view thereof, the proposal for imposition of penalty under Sections 77, 70 and 78 of the Finance Act also does not hold any water and hence, it deserves to be dropped.

20.22 M/s. Freshtrop further stated that the proposal of imposing penalties under Sections 76, 70 and 78 of the said act on them is also without jurisdiction because they cannot be penalized under different Sections for the same alleged offence. Since the Constitution of India also prohibits punishing a person more than once for the same offence, proposing penalties on us under different Sections for the same offence is also a

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punishment more than once for the same alleged offence. The proposal to penalize them twice for the same alleged offence is therefore, illegal and liable to be vacated at once.

20.23 M/s. Frestrop also submitted that interest could be levied and recovered only where any service tax had not been levied or paid or had been short levied or short paid or erroneously refunded for the period from the first date of the month succeeding the month in which the service tax ought to have been paid under the Act till the date of payment of such duty. However, firstly there is no short levy or short payment of service tax in this case. Secondly, they have not paid any service tax late as contemplated under the above provision. In this view of the matter, the proposal to recover interest from them under Sections 75 of the said Act does not hold any water.

20.24 M/s. Freshtrop submitted that in the above premises, they requested for withdrawal of the show cause notice as demand of service tax and further proposals for interest and penalty are unsustainable in fact and in law. M/s. Freshtrop also requested for personal hearing before passing any final order on this show cause notice and oblige.

20.25 The personal hearing in the case was fixed on 04/12/2012 which attended by the advocate on behalf of M/s. Freshtrop. During the hearing the advocate reiterated the points made in their defense reply and requested that the case be dropped since rule 3 (ii) of the Taxation of Service (Provided from outside India and received in India) Rules 2006 wherein for clause 105(j) of Section 65 of Finance Act, 1994, states that services should be performed in India in order to be taxable which is not the case here.

20.26 The advocate vide his letter dated 11th December, 2012 has submitted that one more show cause notice bearing F. No STC/4-26/O&A/ADC/12-13 dated 05/10/2012 for the period 2011-2012 has been issued by the Additional Commissioner, Service Tax, Ahmedabad, to them. The issue involved in this 2nd SCN dated 05/10/2012 is similar to the 1st SCN dated 07/10/2011 and the only difference being the period involved in the SCN. Since a full-fledged hearing for the 1st SCN dated 07/10/2011 has already been held on 04/12/2012 and all submissions have been made and no further or additional submissions are to be made in the 2nd SCN dated 05/10/2012 and no personal hearing is required for the 2nd SCN dated 05/10/2012 both the cases be decided simultaneously.

DISCUSSION AND FINDINGS:

21.1 I have carefully gone through the subject show cause notice, the submissions made by M/s Freshtrop vide their defence reply and at the time of personal hearing and the case records.

21.1.1 M/s. Frestrop’s advocate vide his letter dated 11th December, 2012 has submitted that one more show cause notice bearing F. No STC/4-26/O&A/ADC/12-13 dated 05/10/2012 for the period 2011-2012 which is answerable to the Additional Commissioner, Service Tax, Ahmedabad, has been issued to them. The issue involved in this 2 nd SCN dated 05/10/2012 is similar to the 1st SCN dated 07/10/2011 and the only difference being the period involved in the SCN. Since a full-fledged hearing for the 1st SCN dated 07/10/2011 has already been held on 04/12/2012 and all submissions have been made and no further or additional submissions are to be made in the 2nd SCN dated 05/10/2012 and no personal hearing is required for the 2nd SCN dated 05/10/2012 both the cases be decided simultaneously.

21.2 In this regard, I find that CBEC Vide Circular No. 752/68/2003-CX dated 1 st

October, 2003, issued from F. No. 208/27/2003-CX.6 has clarified that all the show cause notices involving the same issue will be adjudicated by the adjudicating authority competent to decide the cases involving the highest amount of duty. Accordingly, in view of the aforesaid CBEC circular, I also take up SCN bearing STC/4-26/O&A/ADC/12-13 dated 05/10/2012 for the period 2011-2012 which is answerable to the Additional Commissioner, Service Tax, Ahmedabad along with the show cause notice bearing F. No. STC / 4 – 59 / O & A / 11 – 12 dated 07/10/2011 .

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22 The basic issues to be decided in the present case are as to a. whether the services provided by foreign based consignment agent / distributer,

fall under the category of “Clearing and Forwarding Agents Services” as defined under Section 65(105) (j) of the Finance Act, 1994

b. Whether M/s Freshtrop are required to discharge service tax liability in terms of Section section 66 A of the Finance Act, 1994, as amended from time to time on the services received by them from foreign based consignment agent / distributer .

23 M/s. Freshtrop are engaged in exporting of fresh pomegranates and grapes from their three units situated in Maharashtra. M/s. Freshtrop procures grapes and pomegranates from Global Gaap certified farmers. Grapes are graded and sorted in fix sizes such as 18 mm, 20mm and 22mm and packed in punnets of 500gms. 10 punnets of 500gm each are packed in one corrugated box. Bar code stickers are fixed as per the buyer’s specific requirement. These fruits are stored in cold storage till they are exported in refrigerated container under seal of Excise Authority. At the destination port the consignment is got released by foreign based consignment agent / distributer such as M/s Olympic Fruits B.V. Netherland after paying the custom duty and freight charges. The goods are warehoused by them and later on sold to the super markets.

23.1 In this regard, I refer to document of account of sales dated 31.03.2010 issued by M/s Olympic Fruit, Netherlands to M/s Freshtrop which is scanned hereinbelow :-

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23.1.1 Perusal of the above document reveals that M/s Olympic Fruit have raised an account of sales document showing sale of Grapes amounting to EUR 27427.50. They have further claimed following deductions :-

Commission 8% EUR 2194.20Sea / Air Freight EUR 2513.29Storage and warehousing EUR 50Import duties EUR 1360Quality costs TNO EUR 290Distribution EUR 800Packing tax EUR 230Advance payment EUR 4 + EUR 0.50 per carton

EUR 10350.00

TOTAL EUR 17587.49

23.1.2 Thus, the total amount to be paid by M/s Olympic Fruit to M/s Freshtrop has been worked out as EUR 9840.01.

23.2 Similarly, I find that in other cases also similar deductions have been claimed by different foreign distributors / commission agents. Thus, it is evident that eventhough there is no written agreement between M/s Freshtrop and foreign based consignment agent / distributer, the foreign based consignment agent / distributer perform the following function for Freshtrop:

a. Warehousing of goods exported by M/s Freshtropb. Providing M/s. Frestrop advance payment of approximately 30% of the sale

value against documents of export. b. Providing M/s Freshtrop the Account sales of the goods sold. c. Charging M/s Freshtrop, commission on the gross sales value d. Remitting the Sales realization collected from the super market.

24. I also find that the expenses shown in their income tax returns are related to the commodities like grapes and pomegranate exported by them to M/s. Olympic Fruits B. V., Netherlands, M/s. International Produce Ltd., U. K., M/s. British & Brazilian Produce Ltd., U. K., M/s. Malet Axoulay {UK} Ltd., U. K., M/s. Carmexco B. V., Netherlands who are their distributers / consignment agents of the above fruits in European countries. The expenses shown under the head of “foreign selling expenses” are the amount paid in foreign currency to their foreign service providers, that is, distributers / consignment agents and the same are towards commission, freight, port handling, storage at port, transportation (in/out), terminal handling, haulage to store, clearance fee, storage and warehousing, distribution, packaging, quality assurance, box end label, quality costs and testing expenses etc incurred by the above distributers / consignment agents and packaging tax paid by the said distributers upon receiving the above fruits at their end. All the above expenses are for services provided by the foreign based distributers / consignment agent. Sales realization is remitted to them by their foreign based distributers / consignment agents after deducting the expenses and commission. These foreign based service providers, that is, consignment agent / distributers carry out all the activities in respect of the goods from its clearance to its storage and to its delivery to the super markets. Thus it can be seen from the above that the clearing & forwarding services can be considered as being rendered by the foreign based agents / distributer of M/s. Frestrop as both the activities of clearance and forwarding are connected and simultaneously done by them.

25. The definition of “clearing and forwarding agent” is given under Section 68(25) of Chapter V of the Finance Act, 1994 and it reads as under:-

"Clearing and Forwarding Agent" means any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent;

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Whereas, the definition of taxable service provided by a “clearing and forwarding agent” is given under Section 65(105)(j) of Chapter V of the Finance Act, 1994 and it reads as under:-

“Taxable Service” means any service provided or to be provided [to any person], by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner;

25.1 It is evident from the above definitions that clearing and forwarding agents are those who provide services relating to the clearing and forwarding operations and are engaged / appointed by manufacturer of goods (both excisable and non-excisable), producers and distributors of goods and also include such agents appointed for agricultural and mineral goods. The levy of Service Tax applies to services rendered by clearing and forwarding agents, who undertake, among other things, services of receipt, warehousing, dispatch, record maintenance and account of goods on behalf of the principal who appoint or engage such agents. Service Tax is payable in respect of the above services.

26. The relevant portion of the Circular bearing File No: B. 43/7/97-TRU, dated 11-7-1997 issued by the CBEC is produced hereinbelow :-

NOTIFICATION F.No. B.43/7/97-TRU Ministry of Finance

Department of Revenue Tax Research Unit

****New Delhi, dated the 11th July, 1997

To All Commissioners of Central Excise and Customs Sir,Sub: Service Tax on Clearing & Forwarding Agents and renta-cab scheme operators. I am directed to invite your attention to Section 88 of the Finance Act, 1997 which, inter-alia, provides for levy of service tax on the services rendered by clearing and forwarding agents and rent-a-cab scheme operators. It has been decided to bring the above services under the service tax net with effect from 16th July, 1997. Notification Nos. 26/97-ST and 27/97-ST, both dated the 11th July, 1997 have been issued in this regard (copies enclosed).

2. CLEARING AND FORWARDING AGENTS

2.1 "Clearing and forwarding agent" has been defined as "any person who is engaged in providing any service, either directly or indirectly, connected with clearing and forwarding operations in any manner to any other person and includes a consigning agent." The taxable service has been defined as "any service provided to a client, by C&F agent in relation to clearing and forwarding agents are engaged/appointed by manufacturer of goods (both excisable and non-excisable goods),

2.2 Normally, there is a contract between the principal and the clearing and forwarding agent detailing the terms and conditions and also indicating the commission or remuneration to which the C&F agent is entitled. A clearing and Forwarding agent normally undertakes the following activites- (a) Receiving the goods from the factories or premises of the principal or his agents; (b) Warehousing these goods; (c) Receiving despatch orders from the principal; (d) Arranging despatch of goods as per the directions of the principal by engaging transport on his own or through the authorised transporters of the principal; (e) Maintaining records of the receipt and despatch of goods and the stock available at the warehouse; (f) Preparing invoices on behalf of the principal

2.3 It has been decided that the person responsible for collecting the service tax in the case of services rendered by a clearing and forwarding agent shall be the person engaging/appointing a clearing and forwarding agent (Notification No. 26/97-service tax refers). It may be noted that unlike in the case of other service tax levies where the service provider is the person responsible for collecting the service tax, in the case of services rendered by the clearing and forwarding agents the service tax liability shall be discharged by the person availing the service so rendered. In order words, the principal who engages a clearing and forwarding agent is the person responsible for collecting and paying the service tax to the exchequer, Commissioners of Central Excise may

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therefore take necessary action accordingly and also make this position clear by issue of suitable trade notice.

2.4 Further under the Finance Act, 1997 the value of taxable service rendered by a clearing and forwarding agent has been defined as the gross amount charged by such agents from the client for the services of clearing and forwarding operations in any manner. However, under service Tax rules it has been provided that the value of taxable service in relation to services rendered by clearing and forwarding agents to a client shall deemed to be the gross amount of remuneration or commission (by whatever name called) paid to such agent by the client engaging such agent (Notification No. 27/97-ST refers).

2.5 For their services rendered, the C&F agent receives commission or remuneration which usually consists of two components:(I) Minimum commission on a flat rate or turnover basis depending on the packages/consignments handled; (II) A variable commission based on performance which is computed on the performance indicators agreed upon between the agent and the principal. This is usually given as a percentage of the turnover. The above two constitute the remuneration or commission paid to the C&F agent by the principal

2.6 In cases where C&F agents engaged for various towns, states or areas are paid only by the regional or the head office of the company appointing such agents, for service tax purposes it would suffice to register only such regional or head office. In such cases the regional office or the head office, as the case may be, should also be required to give an undertaking to discharge the service tax liability.It is evident from the above circular that a clearing and forwarding agent normally undertakes the following activities (a) Receiving the goods from the factories or premises of the principal or his agents; (b) Warehousing these goods; (c) Arranging dispatch of goods as per the directions of the principal by engaging transport on his own or through the authorised transporters of the principal; (d) Maintaining records of the receipt and dispatch of goods and the stock available at the warehouse; (e) Preparing invoices on behalf of the principal. Further, it has been categorically mentioned that in the said notification that any service provided to a client, by C&F agent in relation to clearing and forwarding agents are engaged/appointed by manufacturer of goods (both excisable and non-excisable goods) are taxable.

27 M/s Freshtrop have in their defence reply referred their these foreign based service providers as consignment agent / distributors. In this regard, I refer to the CBEC Circular No.59/8/2003 dated 20.06.2003. The relevant portion of the said circular is reproduced hereinbelow :-

2.1.2 Commission agent:

As per the definition of business auxiliary services, services as commission agent are considered business auxiliary services. However services of commission agents have been exempted from service tax w.e.f. 1st July, 2003 vide notification No.13/2003-Service Tax dated 20th June 2003. Commission agent has been defined in the notification, as a person who causes sale or purchase of goods, on behalf of another person for a consideration, which is based on the quantum of such sale or purchase. It may be noticed that the exemption under this notification is for a commission agent while the services of a consignment agent remain taxable under the category of Clearing and Forwarding services. It may be appreciated that the nature of service provided by a Consignment agent is different than that provided by a commission agent. A consignment agent’s job is to receive the goods from the principal and dispatch them on the directions of the principal, whereas a commission agent’s job is to cause sale/purchase on behalf of another person. Thus, the essential difference is that a commission agent sells or purchases on behalf of the principal while consignment agent receives and dispatches the goods on behalf of a principal. It is possible that a person may be a consignment agent as well as a commission agent. Such a person would already be covered in the category of Clearing and Forwarding agent and would be liable to pay service tax in that category. In other words, the present exemption is available only to such commission agent who is not a consignment agent.

The above circular has clearly spelt out the job of a consignment agent and a commission agent. Further, the said circular also bring out the fact that a consignment

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agent is covered under the category of Clearing and Forwarding Agent and would be liable to pay service tax in that category. The contention of M/s Freshtrop that the amounts paid to the distributors were in the nature of commission for the sales made by them and money collected by them for such sales made to supermarkets in the foreign countries correctly fall under the category of "Business Auxiliary Services" and are exempted under Notification No. 13/2003-ST dated 20.06.2003, as the same were with regards to services undertaken for sale and purchase of agricultural produce, is untenable and therefore rejected. The Government in para 2.1.2 of the Circular No. 59/8/2003, dated 20-6-2003 has clarified that nature of service provided by a consignment agent is different than that provided by a commission agent. It is clarified that exemption to commission agent from the whole of service tax under Notification No. 13/2003, dated 20-6-2003 is not available to consignment agent, which remain taxable under the category of 'clearing and forwarding services'.

28. The aforesaid circulars issued by the Board are binding and meant for adoption for the purposes of bringing uniformity as held by the judgments of Hon'ble the Supreme Court in the cases of Ranadey Micronutrients v. Collector of Central Excise - 1996 (87) E.L.T. 19 (S.C.) and Paper Products Ltd. v. Commissioner of Central Excise - 1999 (112) E.L.T. 765 (S.C.) and so the term 'clearing and forwarding agent' have to be interpreted in the light of the circular. "

29. In view of the above discussion, services provided by the foreign based service providers, that is, distributer / consignment agent to M/s. Frestrop fall under the scope of clearing and forwarding operations since they are engaged in kind of activities which are attributable to clearing and forwarding agent service and thus are taxable to service tax. The amount charged for the aforesaid service is leviable to service tax at the appropriate rate.

30. Now comes the issue of taxability of the services provided by foreign service providers to M/s Freshtrop.

30.1 M/s Freshtrop have during the course of personal hearing requested that the case be dropped since as per Rule 3(ii) of Taxation of Service (Provided from outside India and received in India) Rules, 2006 which contains the services provided by them i.e clause 105(j) of Section 65 of the Finance Act, 1994 as the services were wholly provided outside India. It is not disputed by them that the service provided by the foreign based service providers is covered under Rule 3 (ii) of Taxation of Services (Provided from outside India and Received in India) Rules, 2006 though they have drawn attention to wrong quoting of Rule 3(iii) ibid read with sub clause (zzzq) instead of (j) in Section 65(105) of the Finance Act, 1994 in para 15.1 of the show cause notice dated 07.10.2011. I wish to clarify that the wrong quoting does not vitiate the proceedings since the essence of the allegation in the show cause notice is that the taxable services provided from outside India and received in India shall, in relation to this service, be such services as are performed in India. The first proviso to the said Rule 3(ii) says that where such taxable service is partly performed in India, it shall be treated as performed in India. This means that the services provided by the foreign based service providers to M/s Freshtrop is taxable only if the service is partly or wholly performed in India.In this regard I find that the goods were exported by M/s Freshtrop under the invoices raised in India, in view of which the goods were sold or deemed to have been sold in India. Thus, the title of the goods was transferred in India itself and therefore the service by the foreign based service providers shall be deemed to have been provided in India and thereby taxable.

30.2 Further, the issue of levy of service tax on the recipient of services in respect of the services received from abroad has been settled by the Hon’ble Supreme Court in the case of Indian National Ship-owners Association as reported in 2010 (17) S.T.R. J57 (S.C.) and therefore, this issue is no longer res integra.

30.3 On the subject of applicability of service tax on taxable services provided by a non-resident or a person located outside India to a recipient in India, the CBEC vide its letter F. No. 276/8/2009-CX8A, New Delhi, dated the 26th September, 2011 has clarified that “In view of the judgments of the Hon’ble Supreme Court, the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient

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in India, would arise with effect from 18.4.2006, i.e., the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position.”

30.4 M/s Freshtrop have in their defence relied upon the judgement in the case of M/s Intas Pharmaceuticals Limited V/s Commissioner of Service Tax, Ahmedabad as reported in 2009(16)S.T.R. 748 (Tri-Ahd). The ratio of the said judgement cannot be made applicable in the instant case as in case of M/s Intas Pharamaceuticals Limited the entire service was provided outside India whereas in the present case, as already discussed in para 30.1 supra, a part service was provided by M/s Freshtrop in India.

30.5 In view of the above and in terms of Section 66A of the Finance Act, 1994 read with the Taxation of Services (Provided From Outside India and Received in India) Rules, 2006 and Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, M/s Freshtrop was required to pay service tax on the services provided by foreign service providers to M/s Freshtrop.

31. As regards the issue of revenue neutrality, I find that M/s Freshtrop have claimed the benefit of Notification No.43/2001 (NT) dated 26/06/2001 for procurement of the excisable goods without payment of duty for the purpose of use in the manufacture or processing of export goods and their exportation out of India, to any country. This clearly shows that they have by claiming the benefit of Notification No.43/2001 (NT) dated 26.06.2001 not availed the facility of cenvat credit and since they are into export of agriculture products they have no other items on which they can avail cenvat credit. Hence, their contention that the issue is revenue neutral cannot be entertained. In this regard, Hon’ble CESTAT, West Zonal Bench, Mumbai, in a case involving M/s Forbes Marshall P Ltd Vs Commissioner Of Central Excise, Pune-I as reported in 2013-TIOL-45-CESTAT-MUM has held that

“since it is a revenue neutral situation, tax need not be paid is completely unacceptable - such a proposition cannot stand to any common sense or logic and is rejected outright - tax liability if not discharged in time interest liability is automatic and consequential - penalty issue can be decided at time of final hearing.”

32. The ratio of the above ruling is squarely applicable in the instant case. M/s Freshstrop Fruits Ltd have neither declared the payment particulars in S.T. 3 returns nor paid service tax payable thereon and nor obtained service tax registration for such services. M/s. Frestrop have not declared the nature and value of the taxable service received by them. Thus, M/s Freshtrop attempt in evading payment of service tax and the various penalties under the garb of bona fide belief has no legal panacea for the offence of willful mis-statement or suppression of material facts, which can be cured only by way of demanding duty in accordance with procedure framed in proviso to section 73 (1) of the Act.

33. In view of the above, it was mandatory on part of M/s Freshstrop to discharge their service tax liability under Section 66A and pay the service amounting Rs.4,57,44,054/- on the amount of Rs. 40,21,86,934/- paid by them to their Foreign Service providers for services rendered under the category of “Clearing and Forwarding Agents’ Service” during the period 2006-07 to 2011-12. Since they have not discharged their service tax liability the same is required to be recovered from them with interest.

34. As regards imposition of simultaneous penalty, I place my reliance on the judgment of Hon’ble High Court of Kerala in the case of Assistant Commissioner of Central Excise v. Krishna Poduval as reported at [2006] 3 STT 96 (KER) which is aptly applicable to the present case. I find that the imposition of penalty under sections 76 and 78 of the Act is for non payment of service tax and suppression of value of taxable service respectively which are two distinct and separate offences attracting separate penalties. I find that the said assessee has committed both the offences and therefore penalties under section 76 and 78 of the Finance Act, 1994 are imposable on the said assessee for the period upto 9.5.2008.

35. As regard imposition of penalty under Section 77 of the Finance Act, 1994, I find that since M/s Freshtrop have neither declared the payment particulars in S.T. 3 returns nor paid service tax payable thereon and nor obtained service tax registration for such services they are therefore liable for penalty under Section 77 of the Finance Act, 1994.

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36. Having regard to the facts and circumstances of the case as discussed hereinbefore, I pass the order as follows:

ORDER

(i) The services received by M/s. Freshtrop Fruits Ltd., from their foreign based service providers, that is, distributers / consignment agents, is hereby ordered to be considered as taxable service under the category of Clearing and Forwarding Agent’s Service as defined under Section 65 of the Finance Act, 1994 and the amount of Rs. 40,21,86,934/- (Rs. 35,65,06,709 /- as per 1st SCN dated 07/10/2011 plus Rs. 4,56,80,225/- as per 2nd SCN dated 05/10/2012) paid by them in foreign currency to their foreign based service providers is hereby ordered to be considered as taxable value.

(ii) The Service Tax amounting to Rs. 4,57,44,054/- (Rs. 4,10,38,988/- as per 1st

SCN dated 07/10/2011 plus Rs. 47,05,066/- as per 2nd SCN dated 05/10/2012) is confirmed and ordered to be recovered from them under the proviso to Section 73 (2) of the Finance Act, 1994 under the category of Clearing and Forwarding Agent’s Service, as discussed herein above (sr.no. i)

(iii) Interest at the appropriate rate on the amount of their service tax liability amounting to Rs. 4,57,44,054/- as mentioned herein above is ordered to be recovered from M/s. Freshtrop under Section 75 of the Finance Act, 1994 for the delay in making the payment.

(iv) In respect of 1st SCN dated 7.10.2011, I hereby impose Penalty under Section 76 of the Finance Act, 1994 of two hundred rupees, for every day during which such failure continued or at the rate of two per cent of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax for the failure to make the payment of Service Tax payable by them within prescribed time limit; the total amount of the penalty payable in terms of this section shall not exceed the service tax payable for the period up to 09/05/2008.

(v) In respect of 2nd SCN dated 5.10.2012, I hereby impose penalty under section 76 of the Finance Act, 1994, of Rs.100/-, for every day during which such failure continued or at the rate of 1% of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax for the failure to make the payment of Service Tax payable by them within prescribed time limit; the total amount of the penalty payable in terms of this section shall not exceed 50% of the service tax payable for the period.

(vi) I hereby impose Penalty under Section 77 of the Finance Act, 1994 amounting to Ten thousand Rupees or two hundred rupees for every day during which such failure continued, whichever is higher, starting with the first day after the due date, till the date of actual compliance; in as much as they failed to get themselves registered under the category of “Clearing and Forwarding Services” and have also failed to file the ST-3 returns in contraventions with the provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder

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(vii) I hereby impose Penalty under Section 78 of the Finance Act, 1994 amounting to Rs. 4,10,38,988/- (Rupees four crores ten lakhs thirty eight thousand nine hundred eighty eight only). In the event of M/s. Freshtrop opts to pay the amount of service tax along with all other dues as confirmed and ordered to be recovered, within thirty days from the date of communication of this order, the amount of penalty liable to be paid by them under Section 78 of the Finance Act, 1994 shall be 25% of the said amount. However, the benefit of reduced penalty shall be available only if the amount of penalty is also paid within the period of thirty days from the communication of this order; otherwise full penalty shall be paid as imposed in the above order.

(Tejasvini P. Kumar)Commissioner,

Service Tax,Ahmedabad.

BY REGD. POST A.D.F.NO.STC/4-59/O&A/11-12 Date : 22/03/ 2013

To,M/s. Freshtrop Fruits Ltd.,A – 603, Shapath VI, S. G. Road,Ahmedabad - 380015.

Copy to:1. The Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone,

Ahmedabad.2. The Assistant Commissioner, Division-II, Service Tax, Ahmedabad.3. The Superintendent, Service Tax, Range-VI, Div-II, Ahmedabad.4. Guard File.

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