2002 (2) TMI 4 - AT - Service Tax

Service Tax Clearing and Forwarding agent (1) Scope of services (2) Validation of act

Summary

Issues:
The issues involved in the judgment are the confirmation of demand against M/s. Prabhat Zarda Factory under Section 72 of the Finance Act, 1994 for Service Tax, imposition of penalties on the company and its director, and the interpretation of the role of M/s. Ratna Zarda Company as a clearing and forwarding agent.

Confirmation of Demand and Penalties:
The Commissioner of Central Excise, Patna confirmed a demand of Rs. 18,99,027.97 against M/s. Prabhat Zarda Factory for Service Tax and imposed penalties on the company and its director, Mr. Pradeep Kumar Arya. The appellants contested that the services provided did not fall under the category of clearing and forwarding agent services, and initially argued that the receiver of the commission should be liable for Service Tax. However, the Commissioner upheld the demand and penalties, leading to the appeal before the Tribunal.

Role of M/s. Ratna Zarda Company:
The main contention was whether M/s. Ratna Zarda Company (RZC) acted as a clearing and forwarding agent for M/s. Prabhat Zarda Factory. The appellants argued that RZC's role was limited to assisting in procuring orders and improving market conditions, and did not involve typical clearing and forwarding activities as defined by the Mumbai Commissionerate's Trade Notice. However, the Tribunal held that the definition of a clearing and forwarding agent is broad and includes any person providing services connected with clearing and forwarding operations, directly or indirectly. As RZC procured orders and received commission for services related to the tobacco products manufactured by M/s. Prabhat Zarda Factory, the Tribunal concluded that RZC was indeed a clearing and forwarding agent, making the services taxable.

Fresh Show Cause Notice and Penalties:
The appellants argued that a fresh show cause notice should have been issued after the amendments in the Service Tax Rules through the Finance Bill, 2000. However, the Commissioner relied on Clause 113(1) of the Finance Bill, 2000, which validated actions taken under the Service Tax Rules from a specific period. The Tribunal upheld the validity of the show cause notice issued earlier. Regarding the personal penalty imposed on Mr. Pradeep Kumar Arya, the Tribunal found no justification for a separate penalty in addition to the penalty already imposed on M/s. Prabhat Zarda Factory, thus setting aside the penalty on the Director.

In conclusion, the appeal filed by M/s. Prabhat Zarda Factory (India) Ltd. was rejected, while the appeal filed by Mr. Pradeep Kumar Arya, Director of the company, was allowed.