By Vinay Jain, Chartered Accountant

1. Business Auxiliary Services – Whether brokers fall under the definition of commission agents?

The appellant is a finance broker and has empanelled a number of financiers. On being approached by borrowers, the appellants make available the details of offerings of these brokers. After the potential borrower and potential financier settled the terms of the loan, the appellant issues a memo of interest which contains an amount of commission/brokerage to be paid to the appellant. Demand under the category of “Business Auxiliary Service” has been confirmed against the appellant for the period 2005-06 to 2009-10.

The adjudicating authority concluded that the appellants were agents rendering services covered by Section 65(19)(vii) of the Finance Act, 1994 and referred to Circular no. 87/05/2006-ST to opine the same.

The appellant placed reliance on the Delhi Tribunal’s decision in Interocean Shipping Co. 2013 (30) STR 244 (Tri-Delhi) to contend that brokers are not agents acting on behalf of either party. The Revenue argued that the activity of the appellant furthers the business of the financier as an accessory to the negotiations and placed reliance upon the decision of CCE v Sanfin 2009 (19) STT 107 (CESTAT).

The Tribunal held that the appellant’s activities could not fall under section 65(19)(vii) as there is no contract with the appellants nor any responsibility upon them in the event of default. Further, the Tribunal rejected the adjudicating authority’s reliance on the aforementioned circular and held that even if the appellant’s activities benefit the empanelled financiers the appellant does not receive consideration from them, which is a requirement under the definition of “commission agent”. The Tribunal has also held that the appellants receive the consideration from the borrower, who does not have a product or service to place in the market. Thus, the consideration is not connected with the sale of a product or service belonging to the person who makes over the consideration.

Fulchand Tikamchand v. CCE Nagpur, decision of 15.02.2016 in Appeal No. ST/541/11-MUM


2. Whether a composite contract can be vivisected so as to impose service tax on service portion prior to 2007?

The appellants undertook construction of power lines for the Maharashtra State Electricity Transmission Company Ltd. (MSETCL) under contract entered into 08.05.2006. The project was a turnkey project in accordance with a composite contract. The appellants discharged service tax on the project however MSETCL refused to reimburse the same as the contract, being a composite contract, is beyond the scope of service tax.

The appellants filed refund claims which were rejected on the ground that the appellants had provided services classifiable under “erection, installation and commissioning service”.

The appellants argued that the composite contract could not be vivisected into labour and supply parts on the basis of invoices issued. They further argued that the project was a turnkey project and not susceptible to segregation.

The Tribunal relied upon the decision of CCE, Vadodara v. Larsen & Toubro 2006 (4) STR 63 (T) and concluded that the terms of the contract were indivisible, thus, ruling in favour of the appellants.

Richardson & Cruddas (1972) Ltd. v. CCE, Nagpur, decision of 02.02.2016 in Appeal No. ST/187/09-Mum


3. Foreign located Commission Agents – Can Cenvat credit be availed in view of Notification 18/2009-ST?

The appellant is engaged in the manufacture of nickel catalyst and other catalyst and are selling their products to customers located outside India. The appellant appoints commission agents located in foreign territory under a written agreement to promote the sale of product and procure orders for the appellant. Accordingly, the appellant is paying service tax on reverse charge and availing Cenvat credit of service tax paid on input services.

The department raised an objection to the availment of credit on the ground that the services of commission agents became exempt vide Notification No. 18/2009-ST dated 7.7.09 and therefore sought to recover wrongly availed Cenvat credit.

The appellant argued that by the aforementioned notification, the exporter could either claim exemption by way of refund or avail Cenvat credit, there being no bar in the notification. Further, the appellants manufactured the goods after the order was received from such commission agents.

The Tribunal held that the services of the foreign commission agents would constitute input services and Cenvat credit was rightly availed. The Tribunal agreed with the appellant’s arguments that Notification 18/2009-ST provided an option to the exporter to claim refund or avail credit.

Monarch Catalyst Pvt. Ltd. v CCE, Thane-I, decision of 5.1.2016, in Appeal No. E/86768/13-Mum


(Note : Whole decision can be downloaded from CTC‘s website : under Knowledge| Center Menu)

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