1. The appellants, M/s Prabhat Zarda Factory, Muzaffarpur, manufacture tobacco products. For the marketing of these products, they engaged the services of M/s Ratna Zarda Company as t heir Agent. The Clauses 5, 6, & 7 of the agreement dated 12.10.89 entered into by the appellants with M/s Ratna zarda Company stipulated that inconsideration of the service rendered by the Agent, the Principal shall pay a commission at the rates mentioned in the scheduled to he contract on the net sale proceeds on the orders received through the Agent and executed by the Principal; that the publicity and sale promotion activities for promoting the market of the products will be done by both the Principal and the Agent independently and by mutual agreement a portion of the expenditure on publicity and sale promotion activities by any party may be reimbursed by the other party. The agreement further stipulated that the Agent shall maintain complete records of market survey conditions of market, position of the orders booked by him and will keep watch over dealers appointed by the Principal.
2. The appellants, M/s Prabhat Zarda Factory and Shri Pradeep Kr.Arya, Director of the Company, were issued a show-cause notice dated 9.2.99 by the Assistant Commissioner of Central Excise, Muzaffarpur alleging that they had contravened the provisions of Sections 68, 69 & 70 of Chapter V of the Finance Act, 1994 and the Service Tax Rules, 1994 inasmuch as they had not got registered under Section 69 of the Act in respect of the 'Clearing the Forwarding Agent'. It is further alleged that they have failed to collect and deposit Service Tax amounting to Rs.11,46,518.97 leviable on them for the period 16.7.97 to October, 1998 and further that they had failed to furnish quarterly return in form ST-3 to the Central Excise Officers under Section 70 of the Act.
They were, therefore, called upon to show-cause as to why the Service Tax of the aforesaid amount should not be demanded and recovered from them under Section 76 of the Act together with the interest on the delayed payment and why the penalty should not be imposed on them under Section 76 & 77 of Part V of the Act.
3. On considering the reply of the noticee parties, the Commissioner of Central Excise, Patna vide his order dated 13.12.2000 confirmed the demand of Rs.18,99,027.97 on M/s Prabhat Zarda Factory, Muzaffarpur under Section 72 of the Finance Act, 1944. He further imposed a penalty of an equivalent amount on them for their failure to collect and pay the Tax. He also imposed a penalty of equivalent amount on Shri Pradeep Kumar Arya, Director of the Company under Section 84 (2) of the Act for his wilful neglect and connivance for not collecting and paying the Service Tax.
4. The present appeals and stay petitions are against the above order of the Commissioner. The stay petitions filed by the appellants are listed today for hearing. We have heard Shri K.Narasimhan, Advocate and Shri K.K.Banerjee, Advocate for the appellants and Shri V.K.Chaturvedi, SDR for the respondent. Ld.Counsel for the appellants submits that no Service Tax is liable to be imposed in he present case since M/s Ratna Zarda Company are appointed by the appellants only for collecting the orders from the potential buyers and they are in no way concerned either with the sale or delivery of the goods to the buyers. It is stated that the goods are delivered directly from the premises of the appellants to their buyers. It is further contended that in terms of the Trade Notice dated 29.7.97 issued by Patna Commissionerate, a clearing and forwarding Agent is only the one who undertakes the activities such as, receiving the goods from the factories or premises of the Principal or his Agent, Warehousing of these goods, receiving despatch orders from the principal, arranging despatch of goods as per the directions of the principal, maintaining records of the receipt and despatch of goods and preparing invoices on behalf of the principal. It is contended that M/s Ratna Zarda Company in the present are do not render any of these services to the appellants in order to fall within the mis-chief of the provisions of the Section 68 (1) of the Act for the purposes of levy of Service Tax. I is further contended that the provisions relating to the collection of the Service Tax from the persons other than clearing the forwarding Agent, under the Service Tax Rules have since been struck down by the Hon'ble Supreme Court in eh case of Laghu Udyog Bharati v. Union of India in Writ Petition No.53/98 and, therefore, the appellants cannot be made liable to pay the Tax. It is stated that even the retrospective amendment of the Finance Act, 1994 by Section 117 of the Finance Act, 2000 would not revalidate the action under Service Tax Rules since this Section revalidates the actions taken under the provisions of the Act of 1994 with retrospective effect and not those taken under the provisions of the Rules. The ld.Counsel for the appellants however does not plead any financial hardship.
5. We have carefully considered the submissions made before us. The revelant clauses of the agreement entered into by the appellants, M/s Prabhat Zarda Factory with their agent, M/s Ratna Zarda Factory are already summerised in the opening para of this order. These clauses clearly stipulates the payment of commission to the agent on the orders received through this. It is also stipulated that the gent shall partake in the activity of promoting the marketing of the products and the sale promotion. The agent under the agreement is also enjoined upon to maintain complete records of market survey conditions an the position of the orders booked by him and further will keep watch over the dealers. In the face of these conditions in the agreement, the appellants cannot prima-facie held to be arguing that M/s Ratna Zarda Company are not their clearing the forwarding Agents. Further, we also prima facie find no force in the submissions that Section 117 of the Finance Act, 2000 does not revalidate the proceedings already initiate under the Service Ta Rules, 1994 with retrospective effect. In this view of the mate, the appellants have not been able to make out a prima-facie casein their favour. We however agree with the submissions that the Commissioner has acceded his authority in confirming the demand of Rs.18,99,027.97 on the appellants as against the demand of Rs.11,46,518.97 raised in the show-cause notice. Keeping all these facts in views, we direct the appellants, M/s Prabhat Zarda Factory to make a predeposit of Rs.10,00,000/- (Rupees ten lakhs only) as part of the duty within period of six weeks from today. On making such deposit, the balance amount of the duty and the penalty imposed on them and Shri Pradeep Kumar Arya, Director of M/s Prabhat Zarda Factory, shall stand waived and their recovery stayed till the disposal of the appeals.
6. The matter shall be called for reporting compliance on 31.10.2001 and the appeals will also be heard on the same day.