Pranav B Prem

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has set aside the service tax demands raised on Glenworth Estate Ltd. for commission paid to foreign agents for facilitating the sale of black tea. The Tribunal held that black tea retains the essential character of agricultural produce, and therefore, commission paid for promoting its sale is exempt from service tax under the Finance Act, 1994. The ruling provides substantial relief to tea exporters who routinely engage foreign commission agents to market tea in overseas markets.

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The matter was heard by Hon’ble Shri M. Ajit Kumar (Technical Member) and Hon’ble Shri Ajayan T.V. (Judicial Member). The appeals arose from two proceedings in which the Revenue had demanded service tax of ₹63,115 and ₹83,823 respectively, along with interest and penalties, on the allegation that commission paid to foreign agents was chargeable to tax under Business Auxiliary Services, read with Notification No. 30/2012.

During investigation, the Department took the view that the conversion of green tea into black tea — involving steps such as withering, fermentation, drying, and heating — amounted to "manufacture," thereby stripping the product of its status as agricultural produce. The Commissioner (Appeals) accepted this position and upheld the demand, leading the assessee to file the present appeals before the Tribunal.

The appellant argued that black tea continues to be agricultural produce because the processing involved does not alter its essential character. They relied on CBEC Circular No. 143/12/2011-ST dated 26.05.2011, which clarified that processes like roasting, drying, shelling, and peeling of agricultural produce such as cashew do not take it outside the scope of agricultural produce so long as the essential characteristics remain intact. They also placed strong reliance on the Tribunal’s Final Order No. 40350/2023 in the appellant’s own case, wherein it was conclusively held that conversion of green tea into black tea does not change its essential nature. The appellant also contended that foreign commission agents render services outside India and no part of the service is performed within Indian territory, making the transaction non-taxable as an export of service. In addition, they submitted that the entire exercise was revenue-neutral because any tax paid would have been available as credit and ultimately refundable.

The Revenue defended the impugned orders but could not rebut the binding precedent cited by the appellant nor the Department’s own circular favouring the assessee’s stand.

The Tribunal observed that Section 65B(5) of the Finance Act defines “agricultural produce” as a product that retains its essential characteristics despite processing. It further noted that Section 66D(vii) places services provided by a commission agent for sale or purchase of agricultural produce under the negative list. Relying on the earlier decision in the appellant’s own case and the binding CBEC circular, the Tribunal emphatically held that the basic nature of tea remains unchanged even after the processing into black tea. The bench remarked that “even the processes involved in converting green tea into black tea do not alter the essential characteristic of tea as such,” making it squarely fall within the statutory definition of agricultural produce.

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Once black tea was held to be agricultural produce, the Tribunal concluded that commission paid for its sale automatically qualified for exemption under the negative list, and the charging provisions of service tax could not apply. Consequently, the Tribunal set aside the demands in full and granted consequential relief. The demands for interest and penalties were also quashed. This ruling reinforces legal clarity for the tea industry, confirming that black tea — despite undergoing standard processing — continues to be treated as agricultural produce for service tax purposes, shielding related commission payments from tax.

Appearance

Shri T.R. Ramesh, Advocate for the Appellant

Shri M. Selvakumar, Authorised Representative for the Respondent

Cause Title: Glenworth Estate Ltd. V. Commissioner of GST & Central Excise

Case No: Service Tax Appeal No. 40031 of 2018

Coram: Hon’ble Shri M. Ajit Kumar (Technical Member), Hon’ble Shri Ajayan T.V. (Judicial Member)