Premium Earned from Transfer of Sugar Export Quota Not Taxable as Service: CESTAT Holds Transaction is Sale of Goods, Not BAS [Read Order]
The tribunal held that transfer of export quota constitutes sale of goods and no taxable service was rendered in such transactions
The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that the premium received from transferring sugar export quota cannot be taxed under Business Auxiliary Service (BAS), as the transaction constitutes a sale of goods and not a taxable service.
Shahabad Co-operative Sugar Mills Ltd. (appellant) challenged a service tax demand of ₹17,21,846 raised for the period 2008-09 to 2012-13. The demand was based on the department’s contention that the premium collected by the sugar mill for transferring export quota allotted by the Directorate of Sugar amounted to consideration for providing taxable services.
During the audit, authorities alleged that the appellant had received the premium in lieu of facilitating the export of sugar and should have discharged service tax under the category of Business Auxiliary Service. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld the decision. Therefore, the appellant approached the CESTAT.
The counsel for the appellant argued that the quota transfer was purely a commercial sale of rights, and no service element was involved. The counsel highlighted that premium represented consideration for transferring a government-granted privilege, which falls under the ambit of “goods” as defined in law.
The appellant relied on earlier judicial precedents which clarified that licenses and quotas having intrinsic commercial value are treated as “goods” capable of being bought and sold in the market.
On the other hand, the counsel for the department defended the demand and stated that such transactions indirectly support business activities of other sugar units and therefore fall under BAS. It was argued that the premium represented commission income derived from facilitating export of sugar, attracting service tax liability.
The Bench, comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), referred to binding Supreme Court rulings which held that tradeable licenses such as REP/DEPB licenses are goods due to their inherent value and free transferability. The Tribunal observed that sugar export quotas similarly possess intrinsic value independent of any underlying service.
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Quoting from the earlier decision in UNN Sugar Complex, the tribunal observed “The transaction in question regarding sale of rights and privilege of export of sugar quota is sale of goods and no service is involved.”
Since the legal position was already settled, the tribunal set aside the service tax demand and allowed the appeal in full.
The tribunal concluded that transfer of export quota constitutes sale of goods and no taxable service was rendered in such transactions. The tribunal held that service tax demand raised under Business Auxiliary Service was unsustainable. The appeal was allowed and the demand was quashed.
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