Service Tax on Gold Coin Sales Treated as Trading, Not Consignment Agent Service: CESTAT Bangalore Analysis

Background of the Dispute

The matter in South Indian Bank Vs Commissioner of Central Excise and Service Tax (CESTAT Bangalore) arose from a substantial service tax demand of ₹1,56,46,660 along with interest and penalties under Section 77 and Section 78 of the Finance Act, 1994.

The core controversy:

  • Whether South Indian Bank, in connection with import and sale of gold coins/bullion between September 2011 and March 2014, was functioning as a “Consignment Agent” or “Clearing and Forwarding Agent”, thereby rendering taxable services; or
  • Whether the bank was merely trading in goods on its own account, with no service element liable to service tax.

The Commissioner, through Order-in-Original No. CAL-EXCUS-000-COM-010-15-16 dated 25.08.2015, confirmed the service tax liability and imposed penalties. The assessee challenged this order before the CESTAT, Bangalore.

Revenue’s Stand: Consignment / C&F Agent Services

Allegations by the Department

The Revenue treated the arrangement as a classic consignment-based import and argued that:

  • The assessee imported gold coins on consignment basis from its foreign principal in Switzerland.
  • The gold coins were sold in India through the bank’s branches.
  • The assessee retained a margin, being the difference between:
    • Sale value of gold coins, and
    • Aggregate of cost of gold, customs duty, and premiums at various import stages.
  • This margin was characterized by the Department as consideration for services rendered as a consignment agent / Clearing and Forwarding Agent.

Classification and Reliance on Judicial Precedent

The Department argued that:

  • The arrangement fits within the pre-negative list definition of “Clearing and Forwarding Agent”, which covers consignment agents.
  • The assessee, by importing and disposing the goods on consignment, was acting for and on behalf of the foreign supplier.
  • Reference was made to M/s. Coal Handlers Pvt. Ltd.: 2015 (38) STR 897 (S.C.) to support the proposition that where the essential features of clearing and forwarding services are present, service tax is attracted.

Suppression and Extended Period

The Department further contended that:

  • The assessee did not disclose in its ST-3 returns the detailed breakup of:
    • Cost of gold
    • Customs duties
    • Premiums and other components relevant for arriving at the margin
  • Such non-disclosure was treated as suppression of material facts, allegedly justifying:
    • Invocation of the extended limitation period, and
    • Imposition of penalties under Section 77 and Section 78 of the Finance Act, 1994.

Assessee’s Arguments: Pure Trading, Not Service

Nature of Activity: Purchase and Sale on Own Account

The assessee contended that its operations were fundamentally those of a trader in gold coins, not an intermediary:

  • It was purchasing and selling gold coins in India through its branches.
  • It was not acting as an intermediary between any buyer and overseas seller.
  • Under the relevant agreement dated 18.05.2011, the assessee claimed:
    • It was dealing with the goods in such a way that it effectively sold on its own account, and
    • It did not merely facilitate sales on behalf of the foreign supplier.

Thus, according to the assessee, its role could not be equated with that of a consignment agent or Clearing and Forwarding Agent.

Position Under Pre-2012 and Post-2012 Regimes

The assessee drew a distinction between two legal phases: