K.K. Bhatia, Technical Member - 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 their agent. The clauses 5, 6 and 7 of the agreement dated 12-10-1989 entered into by the appellants with M/s. Ratna Zarda Company stipulated that in consideration of the service rendered by the agent, the principal shall pay a commission at the rates mentioned in the schedule to the 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 9-2-1999 by the Assistant Commissioner of Central Excise, Muzaffarpur alleging that they had contravened the provisions of sections 68, 69 and 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 and 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 from 16-7-1997 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 sections 76 and 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 81(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.The ld. counsel for the appellants submits that no service tax is liable to be imposed in the present case since M/s. Ratna Zarda Company is 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 29-7-1997 issued by the 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 despatc