Per Archana Wadhwa :

Both the appeals are being disposed of by a common Order as they arise out of the same impugned Order of Commissioner of Central Excise, Patna vide which he has confirmed demand of Rs. 18,99,027.97 against M/s. Prabhat Zarda Factory (India) Ltd. under the provisions of Section 72 of the Finance Act, 1994 as Service Tax and has imposed penalties upon the said appellants. In addition, penalties have also been imposed on the second appellant, Mr. Pradeep Kumar Arya who is director of M/s. Prabhat Zarda Factory.

2. The appellants, M/s. Prabhat Zarda Factory, are engaged in the manufacture of tobacco product. The said appellants entered into an agreement dated 25.10.89 with M/s. Ratna Zarda Company (hereinafter referred to as RZC), appointing the said M/s. RZC as an agent of M/s. Prabhat Zarda Factory. As per the terms of the said agreement, M/s. RZC was appointed as agent for the purpose of marketing the appellants' product and for the function of booking of orders, managing, supervising and developing of the market. The said M/s. RZC was also to act as the appellants' attorney to demand, to sue, to recover, to receive and to give effectual receipts for all sums which may be due from any person or persons for or on account of goods sold by the Principal. In consideration of the services rendered by the said agent M/s. RZC, the appellant, M/s. Prabhat Zarda Factory was to pay commission at the rates mentioned in the scheduled to the contract on the net sale proceeds of the orders received through the agent and executed by the Principal. The agent was to maintain complete records of market survey condition and market position of the orders booked by him and will keep watch over dealer appointed by the Principal.

3. That the appellants were issued show-cause notice dated 9.2.99 alleging that as the appellants M/s. Prabhat Zarda Factory was availing services of M/s. RZC who were working as 'Clearing and Forwarding Agent' on commission basis, M/s. Prabhat Zarda Factory was liable for payment of Service Tax. Accordingly, the notice proposed to confirm Service Tax against M/s. Prabhat Zarda Factory for the period 16.7.97 to 31.10.98 as also for the period November 1998 onwards along with interest on late payment of Service Tax under the provisions of Section 75 of the Finance Act, 1994. The Notice also proposed imposition of personal penalty upon both the appellants.

4. The appellants took a stand before the adjudicating authority that the Service rendered by M/s. RZC does not come under the purview of clearing and forwarding agent and the same is entirely different. As such, the question of payment of Service Tax does not arise. Initially, they also took a stand that it is the receiver of the commission who was to pay Service Tax on the quantum of commission received by him and they cannot be made liable to pay the same. However, during the course of personal hearing, they contended that after the amendments in Service Tax Rules through the Finance Bill, they should have been issued a fresh show-cause notice. During the course of personal hearing before Commissioner they filed figures of the value of sales effected through their agent and the amount of commission paid by them during the period 1.11.98 to 31.8.99.

5. After considering the submissions made by the appellants, the Commissioner did not find favour with the same and confirmed the amount of Rs. 18,99,027.97 as Service Tax not paid by the appellants. In addition, he imposed personal penalties upon them under the various Sections of the Finance Act. The said order of the Commissioner is impugned before us.

6. Shri K. Narasimhan, ld. Advocate appearing for the appellants, has mainly contended that the adjudicating authority has erred in holding M/s. RZC as clearing and forwarding agent for the appellants. Shri Narasimhan submits that the terms and conditions of the agreement between the two show that M/s. RZC was to only help the appellants in procurement of o