Profit Margin on Sale of Imported Gold Bullion Not Taxable as ‘Consignment Agent’ Service: CESTAT

The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that profit margins earned by a bank from the sale of imported gold bullion cannot be subjected to service tax by treating such activity as “Consignment Agent Services.” The bench of P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) has observed that where no service is rendered to the foreign supplier and no consideration is received for such service, the transaction cannot be brought within the service tax net merely because the bank retains a trading margin. The dispute arose from proceedings initiated against a banking institution engaged in providing banking services and importing gold bullion on a consignment basis under RBI Master Circular No. 7/2011-12 dated July 1, 2011. Under the arrangement, the imported gold remained in the bank’s vaults and was sold later to customers. Following such sales, payment would be made to the supplier, while the difference between the sale price and the import price was retained by the bank as its profit margin. The department treated this retained amount as “commission” earned by the bank for acting as a consignment agent of the foreign supplier. Based on this interpretation, the Commissioner had confirmed service tax demand along with interest and imposed penalties under Sections 76, 77 and 78 of the Finance Act, 1994. Before the Tribunal, the bank argued that the trading margin arising from sale of imported gold could not be classified as consideration for a taxable service. It contended that its activities did not satisfy the legal definition of “Clearing and Forwarding Services” or that of a consignment agent. The appellant further relied on earlier Tribunal decisions, including Indian Overseas Bank v. Commissioner of Central Excise & Service Tax and B.K. Sales Corporation v. Commissioner of Central Excise, where similar issues had already been examined. The Revenue, however, defended the Commissioner’s findings and argued that the profit earned by the bank represented consideration attributable to services rendered in connection with the consignment arrangement. While examining the issue, the Tribunal referred to its earlier decision in South Indian Bank v. Commissioner of Central Excise and Service Tax, Calicut, where an identical issue had been considered. In that matter, the Tribunal had analyzed the terms of the consignment agreement and observed that ownership of the precious metals continued with the supplier until actual purchase and payment by the consignee. It further noted that the bank merely sold the imported gold and subsequently settled accounts with the supplier according to the contractual terms. The Tribunal emphasized that the transaction structure showed no element of service being rendered by the bank to the supplier. Rather, the bank was engaged in a commercial activity of selling imported gold and retaining a profit margin. It observed that profit arising from a sale transaction could not automatically be treated as taxable consideration for a service. The Bench also noted that no separate payment or consideration was received by the bank from the foreign supplier for any alleged consignment activity. The Tribunal concluded that merely because the definition of “Clearing and Forwarding Agency” includes a consignment agent, the activity in question would not become taxable unless the essential ingredients of a service relationship and consideration existed. Since such ingredients were absent, the Tribunal found no basis for sustaining the service tax demand. The CESTAT set aside the impugned order and allowed the appeal, bringing relief to the banking sector in relation to service tax exposure on profit margins arising from consignment-based gold import arrangements. Case Details Case Title: Federal Bank Ltd. Versus The Commissioner of Central Excise Citation: JURISHOUR-1423-CES-2026(BANG) Case No.: Service Tax Appeal No. 21691 of 2015 Date: 25.05.2026 Counsel For Appellant: Joseph Kodianthara, Sr. Advocate Counsel For Respondent: M. Sreekanth, Assistant Commissioner Click Here To Read Order Read More: Rule 10A Valuation Can’t Apply to Job-Worked Goods Used in Works Contracts: CESTAT

Profit Margin on Sale of Imported Gold Bullion Not Taxable as ‘Consignment Agent’ Service: CESTAT

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