Criteria to decide liability to pay Service Tax as C & F Agent is that C & F Agent is not free to sell the goods on his own.

PJ/Case Laws/2012-13/1507

Case:- COMMISSIONER OF CENTRAL EXCISE, DELHI Versus D.R.POLYMERS

Citation:- 2013 (29) S.T.R 536 (Tri.-Del.)

Brief Facts:-Being aggrieved with the order of Commissioner vide which he has dropped the Show Cause Notice issue to the respondent, Revenue has filed the present appeal. It is noted that Show Cause Notice dated 10-8-2004, was issued to the respondent raising demand of service tax for the period 19-19-2003 alleging that during the said period, they have provided services of C & F agent to M/s.Bayer ABC Ltd.

Reasoning of Judgment:Tribunal has considered submission from both the sides and finds that Commissioner has gone through the agreements entered into by the respondent and their principals and has held as follows:

“The arrangement between them would be that of principal and the agent and not as a buyer and seller of the goods. In the instant case it is observed that the party though was receiving, storing and transporting the goods as well as maintaining the records, but the basic agreement between them is to sell the goods by the party on its own to their customer and not as per the directions of the principal. In the other words, the party is free to choose its own customer and sell on arm’s length basis. This fact is further fortified by the Clauses of the agreement wherein it is stated that “Apart from the monthly consolidated sales of stock statement you shall be required to submit the sales & stock statement on 20^th of the same month and 5^th of the next month giving details of sales effected…..”

This Clause further confirms the fact that the principal was at liberty to transfer the goods to another agent or to sell directly in case the goods were not sold by party within a specified period. These facts have also been corroborated by general manager (finance) of M/s. Bayer ABC Ltd. vide letter dated 31-7-2003 and statement dated 30-1-2004. Thus, it is amply clear and evident that the party was required to sell and not dispatch the goods as per the directions of the principal. Moreover, there is no evidence explicitly and implicitly provided in the agreement that the goods were to be dispatched to the customers in accordance with the directions of the principals or the owners of goods. The agreement merely state that the goods were to be sold within stipulated period and not in the form of distribution or dispatching the goods as directed by the principals. Further, it is also observed that there is no allegation to this extent in the impugned SCN.

While arriving at this conclusion, the Commissioner (Appeal) has also referred to-and relied upon the Board’s Circular No. 59/8/2003-S.T., dated 26-6-2003. Accordingly he has held that in as much as the assessee was not selling the goods on behalf of the principal, on commissioning basis, he could not be held to be ‘C & F’ agents. The arrangement between the respondent and the principal is for causing sale on behalf of the principal. He also relied upon Tribunals decisions in the case of CCE, Allahabad v. M/s. Chandan Chemicals – 2007- TIOL-724-CESTAT-DEL = 2007(7) S.T.R.578 (Tri.-Del.), as also on the Tribunal decisions in the case of Mahavir Generic v. CCE – 2007(6) STT 523- CESTAT(Del.CCE) = 2006 (3) S.T.R. 276(Tri.- Del.), as also in the case of CCE v. M/s. Parekh Apparels Ltd. – (2008) 13 STT 15 (AHD-CESTAT) = 2008(9) S.T.R.87 (Tri.-Ahmd.). By taking note of the above decisions, Tribunal has held as under:

These facts are quite akin to the present case. After noting the above facts the Tribunal held that C & F agent normally receives the dispatch order from principal and arranges dispatch of the goods as per the direction of the principal and prepares invoice on behalf of the principal. The party, in the present case, does not receive the dispatch orders from the principal and does not arrange dispatch of the goods as per the direction of the principal. The Hon’ble Tribunal has rejected the appeal filed by the Revenue.

Since, it is further evident that the commission, ORC and discounts were towards the impugned services i.e. causing sale of goods of the principal/owners of the goods such consideration is not towards provision of taxable services under ‘C & F’ agent.

Hence, the demand of impugned Service Tax as stated in the SCN under Section 73 of the Act ibid and interest thereon under Section 75 of the Act ibid is not sustainable as the alleged demand does not exist for the aforementioned reasons.

The issue required to be decided in the present appeal of the Revenue is as to whether the respondent can be held to clearing and forwarding agent of their principal. We find that scope of the said services was clarified by the Board as contained in Trade Notice No. 87/97(10/Service Tax /97, dated 14-7-1997 issue by Madurai-2 Commissionerate. It stands observed as under in paraghraph 2 do the said Circular:

“Normally, there is a contract between the principal and clearing and forwarding agent detailing the terms and conditions and also indicating the commission or remuneration to which the C & F agent is entitled. A clearing and forwarding agent normally undertakes the following :

(a) Receiving the goods from the factories or premises of the principals or his agents;

(b) Warehousing these goods;
(c)   Receiving dispatch orders from the principal
(d) Arranging dispatch of goods as per the directions of the principal by engaging transport on his own or through the authorized transporters of the principal;
(e)   Maintaining records of the receipts and dispatch of goods and the stock available at the warehouse;
(f)    Preparing invoices on behalf of the principal.”

As is seen from above, C & F agent receives dispatch orders from the principal and prepares the invoice on behalf of the principal. He is not free to sell the goods on his own. It was held that C & F agent services are essentially in connection with clearing and forwarding operations of the principal.

In view of the terms of the agreement between the respondent and their principal, we note that the respondents were free to sell the goods to their own customers and were not merely dispatching the goods on the orders of their principal. Further, the invoice was being issued by the respondent themselves.

The Revenue reliance upon the Tribunal’s decisions in the case CCE, Chandigarh v. ADH Agencies reported as 2007 (7) S.T.R. 660 (Tri.-Del.), cannot be appreciated in as much as the said decisions was based upon Tribunals Larger Bench decisions in the case of Medpro Pharma, which already stands set-aside by the Hon’ble Punjab & Haryana and confirmed by Apex Court, as detailed above.

In view of the foregoing decisions we find no infirmity in the impugned order of Commissioner, Accordingly revenue’s appeal is rejected.

Decision:- The revenue’s appeal is rejected.

Comment:-The substance of this case is that a C & F Agent principally stores and clears goods on the directions of the principal and does not has the liberty to sell goods to customers of his choice.

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PJ/Case Laws/2012-13/1507

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