Determinative factors for levying service tax under C&F service.

PJ/Case Law/2013-14/1648

Case:- M/s VIDEOCON TV MANUFACTURER (P) LTD Vs C.C.E., NOIDA

Citation:- 2013-TIOL-1031-CESTAT-DEL

Brief Facts:-Appellant receives certain amount as commission from manufacturer/supplier of picture tubes for settling the rates of picture tubes for supply to manufacturer of TV sets. Revenue raised demand on the ground that appellant provide clearing and forwarding operations. But appellant never had custody of the picture tubes; does not receive them from manufacturers of tubes; does not warehouse the picture tubes; does not receive despatch orders from manufacturers of picture tubes; does not arrange despatch of goods; nor engages transport; and does not maintain records of the receipt and despatch of picture tubes and the stock available at the warehouse; nor prepares invoices either on behalf of the principal manufacturers or manufacturers of TV sets. Appellant not liable to service tax under the taxable head clearing and forwarding agency. Appellant only receives commission from manufacturer/supplier of picture tubes. Commission agency exempted from levy of service tax w.e.f. 01.07.2003 upto 09.09.2004 vide Notification No. 13/2003 dated 20.05.2003 - After 01.07.2003 service as a commission agency was incorporated into the taxable service "Business Auxiliary Service". Appellant filed appeal against the order of appellate authority before CESTAT.

Appellant Contention:-The appellant relied upon case of Punjab & Haryana High Court in CCE, Panchkula vs. Kulcip Medicines (P) Ltd. in 2009 (14) STR 608 (P&H) = (2009-TIOL-202-HC-P&H-ST)had occasion to consider the contours and purport of the chargeable service: "clearing and forwarding agency service" enumerated in Section 65(105)(j) of the Finance Act, 1994 (the Act). The assessee Kulcip Medicines (P) Ltd. entered into an agreement with M/s Cipla for handling and distribution of their products and was entrusted with the task of operations pertaining to receiving, storing and distribution of Cipla products to authorised stockists and distributing centres. For the services rendered, the assessee received commission based on an agreed percentage of sales and reimbursement of expenditure incurred. The assessee was assessed to service tax. An unproductive appeal followed. The assessee preferred a further appeal to this Tribunal which was allowed. This Tribunal held that to attract the levy of service tax as a "clearing and forwarding agency service", the service must be in relation to 'clearing and forwarding operations'. Revenue carried the matter in appeal to the High Court, the High Court rejected the appeal by the Revenue observing that the conjunctive "and" between the words "clearing" and "forwarding" indicate and mean that where clearing operations are separate from forwarding operations, levy of tax would not be attracted i.e. there would be no charge of tax if the transaction involved only one of the two components of the conjuncted service namely "clearing" and "forwarding". The High Court ruled that the expression a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner' contemplates only one person operating both as the clearing and the forwarding agent; and if a person has rendered service as forwarding agent without rendering any service as 'clearing agent' he could not be considered to have rendered both services as a 'clearing and forwarding agent'.

Reasoning of Judgment:- The Tribunal heard both the parties and finds that a full Bench of this Tribunal in Larsen & Toubro Ltd. vs. CCE, Chennai reported in 2006 (3) STR 321 (Tri. LB) = (2006-TIOL-814-CESTAT-DEL-LB) had occasion to consider whether an agent engaged only for procuring purchase orders for the vendor without engaging in any of the activities associated with "clearing and forwarding operations" would be providing a taxable service as a clearing and forwarding agent. After setting out analysis of the expression 'clearing and forwarding agent' (para 9.1) and explaining that 'clearing and forwarding operations' would be various activities having a bearing on clearance of goods and would normally involve documentary processes and arrangements for transfer of goods to their destination; and may also involve clearance at subsequent stages during forwarding operations, this Tribunal identified the range and nature of operations that are undertaken by clearing and forwarding agents (para 9.2); noticed the clearing and forwarding operations, as spelt out in paragraph 2.2 of Trade Notice No. 87/97/10/Service Tax/97 of the Madurai-2 Commissionerate dated 14, July 1997, wherein it was observed that normally there was a contract between the principal and the clearing and forwarding agent detailing the terms and conditions and indicating the commission or remuneration to which the C&F agent is entitled. This Tribunal observed that a clearing and forwarding agent normally undertakes the following activities:-

(a) Receiving goods from the factories or premises of the principal or his agents;
(b) Warehousing these goods;
(c) Receiving despatch orders from the principal;
(d) Arranging despatch of goods as per the directions of the principal by engaging
transport on his own or through the authorised transporters of the principal;
(e) Maintaining records of the receipt and despatch of goods and the stock
available at the warehouse; and
(f) Preparing invoices on behalf of the principal

The Tribunal finds that the analysis of the facts in the appeal before it is set out in para 9.3. This Tribunal clearly ruled that where a person is engaged only for procuring purchase orders for the vendor on a commission basis but does not engage in any of the enumerated activities (of a clearing and forwarding agent), directly or indirectly; or where services are provided by a commission agent engaged to procure orders and not entrusted with the work of clearing and forwarding of goods, the service would not be a taxable service as defined in Section 65(105)(j) read with Section 65(25) which defines a clearing and forwarding agent as meaning any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent.

The Tribunal further finds that on the admitted factual scenario in this appeal, the appellant / assessee neither receives goods from the factory premises of the principal; warehouses such goods; receives dispatch orders from the principal; arranges despatch of goods as per directions of the principal by engaging a transport on its own or through authorised transporters of the principal; nor maintains records of the receipt and despatch of goods and the stock available at the warehouse; nor even prepares invoices on behalf of the principal. The activities of the appellant/assessee as apparent from the adjudication order may be noticed-

(a) The appellant gets TV sets manufactured by three manufacturers. Picture tubes are purchased by those manufacturers from two manufacturers of picture tubes - M/s Samtel Color Ltd, and M/s Hotline CPT Ltd., The three manufacturers, of TV sets place orders on manufacturers of picture tubes. The picture tubes are directly supplied by the picture tube manufacturers and payments are received from the manufacturers of TV sets directly. The rates of picture tubes are however settled by the appellant with the supplier/ manufacturers of picture tubes. After receiving payment from the manufacturers of TV sets manufacturers / suppliers of picture tubes pay agreed amounts as commission, to the appellant.

The Tribunal finds from the above admitted and on record facts of the transaction, it is clear that the appellant in no manner engages in any of the six enumerated activities which constitute clearing and forwarding operations. It never has custody of the picture tubes; does not receive them from manufacturers of the tubes; does not warehouse the picture tubes; does not receive despatch orders from manufacturers of picture tubes which are directly forwarded to manufacturers of the TV sets; does not arrange despatch of goods as per directions either of the manufacturers of picture tubes or manufacturers of TV sets; nor engages transport on its own or through authorised transporters of manufacturers of picture tubes or manufactures of TV sets; and does not maintain records of the receipt and despatch of picture tubes and the stock available at the warehouse; nor prepares invoices either on behalf of the principal manufacturers or manufacturers of TV sets.

The Tribunal concluded that in the light of the judgment of the Punjab & Haryana High Court in Kulcip Medicines (P) Ltd., there is neither the conjunctive service of clearing and forwarding provided by the assessee nor either of the services of clearing or forwarding. In the light of the decision of the full Bench of this Tribunal in Larsen & Toubro Limited, as the assessee has not provided any of the core enumerated activities of clearing and forwarding operations, it has not directly or indirectly provided any service connected with clearing and forwarding operations in any manner to any other person. That the assessee was not a consignment agent is also not in dispute.

The Tribunal further find on the aforesaid analysis that the appellant is not liable to service tax under the taxable head "clearing and forwarding agency". It also requires to be noticed that admittedly after 01.07.2003 service as a commission agency was incorporated into the taxable service "Business Auxiliary Service". However, by Notification No. 13/2003 dated 20.05.2003, issued under Section 93 of the Act, "commission agency" was exempted from levy of service tax w.e.f. 01.07.2003 upto 09.09.2004. Even according to Revenue's analysis, commission agency service also became Business Auxiliary Service since 01.07,2003, but for the entire relevant period April 2001 to March 2004 i.e. including the period 01.07.2003 to 31.03.2004, Revenue proceeded on the basis that the assessee had provided "clearing and forwarding agency" service, contrary to the distinct classification w.e.f. 01.07.2003; the exemption Notification No. 13/2003 notwithstanding, the appellant was never proceeded on the basis that for the period subsequent to 01.07.2003, the services provided by it constituted Business Auxiliary Service, a taxable service. On the aforesaid analysis, the appeal must succeed. Consequently, the order of the Commissioner (Appeals) Meerut-II, Noida confirming the adjudication order passed by the Assistant Commissioner, Central Excise, Division-IV, Noida is quashed. There shall however be no order as to costs.

Decision:- Appeal allowed.

Comment:- The substance of this case is that as per decision of the LB of Tribunal in case of L&T Ltd., six activities were notified as being covered under the service of clearing and forwarding agent and if an assessee does not undertakes any of the said activities, there is no service tax liability under the category of C & F service.

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PJ/Case Law/2013-14/1648

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