Mere procuring of orders for principal by an agent on commission basis would not amount to providing service of C & F agent.

PJ/CASE LAW/2014-15/2450

Case:- MALHOTRA DISTRIBUTORS PVT. LTD. VERSUS C.C.E., MUMBAI-I

Citation:- 2014 (36) S.T.R. 93 (Tri. - Mumbai)

Brief facts:- The appellant M/s. Malhotra Distributors Pvt. Ltd. (MDPL) entered into an agreement with M/s. Vidyut Metallics Ltd. (VML) for rendering assistance in the marketing of goods produced by the latter by obtaining orders and also ensuring that the goods are sold at the terms and discounts as specified by VML. For the services rendered, they were getting a commission from M/s. VML. The department was of the view that the services rendered by the appellant is classifiable under the category of ‘Clearing and Forwarding Services’ and accordingly, a Service Tax demand of Rs. 61,16,009/- was confirmed for the period October, 1998 to September, 2000 along with interest thereon. Penalties under Sections 76, 77 and 78 of the Finance Act, 1994 were also imposed on the appellant. The appellant preferred an appeal before the lower appellate authority, who vide the impugned order dismissed their appeal and hence, the appellant is before tribunal.

Appellant’s contention:- The learned Counsel for the appellant submits that as per the agreement entered into with M/s. VML, they were procuring the orders for the goods from the stockists and were forwarding the same to the manufacturer for which they get a commission @ 3.7% of the net sale value from M/s. VML. They rendered only services relating to marketing of the goods and did not deal with the goods in any manner and as per the circular issued by the C.B.E. & C. vide Circular No. 87/97/10/Service Tax/97 issued in July, 97, the scope of clearing and forwarding service has been clarified as follows :-

“2.2 Normally, there is a contract between the principal and the 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 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;
(f) Preparing invoices on behalf of the principal.”
They have undertaken none of the above activities and, therefore, the services rendered by them do not come under the category of ‘Clearing and Forwarding Services’.

The learned Counsel further submits that both the adjudicating and appellate authority while classifying the services under the category of Clearing & Forwarding Agency services, have relied on the decision of the Tribunal in the case of M/s. Prabhat Zarda Factory (India) Ltd. v. Commissioner of Central Excise - 2002 (145)E.L.T.222 (Tri.-Kol.) = 2006 (2)S.T.R.584 (Tribunal)while concluding that the services rendered by the appellant was that of clearing & forwarding agency. However, the said decision has been overruled by the Larger Bench of this Tribunal in the case of L&T Ltd. - 2006 (3)S.T.R.321 (Tri.-LB), wherein the Tribunal held that procuring purchase orders for the vendor on a commission basis would not amount to clearing and forwarding agency service and, on the other hand, would come under the category of Business Auxiliary Service, which is brought into the tax net from 1-3-2003 onwards. In view of the decision of the Larger Bench, the service rendered by the appellant is not classifiable under Clearing & Forwarding Agent services. The learned Counsel also relies on the decision of Punjab & Haryana High Court in the case of United Plastomers reported in 2008 (10)S.T.R.229 (P & H), decision of the Tribunal in the case of Shivangi Steel Pvt. Ltd. reported in 2011 (24)S.T.R.701 (Tri.-Del.)and the decision of this Tribunal in the case of Energy Equipment Distributor vide Order No. A/48/WZB/ 2007/CSTB/C-I, dated 22-1-2007 wherein it has been held that mere procuring/booking of orders for the principal by an agent on commission basis would not amount to providing services of clearing & forwarding agent. In the light of the above, he pleads for allowing the appeals.

Respondent’s contention:-The learned Addl. Commissioner (AR) appearing for the Revenue reiterates the findings of the lower authorities.

Reasoning of judgment:- As per Section 65(105)(j) Clearing & Forwarding Agency Services has been defined as under :-
“Any services provided or to be provided to any person by a clearing and forwarding agent in relation to clearing and forwarding operations in any manner.”
As per Section 65(25) ‘Clearing & Forwarding Agent’ means any person who is engaged in providing any services directly or indirectly, connected with Clearing & Forwarding in any manner to any person and includes a consignment agent.
The C.B.E. & C. vide Circular dated July, 1997 (cited supra) had clarified the scope of the services undertaken by the clearing & forwarding agent. The clarification provided clearly says that such agent should receive the goods, warehouse the goods and arrange for the dispatch of the goods as per directions of principal and also maintain a record of receipt and dispatch and also at time prepare invoices on behalf of the principal.
In the present case, we have gone through the agreement entered into between the appellant and M/s. VML. The agreement says that the appellant has to procure the orders from the stockists and forward the same to M/s. VML. Further, the appellant has to ensure that the goods are sold at the terms and discounts specified in writing by VML from time to time. For the services so rendered, M/s. VML shall be charged @ 3.7% on the net sale value. Thus, from the terms and conditions entered into by the appellant, it is clear that the appellant was acting as a commission agent by procuring the orders for the sale of the goods. The appellant did not deal with the goods at all as is expected in the case of Clearing & Forwarding Agent.
The Larger Bench of this Tribunal in the case of M/s. L&T Ltd. (supra) held that an agent engaged only for procuring purchase orders for the vendor on commission basis, is not engaged in the clearing and forwarding activity either directly or indirectly and, therefore, mere procuring or booking orders for the principal by an agent on commission basis would not amount to providing services as clearing and forwarding agent within the meaning of the definition of that expression under Section 65(25) of the Finance Act, 1994. The Hon’ble High Court of Punjab & Haryana in the case of United Plastomers (supra), has also held that mere procuring of orders on commission basis does not amount to ‘Clearing & Forwarding Agent Service’. The same view was held by the Hon’ble High Court of Karnataka in the case of OKS Specialities Lubricants Pvt. Ltd. -2009 (16)S.T.R.403 (Kar). Subsequently, this Tribunal itself in a number of cases like, Shivangi Steel Pvt. Ltd. and Energy Equipment Distributoretc. followed the decision of the Larger Bench and the decision of Hon’ble High Court of Punjab & Haryana and Karnataka. Following these decisions and taking into account the facts and circumstances of the present case, the tribunal was of the view that the services rendered by the appellant does not fall within the taxable service category of Clearing & Forwarding Agent Services.
Accordingly, the impugned order was set aside and the appeal was allowed with consequential relief.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that an agent engaged only for procuring orders for the principal on commission basis, is not engaged in the clearing and forwarding activity either directly or indirectly and, therefore, mere procuring or booking orders for the principal by an agent on commission basis would not amount to providing services as clearing and forwarding agent. Consequently, the appeal was allowed by placing reliance on number of decisions given by the tribunal on the issue.

Prepared by:- Monika Tak

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PJ/CASE LAW/2014-15/2450

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