Whether activity of storing of goods in cold storage covered under C & F?

PJ/Case Law /2016-17/3422

Case:-MONSANTO MANUFACTURERS PVT. LTD. VERSUS COMMR. OF C. EX., GHAZIABAD
Citation:- 2013 (32) S.T.R. 364 (Tri. - Del.)
Brief Facts-Brief facts of the case are that on examination of records of the assessee for the period 2001-02 to 2004-2005 it was pointed out that assessee received an amount of Rs. 1,46,05,000/- from M/s. Hindustan Lever Ltd. (HLL) for carrying out services of cold storage/clearing and forwarding operations of frozen products. According to department, the said service is chargeable to service tax. A Show Cause Notice dated 21-7-2006 was issued to the assessee demanding service tax amounting to Rs. 9,46,766/- along with interest and also proposing penalties on the assessee. The notice, after due process was adjudicated by Additional Commissioner vide Order-in-Original No. 06/GZB/2007, dated 31-7-2007 confirming service tax, interest and imposing penalties of Rs. 500/- under Section 75A, Rs.1000/- under Section 77 and Rs. 200/- per day till time of deposit of service tax subject to maximum of Rs. 9,46,766/- under Section 76 of the Act. Assessee challenged the Order-in-Original before Commissioner (Appeals) who vide impugned order confirmed the service tax amount but reduced the penalty to Rs. 2.00 lakhs under Section 76 of the Act from Rs. 500/- to Rs. 200/- under Section 75A and from Rs. 1000/- to Rs. 500/- under Section 77 of the Act. Assessee has challenged the impugned order in this appeal against tax, interest and penalties. Revenue has challenged the impugned order on the ground of reduction in penalties.
Appellant’s Contention-Shri Ajay Aggarwal, ld. Advocate for the assessee submits that cold storage facility is distinct and different from holding of the goods which may take place during clearing and forwarding operation. Charges towards cold storage are in nature of rental for providing cold storage facility and incidental storage should not be confused with independent facility of providing cold storage. ld. Advocate further states that storage and warehousing service was brought under service tax net with effect from 16-8-2002 and cold storage service has been excluded from tax net. Therefore tax on the same service cannot be levied under different taxable service. He relies on decision of Kerala High Court in case of Kerala State Industrial Enterprises Ltd. v. C.C.E. reported in 2012 (28) S.T.R. 574 (Ker.) and C.C.E. v. Federal Bank Ltd. reported in (2010) 34 VST 27 (Ker.) = 2013 (29) S.T.R. 554 (Ker.). He further points out, that assessee is not engaged in any clearing corporation and as such in view of decision of Punjab & Haryana High Court in case of C.C.E. v. Kulcip Medicines (P) Ltd. - 2009 (14) S.T.R. 608 assessee’s activity does not fall under C & F service also. He submits demand is also hit by time limitation as assessee has replied vide their letter dated 8-11-2002 and 9-12-2002, department’s letter dated 27-9-2002 and 20-11-2002, which shows the facts were in the knowledge of the department since 2002. Therefore extended period of limitation cannot be invoked in this case.
Respondent’s Contention-. Ld. Additional Commissioner (AR) for Revenue submits that assessee is a consignee for goods received from HLL and is consignor for goods despatched for further sale. Consignment agent is an intermediary between seller and purchaser and these agents performs all the functions before actual sale. These functions include receiving the goods from seller, storing them, despatching them to actual purchaser. He submits thus activity of storage becomes an integral part of the operation. Therefore, cold storage charges are squarely covered under C & F operation particularly when these are part of same agreement. On limitation, he submits that assessee has not declared these charges-in S.T.-3 return in neither gross amount nor exempted service. He submits extended period is applicable in view of decision in the case of C.C.E. v. Mehta & Co. - 2011 (264) E.L.T. 481 (S.C.) and C.C.E. v. Kalvert Foods India Pvt. Ltd. - 2011 (270) E.L.T. 643 (S.C.).
Ld. Advocate in his written submission has disputed contention of department that storage charges were required to be declared in S.T.-3 Returns. He submits that in S.T.-3 Return format prevailing during the relevant time, there was no such requirement. S.T.-3 Return as amended with effect from 20-10-2005 made it mandatory to show the amount towards exempted service also.
Reasoning Of Judgement-Hearing both sides and seeing the case records, tribunal find that dispute in this appeal is whether assessee’s activity of storing of goods in cold storage can be covered under clearing and forwarding agent service and whether demand is hit by time limitation.
Clearing & Forwarding Service is defined under Section 65(25) of the Finance Act which provides that -“Clearing and forwarding agent means 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.”
Tribunalfind that assessee is receiving frozen food from HLL, storing the goods in cold storage and thereafter despatches the goods as per directions of principal. They have entered into an agreement in which M/s. Monsanto Manufacturers Pvt. Ltd. is shown as Clearing and Forwarding Agent (in short, C & FA). Also in clause 5 of Article 1, C & F A is defined which operates as principal’s agent for receiving and forwarding goods and for undertaking other functions. Assessee is paying service tax under C & F A service except on the cold storage charges.
Assessee’s contention is that cold storage facility is distinct and different for C & F operation and therefore these charges are not liable to be included in taxable value of C & FA services. Tribunal note that in para 2.1 of the agreement, assessee has agreed to provide cold storage for the purpose of storing and forwarding the frozen products belonging to HLL. In Article 2.13 to 2.29 of the Agreement in view of perishable nature of the goods, assessee is required to maintain specific temperature for storage of frozen goods before despatching the same as per direction of HLL. Therefore, tribunal find the storage of the goods in cold storage is an inseparable part of Clearing & Forwarding activity undertaken by the assessee.
Tribunal also find that assessee has entered into one single agreement with HLL in which cold storage charges and C & FA charges have been mentioned separately. Since storage of the goods in cold storage is essential part of assessee’s C & F operations, cold storage charges are required to be added in taxable value of C & FA services. The tribunal order accordingly.
It is one of the contention of the assessee that with effect from 16-8-2002 storage and warehousing service was enacted from which cold storage was excluded. To decide the issue of classifiability of services under C & FA or under storage and warehouse, one has to apply Section 65A(2)(b) of the Finance Act under what services is to be classified under service which gives essential character of the service. Tribunal has already held that storage of frozen goods in cold storage is an inseparable part of assessee’s activity of clearing & Forwarding operation. Tribunal therefore of the view that essential character of service is C & FA service and therefore service is classifiable under C & FA service.
Ld. Advocate has contended that assessee is not involved in clearing operation and therefore not covered under C & FA service in view of the decision of High Court of Punjab & Haryana in case of Kulcip Medicines (P) Ltd. case. We find that the issue was never raised by the assessee before lower authorities. Being the question of fact, tribunal cannot go into this issue at this stage and do not accept this contention of the assessee at this stage.
Coming to issue of limitation, tribunal find that for the first time the Revenue wrote a letter dated 27-9-2002 asking assessee to pay tax for the period Sept. 2001 to July 2002. Assessee replied this letter vide their letter dated 8-11-2002 thereafter there was correspondence on 20-11-2002 from the department and replied by assessee on 9-12-2002. Tribunal find that fact that assessee is not paying duty on cold storage charges was known to department in 2002. Quantum of Cold Storage Charges is already part of agreement and is fixed on monthly basis. Tribunal are therefore of the view extended period based on suppression of fact cannot be invoked in the present case and therefore demand beyond period of one year is time-barred in the present case. Decisions relied on by ld. D.R. do not support the case of the department as those decisions are in respect of clandestine removal of goods where one cannot ascertain the relevant dates defined under Section 11A of the Act.
Decision-Appeal partly allowed.
Comment-The coreof the case is that since the appellant has entered into agreement with Hindustan lever ltd. for storing and despatching goods on their direction and in terms of contract, appellant is required to maintain specific temperature for storage before dispatch, therefore storage of goods in cold storage is indispensable part of clearing and forwarding agent services. Hence, the impugned charges are to be added in taxable value and therefore, the service is classifiable under ‘Clearing and Forwarding Agent Service’ under Section 65A(2)(b) of Finance Act, 1994. However, it was concluded that since the fact of non payment of duty on cold storage is known to department in 2002, thus extended period based on suppression of facts is not invocable as demand beyond one year is time barred. Thus appeal succeeds on grounds of limitation.
Prepared By-Arundhati Bajpai

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PJ/Case Law /2016-17/3422

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