Whether activity of supervision and loading of coal is taxable as ‘C & F Service?

PJ/CASE LAW/2015-16/2743

Case:- COMMISSIONER OF SERVICE TAX, MUMBAI VERSUS SHAH COAL PVT. LTD.

Citation:-2013 (32) S.T.R. 568 (Tri. - Mumbai)

Brief facts:-This is a Revenue appeal directed against Order-in-Original No. 14/STC/S.J.SINGH/2007, dated 17-1-2007 passed by the Commissioner of Service Tax, Mumbai.
The respondent, M/s. Shah Coal Pvt. Ltd., entered into a contract with M/s. Ambuja Cement Limited for movement of coal from various collieries to the latter’s plants. The main activity undertaken by the appellant included, supervision of coal loading and transportation of coal by road. The department was of the view that the appellant was rendering services classifiable under ‘Clearing & Forwarding Agent’s Services’ as defined under Section 65(25) of the Finance Act, 1994 read with Section 65(105)(j) as they stood at the relevant time and demanded Service Tax amounting to Rs. 1,27,00,872/- on a value of Rs. 17,84,42,997/- received during the period 1-4-2000 to 31-3-2005. The notice was adjudicated vide the impugned order and the adjudicating authority came to the conclusion that the activities undertaken by the appellant does not come within the purview of ‘Clearing and Forwarding Agent’s Service’ and accordingly he dropped the demand. Aggrieved by the said decision, the Revenue is in appeal before tribunal.
In the grounds of appeal it has been urged that, CBECvide letter F. No. 159/1/2003-EX.-4, dated 10-12-2003 has clarified that on the basis of mode of functioning, coal merchants are fully covered in the category of ‘clearing and forwarding agent’ and accordingly Service Tax is leviable. It is also contended that vide Circular No. B3/7/2003, dated 20-6-2003, the Board further clarified that it is possible that a person may be a consignment agent as well as a commission agent and since service rendered by a consignment agent is covered under ‘clearing and forwarding agent’s service’, the service rendered by a commission agent would also be liable to pay Service Tax under the said category. It is also submitted by the Revenue that this Tribunal in the case of Coal Handlers Pvt. Ltd. v. Commissioner of Central Excise, Kolkata-I, 2004 (171)E.L.T.191 = 2006 (3)S.T.R.286 (Tribunal)]has held that coal handlers services are classifiable under ‘C& F Agent’s Service’. Accordingly it is urged that coal supervisory and transportation services undertaken by the assessee are appropriately classifiable under ‘Clearing and Forwarding Agency Service’.

Appellant’s contention:- The department was of the view that the appellant was rendering services classifiable under ‘Clearing & Forwarding Agent’s Services’ as defined under Section 65(25) of the Finance Act, 1994 read with Section 65(105)(j) as they stood at the relevant time and demanded Service Tax amounting to Rs. 1,27,00,872/- on a value of Rs. 17,84,42,997/- received during the period 1-4-2000 to 31-3-2005.

Respondent’s contention:- The learned consultant for the respondent makes the following submissions :
The service rendered by the respondent is mainly supervision and loading of coal at the collieries and also arranging for transportation of coal either by rail or road to the client’s plant/factory.
The scope of ‘C & F Agent’s service’ was clarified by the C.B.E. & C. Circular No. B-43/7/97-TRU, dated 11-7-1997. The said circular states that a C & F agent normally undertake the following functions :
“(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”.
From the said circular which was issued at the time of inception of levy, it is clear that the activities undertaken by the respondent do not fall under any of the categories specified therein and, therefore, liability to Service Tax under ‘C & F Agent’s Service’ is not attracted.
Reliance is also placed on the decision of the Hon’ble High Court of Calcutta in the case of Karamchand Thapar & Bros. (Coal Sales) Ltd. v. Union of India - 2010 (20)S.T.R.3 (Cal.) wherein, in a more or less identical situations, the Hon’ble High Court held that the activity of supervision and loading of coal would not come under the category of ‘Clearing and Forwarding Agent’s Service’ but might merit classification under ‘Business Auxiliary Services’. As regards the decision of the Tribunal in the case of Coal Handlers Pvt. Ltd., cited supra, the said decision was based on an earlier decision of the Tribunal in the case of Prabhat Zarda Factory Pvt. Ltd. v. Commissioner - 2002 (145)E.L.T.222 = 2006 (2)S.T.R.584 (Tribunal)and a Larger Bench of this Tribunal had overruled the said decision in the case of L & T Ltd. v. Commissioner - 2006 (3)S.T.R.321 wherein it was held that the commission agent who procures orders would be covered under ‘Business Auxiliary Services’ and not under ‘C&F Agent’s Services’.
In the light of the above, the learned consultant prays for upholding the impugned order and dismissing the appeal.

Reasoning of judgement:-Section 65(25) of Finance Act, 1994 defines :
“‘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.”
Finance Act does not describe or define what are ‘clearing and forwarding operations’. However, the Board’s circular dated 11-7-1997 clearly specifies the functions undertaken by the C&F Agent in the normal course of business. The clarification issued by the Board at the time of inception of levy needs to be given due weightage, following the principles of ‘administrative construction’ of statutes as held by the Hon’ble Apex Court in the case of Collector of Central Excise v. Andhra Sugar Ltd. - 1988 (38)E.L.T.564 (S.C.). If one examines the issue in the light of the above judgment, the definition given in the statute and the Board’s circular cited supra, it is clear that the activity undertaken by the appellant does not fall within the purview of ‘C & F Agent’s Services’.
The decision of the Hon’ble High Court of Calcutta in the case of Karamchand Thapar & Bros. (Coal Sales) Ltd., cited supra, also clearly holds that the activity of supervision and loading of coal does not come under the category of ‘Clearing and Forwarding Agent’s Service’.
In view of the above factual and legal position, they do not find any merit in the appeal filed by the Revenue. Accordingly they dismiss the same as devoid of merits.

Decision:-Appeal dismissed

Comment:- The analogy of the case is that merely supervision for loading of coal and arranging transportation of coal by road is not covered by the defination of ‘clearing and forwarding services’. As per the C.B.E. & C. Circular, the scope of ‘C & F Agent’s service’ is receiving the goods from the factories or premises of the principal or his agents, warehousing these goods, receiving despatch orders from the principal, 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, maintaining records of the receipt and despatch of goods and the stock available at the warehouse and preparing invoices on behalf of the principal. As the respondent did not undertake any of the above referred activities except for arranging transportation of coal, the activity undertaken by the respondent does not fall within the purview of ‘C & F Agent’s Services’.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2743

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