Whether activity of transportation of vehicle classifiable under “C & F Agent Service”?

Case:-KISHORE TRANSPORT SERVICES (P) LTD. VERSUS COMMISSIONER OF C.EX., PUNE-I

Citation:-2014(34) S.T.R. 842 (Tri. – Mumbai)

Brief Facts:-This appeal arises out of Order-in-Appeal No. PJ/370/2006, dated 14-12-2006 passed by the Commissioner of Central Excise & Service Tax (Appeals), Pune-I.
The brief of facts of the case are that the appellant is engaged in the business of transportation of vehicle of M/s. TELCO Ltd., now known as Tata Motors. The appellant entered into an agreement with M/s. Tata Motors for transporting their vehicles by railway rakes. Under the aforesaid agreement, the appellant are required to carry out following functions:-
a)    To transport cars/vehicles from the premises of Tata Motors to Railway sidings for the purpose of loading into railway rakes. The appellant gives trust receipt to Tata Motors for having received cars/vehicles under bailment for the said cars and vehicles given for transportation.
b)    To lead vehicles on to railway rakes
c)    To pay of freight to railways
d)    To unload the vehicles from the railway rakes at the destination stations and to transport the same to the dealers premises.
e)    To ensure that no damages is caused to the vehicles during transportation.
f)     To establish and maintain the stockyards at various places to stock the vehicles pending availability of rakes at Pune and pending transfer of cars/vehicles to the dealers yard at the destination.
g)    To obtain a receipt from the concerned dealer for delivery of vehicles and submit the same to Tata Motors.
The show cause notices propose to impose Service Tax under the heading “Clearing and Forwarding Agent Service” for the period April, 2001 to 30^th March, 2004 and 31^st March, 2004 to March, 2005 demanding Service Tax of Rs. 8,69,885/- along with penalty under Sections 75A, 76, 77 & 78 of the Finance Act, 1994. The appellant filed detailed reply and contested both the show cause notices and also in the course of personal hearing, submitted that they are not liable to pay Service Tax under the heading 'Clearing & Forwarding Agent Services' and they are providing transport services to Tata Motors. However, the proposed demand was confirmed by the adjudicating authority vide Order-in-Original dated 31-7-2006 along with interest and penalties were also imposed under Sections 75A, 76,77 & 78 of the Finance Act, 1994.
Being aggrieved, the appellant carried the matter before the Commissioner (Appeals), who upheld the demands confirmed, holding that from definition under Section 65 of the Finance Act, 1994, it is evident that the services being provided by the appellant falls within the ambit under the category of 'Clearing & Forwarding Agent'. Reliance was placed by him on the ruling of this Tribunal in the case of Coal Handlers Pvt. Lid. v. Commissioner of Central Excise, Kolkata-I - 2004 (171) –E.L.T. 191 (Tri.- Kol). Finding was recorded by the Commissioner (Appeals) that the appellant received the vehicles and arranged for its further transportation to various places in India through railway rakes. Tata Motors paid the appellant Rs. 1700/- per vehicle plus Rail charges extra, which is paid on actual basis. Thus, the appellant carried out all the activities in respect of the vehicles from the stage of their clearances from the premises of the principal to the stage of delivery to the customers. Being aggrieved, the appellant is in further appeal before Tribunal.

Appellant Contentions:-The appellant vehemently contends that they are simply doing transportation work and unlike clearing and forwarding agent, they are not involved in storing of goods on behalf of the principal and thereafter forwarding them from time to time as per the direction of the principal. They are simply doing the transportation job wherein the vehicles at the time of dispatch from the factory are earmarked for delivery to particular buyers/dealers of the principal and upon receiving the vehicles from the factory, the appellant brings them near the railway sidings and store them temporarily subject to availability of the railway rakes for the purpose of loading. The appellant does not provide any storage or warehousing facility as provided in the 'clearing and forwarding agent'. Further, they are entitled to remuneration as transporter and actual reimbursement of railway freight incurred by them. The C.B.E. & C vide Circular No. B.43/7/97-TRU, dated 11-7-1997 has clarified the scope of -the taxable service of Clearing & Forwarding Agent as under:-

"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 activities -
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 authorized 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."
The appellant neither involved in warehousing, receiving, dispatch order from the principal nor engaged in preparing invoices on behalf of the principal. Thus, they are not coming under 'Clearing & Forwarding Agent service', but are simply working as transporter. The nature of work of the appellant is transporting of vehicles/cars.
Further, the ruling in the case of Coal Handlers (supra) is not applicable as the said decision is based ruling upon the earlier decision of the Tribunal in the case of Prabhat Zarda - 2002 (145) E.L.T. 222 = 2006 (2) S.T.R. 584 (1) wherein it was held that any services provided directly or indirectly in connection with Forwarding Agent would be taxable. Further, the ruling of Prabhat Zarda has been overruled by the Larger Bench of the Tribunal in the case of Larsen & Toubro Lid. v. CCE - 2006 (3) S.T.R. 321. Thus, the appellant submits that the entire basis on which the impugned order has been passed is erroneous and fit to be set aside. Further, the decision of Larsen & Toubro was in existence at the time of passing the impugned order and thus, the impugned order is cryptic and against the Larger Bench's decision and fit to be set aside.
Further, the appellant relies upon the ruling of the Punjab & Haryana High Court dated 20-2-2008 in the case of Commissioner of Central Excise, Jalandhar v. United Plastomers - 2008 (10) S.T.R. 229 (P&H), wherein the question involved was whether the service provided by United Plastomers, Amritsar to M/s. IPCL as dealer/commission agent is covered under the 'Clearing & Forwarding Agent Service' as defined under Section 65 of the Act as 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 Hon'ble High Court has held as under:
"13. We find no force in the arguments raised by the counsel for the appellant. While passing the impugned order, the Tribunal has concluded that the case of the respondent-assessee is clearly covered by the ratio of the decision in the case of M/s. Rap Rajeshwari Intl. Polymers Pvt. Ltd. (supra) wherein it has been observed that the dealer agent falls within the purview of clearing and forwarding operations as the goods not directly or indirectly handled by him and no service tax is leviable on commission received by him on account of Del Credre Agency. Moreover, the said conclusion/observation stands settled by a Larger Bench of the Tribunal in the case of Larsen & Toubro Ltd. (supra) wherein it has been held that services of commission agent are included in the definition of 'business auxiliary service' from 1-7-2003 and mere procuring or having orders for the principal by an agent on payment of 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. While reaching to this conclusion the Tribunal has observed that the expression "directly or indirectly" and "in any manner" occurring in the definition of 'clearing and forwarding agent' cannot be isolated the activity of clearing and forwarding operations and an agent is engaged only for procuring purchase orders for the vendor on commission basis does not engage in any of the activities connected with clearing and forwarding operations directly or indirectly.
14. We have also been informed by Sh. Sanjiv Kaushik, Advocate counsel for the appellant that in view of Board's clarification and the various judicial pronouncements, the order of Larger Bench of the Tribunal Delhi in the case of Larsen & Toubro Ltd. (supra) has been accepted by the Revenue. It is also not disputed that the second question of law as raised by the Revenue has already been decided against the department by this Court in appeal.
15. In view of the above, no substantial question of law arises for determination of this Court Hence, the appeal is dismissed."
Further, the Hon'ble High Court also took notice that in view of Board's Circular, judicial pronouncements and order of the Larger Bench of the Tribunal in the case of L&T Ltd., the Revenue has accepted the ruling in Larsen & Toubro case and had not appealed further and hence answered the reference against the Revenue and in favour of the assessee.
Further, reliance was also placed on the ruling of the Hon'ble Gujarat High Court in the case of Commissioner of Central Excise & Customs v. Trade Tek Corporation - 2013 (29) S.T.R. 23 (Guj.), wherein the question framed was whether the Tribunal was right in holding that the assessee Trade Tek Corporation was not providing taxable service as 'clearing and forwarding agent' to BALCO? In view of the fact that BALCO had appointed the assessee as consignment agent and the Revenue holding belief that the services rendered by the assessee under agreement of consignment agent amounted to 'clearing and forwarding agent' for and on behalf of the BALCO and, therefore, the respondent assessee was liable to pay Service Tax as clearing and forwarding agent. The Hon'ble High Court relying on the decision of the Larger Bench of this Tribunal in the case of L&T (supra) and also on the ruling of the Punjab & Haryana High Court in the case of United Plastomers, wherein the question was whether the dealer or commission agent would be covered within the expression Clearing & Forwarding Agent, and rejected the appeal of the Revenue in view of the Larger Bench's decision of the Tribunal in the case of L&T (supra).

Respondent Contentions:-The learned DR relies upon the impugned order and further relies on the ruling of the Karnataka High Court in the case of CCE, Bangalore v. Mahavir Generics - 2010 (17) S.T.R. 225 (Kar.).In this case, the facts were that the assessee was registered under the category of Clearing & Forwarding Agent and vide their letter dated 21-9-2001 they intended to surrender their registration certificate on the premise that their activities did not fall within the category of 'Clearing & Forwarding Agent' and for issuance of fresh registration, but the Revenue was of the view that the assessee is Clearing & Forwarding Agent. The question framed by the High Court was - "when M/s. Mahaveer Generics are rendering the service of receiving, storing anddistributing the goods manufactured by M/s. Cipla Ltd., whether the Hon’bleCESTAT, Bangalore is right in holding that the party was not acting as clearing and forwarding agents and was not providing taxable service". After taking note of the agreement wherein it was mentioned that M/s. Cipla appoints M/s. Mahaveer Generics as its consignment agent and will supply its product from any of its depot in loan licence to the agent on a consignment basis through a stock transfer note, for sale by him, as the agent of the principal. The principal undertakes to deliver the products to the agent's godown at Bangalore at his cost. The agent will take charge of the product and store them in his godowns and such product will remain the property of the principal at all times. The agent will sell the products as consignment agent of the principal, and the prices at which the products can be sold shall be fixed by the principal from time to time after mutual consultation between the agent and the principal considering market conditions. The Hon'ble High Court took notice of the judgment of the Larger Bench of the Tribunal in the L&T case wherein from ruling of Kulcip Medicine (P) Ltd. - 2009 (14) S.T.R. 608 (P&H) the following observations are made :-
"13.............. and mere procuring or having orders for the principal by an agent on payment of 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. While reaching to this conclusion the Tribunal has observed that the expression "directly or indirectly" and "in any manner" occurring in the definition of "clearing and forwarding" agent cannot be isolated or the activity of dealing and forwarding operations and an agent it engaged only for procuring purchase orders for the vendor on commission basis does not engage in any of the activities connected with clearing and forwarding operations directly or indirectly."
And thus found on facts that it was mere procuring the orders for the principal by an agent on payment of commission basis and thus would fall outside the purview of clearing and forwarding agent. The said decision would be inapplicable to the facts of the case as we have held that activity carried on by the assessee is that of a Consignment Agent. The judgment of Kulcip Medicine (supra) relied on by the learned counsel for the respondent to contend that Mahaveer Generics case namely, the judgment in question before this Court in the present appeal has also been taken into consideration in Kulcip's case is liable to be brushed aside the contention of the assessee is not appealing for the reason that Tribunal in the said decision (Kulcip's case) at paragraph 13 has taken the view that the judgment in Mahaveer Generic (present case) has been accepted by the Revenue and no appeal has been filed and accordingly was persuaded to accept the stand of assessee. The view taken by the Punjab & Haryana High Court in Kulcip's case, we find is factually in error since the Revenue had filed the present appeal challenging the legality and correctness of Mahaveer Generic case in the present appeal & it was pending as on the date of disposal in Kulcip's case by Punjab & Haryana High Court and hence, the view taken in Kulcip Medicine case is inapplicable to the facts & circumstances of the case and also in the background or our examination, scrutiny and interpretation with regard to the agreement in question."
Finally the Hon'ble High Court answered the question of law so framed in favour of the appellant Revenue and against the assessee.
The Revenue, further relied upon ruling in the case of Medpro Pharma Pvt. Ltd. v. Commissioner of Central Excise, Chennai - 2006 (3) S.T.R. 355 (Tri.- LB), wherein the Larger Bench of the Tribunal considered the question referred to it being :-
"1. Whether services provided by a person engaged in either clearing, or forwarding operations, or both, will all fall within the ambit of the definition of "clearing and forwarding agent" under Section 65(23) of the Finance Act, 1994, so as to attract the levy of service tax?
2. Whether only when the clearing and forwarding agent carries out both clearing and forwarding operations, the levy of service tax will be attracted and not otherwise, as held by the Tribunal in Kulcip Medicines P. Ltd. v. CCE, Delhi-III (Final Order No. 752/2005-Cus., dated 29-6-2005) [2006 (I) S.T.R. 36 (Tribunal)] and Vaman Pharma Pvt. Ltd. v. CC, Bangalore [2006 (1) S.T.R. 274 (Tribunal) = 2006 (130) ECR 209 (Tri-Bangalore)]?"

The Larger Bench has held as under :-
31. We have heard both sides and perused the record. On a fresh look at the whole issue and after taking into account the various newfangled arguments and nascent lines of thinking, upwrapping before us, as discussed in the foregoing paragraphs, we find ourselves in a better position to appreciate the wisdom in the words of Jules Romains when he said: "What I say below represents only conclusions with which I would identify myself, if I were obliged to stop thinking today". The underlying wisdom in these words has greatly encouraged us in this inquest to appreciate the emerging facts and scenario in a proper perspective. Crucial key-word in the definition of taxable services, namely, "C&F Operations" needs to be viewed afresh in this scenario. The whole "operations" involved in "C & F Operations" now remind us of an orchestra, performing a western classical symphony. It reminds us of a connoisseur's experience of harmony in western classical music. While listening to Mahler's 9th Symphony, one does not listen to an individual violin or a trumpet, but the harmony emanating from many different seemingly unrelated instruments. In the same way, a C&F Agent's functions consisting of seemingly unrelated tasks are well orchestrated. This view of ours is strengthened by various references including the Report of the United Nations Economic Commission for Africa referred to by us in the preceding paragraphs all revealing in no uncertain terms that the freight forwarders are known variously as clearing agent, shipping forward agent etc. We are, therefore, of the view that even if one segment of activities is not demonstrated to be performed, it cannot be held that the appellants were not engaged in taxable service. Due to their orchestrated natures of work, such isolated activity can also be covered under "C&F Operations". Merely, because the bassoon was not played in one of the movements of a symphony, it does not cease to be otherwise a part of the orchestra. While forming this view, we have certainly not overlooked the fact that while music can be sometimes taxing, a tax can never be musical!
32. While arriving at the conclusion, we also go by the trade understanding based on sheer common sense, which is often uncommon. Because a buyer buys only rice and not wheat in a grocery shop, which claims to sell "wheat and rice", the shop cannot cease to be a shop selling "wheat and rice". In the same way, rendering only "forwarding" service cannot make the appellant cease to be a "Clearing and Forwarding Agent"-, so as to save him from the tax. Some customers may want only clearing operations, while some forwarding, and others both. The expression "clearing and forwarding operations" is a compendious expression of nature of services offered, any of which will bring the service providers in the tax net of this category. Moreover, in the process of forwarding operations - clearance stages may arise such as at octroi subsequent transits."

Reasoning of Judgment:-Having considered the rival contentions, the tribunal was satisfied that the appellant is engaged in providing transport service as transporter and the initial service of temporary storage of the vehicles at or near railway sidings, which is eventually for a few days subject to availability of the rail rakes, will not render the appellant to fall under the category of 'Clearing & Forwarding Agent'. Thus, the appeal is allowed with consequential relief, if any, in accordance with law.

Decision:-Appeal allowed.

Comment:-The gist of the case is that merely temporary storage of goods by assessee for availability of rail rakes for loading does not fall under the ambit of definition of “Clearing and Forwarding service” and therefore, is not leviable to service tax under C & F services. For an activity to be covered by “C & F Service”, the following activities are essential like receiving the goods from the factories or premises of the principal or his agents; warehousing such goods, receiving despatch orders from the principal; arranging despatch of goods as per the directions of the principal by engaging transport on their own or through the authorized 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.

Prepared by: Hushen Ganodwala

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PJ/CASE LAW/2014-15/2304

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