Whether consignment agent liable to pay service tax under C&F agent services?

PJ/CASE LAW/2015-16/2762

Case:-B.K. SALES CORPORATION VERSUSCOMMISSIONER OF C. EX., ROHTAK, HARYANA

Citation:-2014 (36) S.T.R. 1281 (Tri. - Del.)

Brief facts:- Service Tax of Rs. 78,068/- stand confirmed against the appellant along with imposition of identical amount of penalties under Section 76 as also under Section 78 of the Finance Act and penalty of Rs. 1,000/- under Section 77 of the Finance Act. They find that the appellant has allegedly provided clearing and forwarding services to their principal M/s. Narmada Chematur Petrochemicals Ltd.
After hearing both sides and after going through the impugned order and after perusing the agreement entered into by the appellant with M/s. Narmada Chematur Petrochemicals Ltd., they find that the said agreement appoints appellant as consignment agent. The principal is required to supply their product duly packed in drums on regular basis to the appellants and the appellant is required to sell the same in smaller lots to the customers at the prices fixed by the principal and the report of such sale is required to be given by the appellant to their principal from time to time. The invoices are to be issued by the appellant in the name of principal including their name as consignment agent.
As is seen from the agreement the appellant has admittedly been appointed as consignment agent. The definition of clearing and forwarding agent, as appearing in Section 65(25) of the Finance Act, 1994 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. The Revenue’s stand is that inasmuch as the definition of clearing and forwarding [agent] included consignment agent and inasmuch as the appellant is admittedly the consignment agent, he will get covered under the definition.

Appellant’s contention:-The appellant’s contention is that merely being a consignment agent does not bring him in the definition of clearing and forwarding agent, unless such consignment agent is doing the job of clearance and forwarding operations. The agreement clearly shows that no clearing and forwarding operation are being done by the appellant and he is free to sell the goods to any other customers by raising an invoice. Further, by drawing their attention to the provisions of Section 65(105)(j) of Finance Act, 1994, he clarifies that the taxable services means any service provided to a client, by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner. As such, he submits that said definition makes it clear that even the consignment agent has to be necessarily clearing and forwarding agent.

Respondent’s contention:- The Revenue’s stand is that inasmuch as the definition of clearing and forwarding [agent] included consignment agent and inasmuch as the appellant is admittedly the consignment agent, he will get covered under the definition.

Reasoning of judgement:- They find that the issue has been the subject matter of various decisions. Larger Bench of the Tribunal in the case of Medpro Pharma Pvt. Ltd. - 2006 (3)S.T.R.355 (Tri.-LB) held against the assessee but the said decision stand overruled by the Hon’ble High Court of Punjab and Haryana in the case of CCE, Panchkulav. Kulcip Medicines (P) Ltd. - 2009 (14)S.T.R.608 (P&H). Its stand held that use of expression ‘and’ in between two expressions ‘clearing’ and ‘forwarding’ is reflective of the legislative intention to cover the person rendering clearing and forwarding services both. They also note that in a recent decision, Tribunal in the case of Videocon TV Manufacturer (P) Ltd.v. CCE, NOIDA, vide its Final Order No. 56452/2013, dated 7-5-2013 [2014 (33)S.T.R.199 (T)], by referring to Tribunal’s Larger Bench decision in the case of Larsen & Toubro Ltd.v. CCE, Chennai reported in 2006 (3)S.T.R.321 (Tri.-LB)has held that inasmuch as the assessee is working on commission basis and is not engaged in the activity of receiving goods from the factory or premises of principal, warehousing these goods, receiving despatch orders, arranging despatch of goods as per the direction of the principal, maintaining records of the receipt and despatch of goods and preparing invoices on behalf of the principal cannot be held to be clearing and forwarding agent. The main activity of clearing and forwarding agent is that he receives the despatch orders from the principal and arranges clearance of the goods in terms of the directions of the principal. He is not free to sell or purchase the goods by his own choice.
As already observed, the appellant is free to sell the goods to his customers in small lots. Such permission given to the assessee in the present case is indicative of the fact that he is not working as clearing and forwarding agent of the principal. As such, they are of the view that no service tax liability would arise against him. Accordingly, the impugned order is set aside and appeal allowed with consequential relief.

Decision:-Appeal allowed.

Comment:-The crux of the case is that main activity of clearing and forwarding agent is arrangement for clearance of goods in terms of directions of principal. Clearing and forwarding agent not free to sell or purchase goods at own choice. However, in the given case, Permission is given to sell goods in smaller lots indicative of fact that assessee not working as clearing and forwarding agent of principal. The appellant is free to sell the goods to his customers. Hence no Service Tax liability arises against assessee as clearing and forwarding agent.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2762

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