Whether services provided by the assessee covered under clearing and forwarding agent?

PJ/Case Law /2016-17/3246

Case-SOMANI AGENCIES VERSUSCOMMISSIONER OF CENTRAL EXCISE & S.T., INDORE

Citation- 2016 (43) S.T.R. 242 (Tri. - Del.)

Brief Facts- Appeal has been filed against order-in-appeal dated 30-6-2009 which upheld the order-in-original dated 27-3-2009 in terms of which Service Tax demand of Rs. 95,624/- was confirmed under clearing and forwarding agent service along with interest and penalties

Appelants Contention-The appellant has contended that :

(i)It was not engaged in clearance of the goods from the factory and therefore in the light of the judgment of Punjab and Haryana High Court in the case of CCE v. Kulcip Medicines (P) Ltd. - 2009 (14) S.T.R. 608 (P & H), it was not covered under the scope of clearing and forwarding agent service because to be covered thereunder the assessee has to be engaged in both clearing and forwarding of the goods.

(ii)It was under bona fide belief regarding its non-liability to Service Tax and therefore extended period is not invocable.

(iii)The appellant also contended that the reasoning in the impugned order is inadequate.

Respondents Contention-Ld. Departmental Representative on the other hand stated that in this case the appellant acted as a clearing and forwarding agent and provide the service of loading, unloading, storing of goods sent by the service recipient and maintained warehouse/godown for the same. The appellant was fully responsible for making arrangement for dispatch and transportation of goods to various destinations as per the directions of the service recipient and the ownership of the goods remained with the service recipients and the appellant merely acted as a custodian of the goods. The goods were dispatched as advised by the service recipient. Thus the service clearly fell within the scope of C&F agent service. It cited the judgment of Karnataka High Court in the case of CCE v. Mahavir Generics - 2010 (17) S.T.R. 225 (Kar.).

Reasoning Of Judgement-The Tribunal considered the contentions of both sides. It appreciated the nature of service rendered by the appellant. It is useful to quote from the agreement/contract/appointment of the appellant in terms of which the appellant rendered the impugned service.

(i)Noticee shall act as C & F agent for the purpose of receiving, storing and forwarding of goods.

(ii)Noticee shall unload, load, stock and store merchandise sent by the principals.

(iii)Noticee shall maintain a warehouse/godown for storing of the goods and maintain proper records of the receipts and dispatches of the goods.

(iv)The noticee is fully responsible for making arrangements for dispatch, delivery and transportation thereof to various destinations as per directions from the company.

(v)Ownership of the goods is fully with the company and C&F Agent merely acts as a custodian of the goods.

(vi)Goods are dispatched as advised by the company.

(vii)The noticee is fully responsible for collection of the payments for goods and deposit the same in the principals’ account.

(viii) Noticee shall comply with all statutory and legal requirements such as registration/license for operation of C & F agency and for any other legal requirements that may be applicable to the operations of the C & F agency.

It is clear from the provisions of the above-quoted agreement that as per the agreement itself the appellant was to act as clearing and forwarding agent for the purpose of receiving, storing and forwarding of goods. It was to unload, load and stock and store the merchandise sent by the service recipient and the ownership of the goods remained with the service recipient and the appellant merely acted as a custodian of the goods and dispatched them as per the advice of the service recipient. It is thus obvious that the appellant cleared the goods received at its end and stored them in the warehouse and thereafter forwarded them as per the directions of the service recipient. Section 65(25) of Finance Act, 1994 defines clearing and forwarding agent as under :

“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.”

The taxable service is defined under Section 65(105)(j) ibid is as under :

“Taxable service” means any service provided or to be provided to a client, by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner.”

It is thus clear that as per the activities performed by the appellant, it is squarely covered within the definition of clearing and forwarding agent and it provided service to a client in relation to clearing and forwarding operations. The Tribunal took note of the Punjab and Haryana High Court judgment in the case of Kulcip Medicines Pvt. Ltd. (supra) wherein the word “clearing” was given the meaning as if such clearing was required from the factory. Supreme Court vide its order [2012 (25) S.T.R. J127 (S.C.)] summarily dismissed the special leave petition against the said order of Punjab and Haryana High Court. Thus in the wake of Supreme Court judgment in the case of Kunhayammed v. State of Kerala - 2001 (129) E.L.T. 11 (S.C.) there was no merger of the Punjab & Haryana High Court order with the order of Supreme Court and consequently the judgment of Punjab & Haryana High Court did not acquire the strength and vitality of the Supreme Court order. The Tribunal found that the definition of clearing and forwarding agent nowhere requires the clearing to be effected from the factory. Indeed the said judgment of Punjab and Haryana High Court has been taken due note of by the Karnataka High Court in the case of Mahavir Generics (supra). In the said judgment Karnataka High Court considered the service rendered by Mahavir Generics in terms of the agreement which has been quoted in the said judgment. The said agreement is similar (if not identical) to the one under which the appellant rendered service and therefore the said judgment of Karnataka High Court is squarely applicable to the present case. It may be pertinent to note that P & H High Court in its judgment in the case of Kulcip Medicines (supra) took note of the assertion of Madhav Rao, ld. Counsel that the CESTAT judgment in the case of Mahavir Generics [2006 (3) S.T.R. 276 (Tribunal)] was not appealed against by Revenue which was factually incorrect as the judgment of CESTAT in the case of Mahavir Generics was appealed against before Karnataka High Court. Indeed as per the agreement under which the appellant rendered service all the ingredients required for coverage of the service under C & F agent service are so clearly present that there was no scope for any confusion or ambiguity with regard to the taxability of the said service and therefore the appellant’s contention that it had bona fide belief about the non-taxability of service rendered by it is totally untenable. Bona fide belief is not a hallucinatory belief; it is a genuine belief of a reasonable person operating in an appropriate environment. When the terms of the agreement were so clear, any reasonable person operating in an appropriate environment would have no basis to entertain a belief that the service rendered by it in terms of the agreement cited above by any stretch of imagination would not be covered under the scope of clearing and forwarding agent service. Therefore the extended period has been rightly invoked. As regards the contention of the appellant that the reasoning of the Commissioner (Appeals) in the impugned order is inadequate, suffice to say that even if that is the case, the appellate Court can use different reasoning based on transactional documents and come to an appropriate finding and the appellate Court is not in any way bound by the reasoning of the lower authorities in this regard.
In the light of the foregoing analysis, the Tribunal did not find any infirmities in the impugned order. The appeal is dismissed.

Decision- Appeal dismissed

Comment- The gist of the case is that theassessee cleared goods received at its end and stored them in warehouse and thereafter forwarded them as per directions of service recipient and all these activities are covered within definition of clearing and forwarding agent under Section 65(25) of Finance Act, 1994, therefore assessee is liable to pay Service Tax on them.

Prepared By- Praniti Lalwani

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PJ/Case Law /2016-17/3246

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