Custom, Excise & Service Tax Tribunal
M/S.Fenner India Ltd vs Commissioner Of Central Excise, ... on 28 May, 2009
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
S/53/2004
[Arising out of Order-in-Appeal No.94/2004 dated 27.02.2004 passed by the Commissioner of Central Excise (Appeals), Madurai]
S/40/2005
[Arising out of Order-in-Appeal No.41/2005 dated 31.03.2005 passed by the Commissioner of Central Excise (Appeals), Madurai]
S/CO/03/05 & S/51/2005 and S/52/2005
[Arising out of Orders-in-Appeal Nos.48 - 49/2005 dated 20.04.2005 passed by the Commissioner of Central Excise (Appeals), Madurai]
S/112/2005
[Arising out of Order-in-Appeal No.186/2005 dated 09.09.2005 passed by the Commissioner of Central Excise (Appeals), Madurai]
S/182/2007
[Arising out of Order-in-Appeal No.68/2007 dated 26.04.2007 passed by the Commissioner of Central Excise (Appeals), Madurai]
For approval and signature:
Honble Ms.JYOTI BALASUNDARAM, Vice-President
Honble Mr. P.KARTHIKEYAN, Member (Technical)
1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? :
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? :
3. Whether the Members wish to see the fair copy of
the Order? :
4. Whether Order is to be circulated to the Departmental
Authorities? :
M/s.Fenner India Ltd.
Appellants
Versus
Commissioner of Central Excise, Madurai
Respondent
Appearance :
Shri K.S. Venkatagiri, Adv.
Shri V.V. Hariharan, JCDR For the Appellants For the Respondent CORAM:
Honble Ms.Jyoti Balasundaram, Vice-President Honble Mr. P. Karthikeyan, Member (Technical) Date of hearing : 28.05.2009 Date of decision : 28.05.2009 Final Order No.____________ Per Jyoti Balasundaram The appellants herein are manufactures of Fenner brand rubber belts, oil seals and moulded products . M/s.BMF Belting Ltd., a subsidiary of the appellant manufacture Fenner brand rubber products under a licence agreement using the know-how of Fenner in their Patancheru unit. Goods manufactured by BMF are sold through a marketing and distribution network/depots of the appellants and the facilities of the appellants are shared by the holding and subsidiary companies for marketing the products. Both BMF Belding and Fenner dispatch the goods from their respective factories to the depots/marketing network/distribution network of the appellants. Selling/distribution agreement was entered into between the appellants and BMF on 01.04.1995.
1. The salient terms of the agreement are as follows:-
2. BMF is manufacturing the products detailed in the Schedule I to this agreement and FIL has established a pucca distribution system and marketing outlet and BMF is desirous of utilizing the facility and FIL have agreed to provide the same, this agreement has been entered into with the following terms and conditions.
3. Whereas there has been a verbal arrangement between the above-said parties for payment of 3% distribution expenses and 2% handling charges for the purposes mentioned in this agreement. This agreement is now reduced in writing for continuance of this arrangement for a further period of 5 years or till terminated by a notice in writing by BMF or by FIL giving 60 days prior written notice.
4. FIL has agreed with BMF by this agreement to handle and distribute the products manufactured by BMF and those that may be added to its range of production in future with the Trade Mark belonging to FIL through the marketing channels developed by FIL in the territory mentioned in the Schedule II hereunder.
5. BMF shall abide by the endeavours including insurance of the subject matter in the matter of handling and distribution undertaken by FIL in respect of the products distributed under this agreement and shall be at the cost of BMF.
6. BMF shall at its own expense supply to FIL the goods to be sold.
7. BMF shall arrange that all products meant for sales are dispatched by appropriate mode of transport in adequate quantities and in time to the warehouse or places as directed by FIL.
8. BMF shall not deface or alter the products, remove or modify any label, instructions, trademarks or identifying insignia applied to or furnished in connection with the subject matter or affix to the subject matter on their packaging any labels or signs not previously approved in writing by FIL.
9. BMF shall not sell the products under any trade name or names except as specified by FIL.
10(a). BMF shall pay FIL 3% of the total turnover achieved by the latter towards distribution expenses and another 2% on the said total turnover towards handling and other incidental expenses. The payments may be made at such intervals as may be mutually agreed to by the parties to this agreement.
10(b). BMF shall render accounts of the Sales made at periodical intervals to FIL and remit the payments due to FIL as per Clause 10(a) above and after deducting any other statutory deductions, if applicable.
11. BMF and/or FIL shall notify promptly every time it comes to us notice sales of subject matter are being made in the territory by persons except purchasers/dealers from FIL and at the expenditure of BMF, BMF or FIL shall take all such steps including litigation as are necessary to prevent spurious sales or as it considers reasonable to protect the rights of the parties to the agreement.
12.
13. Either party may at any time by written notice terminate this agreement or suspend its performance immediately without liability for compensation or damage if any.
14. The agreement shall terminate automatically if BMF is guilty of any Act which brings FIL into disrepute or which in the reasonable opinion of FIL is prejudicial to its interest.
15. On termination BMF shall pay FIL any outstanding amounts due to the latter at the date of termination.
16.
17.
18. On the termination of this agreement for any reason, FIL shall return all unsold goods to BMF and render accounts and settle the same from the date of last settlement till the date of cancellation of the agreement.
19.
20. It is hereby declared by BMF and FIL that the above arrangement shall not be deemed as a Sold Selling Agency Agreement and is only intended to avail the distribution and handling facility provided by FIL.
2. The terms of payment were modified by supplementary Memorandum of Understanding on 01.04.1997 as per which BMF was to pay 5% of the total turnover achieved by Fenner, towards distribution expenses and another 2 = % towards of handling of incidental expenses. The terms of payment were further modified on 01.04.2000 according to which BMF was to share the actual expenses on sales, distribution and incidental expenses in proportion to the turnover of their products.
3. Excise Audit was conducted during the period 03.07.2000 to 21.07.2000 when it was noticed from the books of account of Fenner that handling charges for the year 1999-2000 had been collected. The audit observed that during the period September, 1999 to June, 2001 Fenner had received Rs.1,77,55,356/- as incidental expenses for distribution and handling from BMF which according to the audit are covered under C&F services. A show-cause notice dated 05.06.2003, was issued for recovery of service tax of Rs.1,87,768/- on the above amount, which demand was contested on the ground that no clearing and forwarding services were provided, that handling and distribution expenses received was only Rs.19.21 lakhs and that the demand was barred by limitation. The demand was confirmed and penalties imposed vide order dated 31.10.2003 of the Assistant Commissioner; the lower appellate authority vide order dated 27.02.2004, rejected the appeal of the assessees on merits, but remanded the case to the Assistant Commissioner for quantification of the demand. This has given rise to Appeal No.S/53/2004.
4. In the de novo proceedings for quantification, the lower authority, confirmed the demand of Rs.8,87,768/- vide order dated 11.10.2004 noting inter alia that the sharing of expenses by BMF to the extent of Rs.4,22,82,492/- during the post-01.04.2000 is also a consideration for the C&F services provided. Aggrieved by this order, the appellants preferred an appeal before the Commissioner (Appeals) who vide Order-in-Appeal dated 31.03.2005, rejected the appeal. S/40/2005 is the appeal arising out of the above mentioned order.
5. Show-cause notices for subsequent periods were issued and adjudicated by confirming demand of service tax raised therein, holding that the appellants had provided C&F services to BMF. A notice dated 23.09.2004 was once again issued for the tax amount dropped in Order-in-Original dated 11.10.2004 by restricting demand to a value of Rs.1,77,55,356/- Appeal against this order was also rejected and against all the orders the assessees have come in appeal before the Tribunal. The period of dispute ranges from 01.09. 1999 to 31.08.2004.
6. We have heard both sides.
7. The case of the department is based on the following:-
(a) The appellant provided services in the capacity of clearing and forwarding agent.
(b) The purpose of the agreement is for utilisation of the facility of distribution system and marketing outlet of the appellants on payment of expenses towards distribution and handling/incidental expenses.
(c) The payments received by Fenner are only in respect of services rendered by them to BMF in selling products by way of allowing them to utilize their established distribution system and marketing outlet.
(d) BMF was to supply goods to places and warehouses as directed by the appellants.
(e) The unsold goods were required to be returned on termination of the agreement.
(f) The Revenue relied upon the decision of the Tribunal in Prabhat Zarda Factor (India) Ltd. Vs Commissioner of Central Excise, Patna [2002 (145) E.L.T. 222 (Tri.-Koklata)].
8. We find that the scope of the contract between the appellants and BMF does not cast any obligation whatsoever on the appellants to provide clearing and forwarding services. The agreement is for marketing goods manufactured by BMF using distribution and marketing outlets of the appellants of whom BMF was the subsidiary. The goods are sold to various buyers at depots and the appellants do not perform any clearing and forwarding service. The products meant for sale are admittedly dispatched directly to the depots/branches and the goods are sold from there. Only expenses on sales and distribution of the goods sold by BMF through the appellants are shared. No commission is paid.
9. We note that in the case of Mahavir Generics Vs Commissioner of Central Excise, Bangalore [2006 (3) S.T.R. 276 (Tri.-Del.)], the Tribunal held that no clearing and forwarding agents service was provided to a client when products of the principal were supplied to the appellants on consignment basis and sold by the appellants to customers and, therefore, no service tax was leviable under the above category. The above order was followed in Kulcip Medicines (P) Ltd. Vs Commissioner of Central Excise, Delhi-III [2006 (1) S.T.R. 36 (Tri.-Del.)] holding that the appellants carried out only distribution of goods which were delivered at their premises by manufacturer, and did no clearing of goods and hence the service rendered did not satisfy the requirement of clearing and forwarding agent service. The above decisions were overruled by larger Bench decision of the Tribunal in the case of Medpro Pharma Pvt. Ltd. Vs Commissioner of Central Excise, Chennai [2006 (3) S.T.R.355 (Tri.-LB)]. However, the Kulcip Medicines decision cited supra has been overruled by the Honble Punjab and Haryana High Court at Chandigarh vide its judgement dated 24.02.2009 in Central Excise Appeal No.34/2006. The relevant extracts from the above judgment are reproduced hereunder:-
The question which falls for consideration is whether word and used after the word clearing but before the word forwarding at two places in clause (j) be considered in a conjunctive sense or dis-injunctive sense. It appears to be fairly well settled that the context and intention of legislature are the guiding principles. In that regard reliance may be placed on the judgement of Honble the Supreme Court in the case of Mazagaon Dock Ltd. V CIT (1958) 34 ITR 368. By necessary intendment the expression a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner contemplates only one person rendering service as clearing and forwarding agent in relation to clearing and forwarding operations. To say that if, one person has rendered service as forwarding agent without rendering any service as clearing agent and he be deemed to have rendered both services would amount to replacing the conjunctive and by a disjunctive which is not possible. The counsel for the Revenue has not been able to bring on record any material to show the word and should be construed as disjunctive. He has not shown any trade practice which may lead to a necessary inference that service of one kind rendered by one is invariably considered to comprise both. No argument has been advanced before us by him to canvass that the legislature intention is discernible from the scheme of the statute or from any other relevant material. Therefore, the word and should be understood in a conjunctive sense. (See Maharaja Sir Pateshwari Prasad Singh v. State of U.P (1963) 50 ITR 731). In these circumstances, if we read the word and as or then it would amount to doing violence to the simple language used by Legislative which cannot be imputed ignorance of English language. In that regard, we place reliance on the judgement of Honble the Supreme Court rendered in the case of Inayat Ali Khan v. State of U.P. (1971) 2 SCC 31 (Para 5) and Para 6 of the judgement of Honble Supreme Court rendered in the case of Ape Belliss India Ltd. v. Union of India (2001) 132 E.L.T. 8. The observations of their Lordship read thus:
6.A plain reading of the Section (sic Tariff Public Notice) clearly shows, as contended by Mr. Bhatt, that for an alloy steel to be considered as stainless steel, it will have to satisfy two conditions i.e. The alloy steel should be known in the trade as stainless steel and further, it should contain 11% chromium as a component of the alloy steel. This is clear from the use of the word and. If the intention of the trade notice was to treat the two types of alloy steels as stainless steel, then it would have been made clear by using the word of instead of the word and. We are further of the view that the circulars issued by the Board are binding and meant for adoption for the purposes of bringing uniformity. In that regard reliance may be placed on the judgements of Honble the Supreme Court in the cases of Ranadey Micronutrients v. Collector of Central Excise 1996 (87) E.L.T. 19 (S.C.) and Paper Products Ltd. v Commissioner of Central Excise (1997) 7 SCC 84. If the aforesaid principle is applied to the facts of the present case there does not remain any doubt that the circular issued by the Board is to be considered as binding and cannot be deviated even by the department. On that account also the expression clearing and forwarding agent have to be interpreted in the light of the circular.
The view taken by the Tribunal in M/s.Mahavir Genericss case (supra) has been accepted by the Revenue as no appeal has been filed. Moreover, we are not able to persuade ourselves to accept the view taken by the larger Bench of the Tribunal in the case of Medpro Pharma Pvt. Ltd.
We have not been able to understand with utmost respect to the Tribunal as to what is Orchestrated nature of work involved in the present transaction. The dealer in the present case as per the arrangements reached between the parties has to receive goods which are already got cleared by the manufacturer. The dealer is to store those goods and forward to the buyer of the goods as per direction received. In that regard, the findings of the Tribunal in the instant case is patently clear when it observed as under in para 6:
It is clear from the terms of the agreement that appellant herein does not attend to the clearing of the medicines manufactured by Cipla. consignments of medicines are cleared from the factory by the manufacturer and delivered to the appellant at his premises. In this factual situation, it has to be held that there is no clearing by the appellant and for that reason, the service rendered by the appellant does not satisfy the requirement of clearing and forwarding. We, therefore, are of the view that the demand is not sustainable. To the same effect is our earlier decision in the case of M/s.Mahavir Generics. The example of wheat and rice grocery shop is obviously wholly mis-appropriate and does not fit in the context. We are also not in agreement with the interpretation of word and which has already been dilated upon by us.
As a sequel to the above discussion, the question of law raised is decided against the Revenue and in favour of the assessee.
10. In the light of the judgement of the Honble Punjab and Haryana High Court, the larger Bench decision in Medpro Pharma Pvt. Ltd. is no longer good law.
11. Following the High Court judgement cited supra, which is applicable on all fours to the facts of the present case as the appellants did not attend to clearing of goods manufactured by BMF (the consignments were cleared from BMF and dispatched directly to depots/branches of the appellants), we hold that the appellants do not provide clearing and forwarding services and are, therefore, nor liable to service tax under this Heading. Accordingly, we set aside the impugned orders and allow the appeals without recording any findings on the other pleas such as limitation.
(Operative portion of the order was pronounced
in open court on 28.05.2009)
(P.KARTHIKEYAN) (JYOTI BALASUNDARAM)
MEMBER (T) VICE-PRESIDENT
ksr
16-06-2009
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