Customs, Excise and Gold Tribunal - Tamil Nadu
Commissioner Of Central Excise vs Lalit Enterprises on 3 June, 2005
Equivalent citations: 2006[ ]S.T.R.13
ORDER P.G. Chacko, Member (J)
1. This appeal of the Revenue is against an order of the Commissioner (Appeals) setting aside a demand of Service Tax, which had been confirmed against the party by the original authority. The respondents rendered certain services to M/s. Grasim Industries Ltd., during the period 1999-2000 to 2002-03 in terms of a Service Agent Agreement entered into between them. The terms and conditions of this agreement are seen stated in a letter dated 1-4-1998 of M/s. Indian Rayon and Industries Ltd. (White Cement Division) - since taken over by M/s. Grasim Industries Ltd. - addressed to the respondents. This factual position is not in dispute. The scope of services to be rendered by the respondents under this agreement to M/s. Grasim Industries Ltd. is clearly discernible from this document. The relevant part of the document is extracted below :
(a) You shall be responsible for deposit of SALES TAX and CENTRAL SALES TAX on your depot in time. However, we will arrange the DD in favour of Sales Tax Authority after receiving information from you. You will also arrange for filing of the return through the Sales Tax consultant in time. You will also provide all details and statement, which are requires for Sales Tax Assessment purposes. You will keep all records and books with you till the Sales Tax Assessment is over. You will make every effort to clear pending Sales Tax Assessments and other issues of your area.
(b) You will arrange for daily Receipt and deposit of all payments on behalf of the Company in the designated bank account and arrange to send the required details on daily/periodical basis as required by the Company.
(c) You shall immediately advise us of the constitution of your business enclosing copies of all relevant documents such as partnership deeds etc. and shall promptly upon there being any change in the said constitution, intimate to us the nature of the change. The company shall be entitled to terminate arrangements forthwith if in its opinion the changes in the constitution render you unfit or continuance as our Service Agent.
(d) The Company shall be entitled to depute on or more representatives to visit and inspect all the places of your business including establishment, records and documents to inspect and verify that all the conditions stated herein above have been duly complied with.
(e) You will be responsible for the reconciliation of account of each party of your Depot after the end of each accounting year and will send the balance confirmation certificate duly signed by the party to our factory.
(f) You will arrange the visit of your representative once in a year to our factory for account reconciliation purpose at your cost.
(g) You are required to maintain secrecy with regard to disclosure of information relating to our transaction with you, our customers and others.
(h) You shall keep in deposit with us a security deposit a sum of Rs. 25,000/- which shall be refundable to you with interest @ 15% p.a. upon the due cessation of these arrangements. But the Company shall be entitled to adjust any sums due and payable by you against the said deposits.
(i) You shall, whenever so required by the Company, render such further services including collection of dues from our customer, as the Company may from time to time advise, upon such terms and conditions as may be stipulated.
(j) We wish to clarify that your engagements as Service Agent is not exclusive arrangements and the Company shall be free at its absolute discretion to engage one or more Service Agent.
The manner in which the service charges were to be paid to the respondents has also been detailed in this document. The following is the relevant extract :-
4. SERVICE CHARGES
(a) In such consideration of services agreed to be rendered by you as stated above, we shall pay you service charges as under. We shall pay these charges on a monthly basis upon receipt of fully particulars together with the supporting documents:
(i) 1 to 50 M.T. per month Rs. 45/- per M.T. (ii) 51to 250 M.T. per month Rs. 25/- per M.T. (iii) Rs. 251 to 500 M.T. per month Rs. 20/- per M.T. (iv) 501 M.T. and above. Rs. 15/- per M.T.
The Department demanded Service Tax on the amounts paid by M/s. Grasim Industries in the above manner to the respondents. This demand was resisted by the respondents. The adjudicating authority confirmed the demand of tax against them under Section 73 of the Finance Act, 1994 and imposed on them penalties under Sections 76 and 77 of the Act. The appeal filed by the party against the decision of the adjudicating authority was allowed by the Commissioner (Appeals). Hence the present appeal.
2. After examining the records and hearing both sides, I find that the demand of tax raised on the respondents by the Department was on what was considered by the latter as covered by the definition of "Clearing and Forwarding Agent" under Section 65(16) of the Finance Act, 1994. This definition reads 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.
It appears from the submissions of both sides that the dispute is whether the service provided by the respondents to M/s. Grasim Industries was directly or indirectly connected with clearing and forwarding operations in any manner. Ld. Counsel has vehemently argued that the service in question had nothing to do with clearing and forwarding operations and, therefore, the respondents were not covered by the definition of "Clearing and Forwarding Agent". This submission has been hotly contested. Ld. DR submits that it is discernible from the nature of services and the mode of payment of service charges laid down under the agreement that the services rendered by the respondents to M/s. Grasim Industries Ltd., were in relation to the goods of M/s. Grasim Industries Ltd., for the sale of which such services were availed. Ld. DR particularly refers to the mode of payment of service charges and submits that the service charges were paid by M/s. Grasim Industries Ltd., to the respondents at various rates depending on the turnover of sale per month. As an illustration, ld. DR points out that the service charge payable for upto 50 MTs of goods per month was Rs. 45/- PMT and that payable for a quantity of 51-250 MTs of goods per month was Rs. 25 PMT. In the higher slabs of turnover, the rates of service charge PMT were lower. These facts stated by the DR are indisputable, nor has any of them been disputed in this case. Coupled with this, the Service Agents Agreement stipulated that the service agent (respondent) should be responsible for deposit of Sales Tax and Central Sales Tax of his depot in time. A depot was obviously maintained by the respondent in terms of the agreement and the same could be for no purpose other than dealing in the goods cleared to the service agent by their principal (Grasim Industries Ltd.). Ld. Counsel has denied, on behalf of his clients, that there was any such depot. This denial, however, is inconsistent with the respondents' own case, which is founded on the terms of the above agreement. Ld Counsel has relied on the Tribunal's judgment in Mahavir Gentries v. Commissioner of Central Excise, Bangalore , wherein it was held that the appellant was not covered under the definition of 'Clearing and Forwarding Agent' and a demand of Service Tax in terms of Section 65(25) of the Finance Act, 1994 was vacated. It has been pointed out by ld. Counsel that the case of Prabhat Zarda Factory (India) Ltd. v. Commissioner of Central Excise, Patna relied on in the instant case by the original authority has been distinguished by the Bench while dealing with the case of Mahavir Generics (supra). I find that, in the case of Mahavir Generics, it was found by the Tribunal that the appellant was neither clearing any goods nor forwarding any goods and further that they were selling products of their principal to customers on consignment basis. Yet it was held that the activity would not come within the scope of 'Clearing and Forwarding Agent'. Ld. DR has chosen to rely on the Tribunal's decision in Prabhat Zarda Factory (India), wherein it was held that the expression "any service directly or indirectly" widened the scope of services of a Clearing and Forwarding Agent defined under Section 65 of the Finance Act 1994 and it was further held that the service rendered by M/s. RZC to M/s. PZF, viz., procuring orders from dealers and passing on the same to M/s. PZF and receiving commission for the same was definitely connected with the clearing and forwarding operations of various tobacco products manufactured by M/s. PZF.
3. After giving my careful consideration to the case law cited before me, 1 find that the facts of the case of Prabhat Zarda Factory are proximate to the facts of the instant case. In that case, M/s. RZC was collecting purchase orders from dealers, for sale of various tobacco products of M/s. PZF and passing on such orders to the manufacturer and receiving commission for the services. After examining the definition of "Clearing and Forwarding Agent", which was couched in a language which admitted wide meaning and scope, the Bench held that the service rendered by M/s. RZC can be held to be a service rendered 'in relation' to clearing and forwarding operations 'in any manner'. Accordingly, the service was held to be taxable. In the instant case, there are sharper clues indicating that the services rendered by the respondents to M/s. Grasim Industries Ltd. were connected with the clearing and forwarding of goods of the latter. It is beyond the pale of doubt that such services squarely fell within the ambit of the definition of "Clearing and Forwarding Agent" under Section 65(16) of the Finance Act, 1994. After a perusal of the order passed by the Tribunal in Mahavir Generics (supra), I find that the facts of the case of Prabhat Zarda Factory (supra) were not correctly considered and distinguished. I am inclined to follow the ratio of the decision rendered by the Tribunal in the case of Prabhat Zarda Factory. Accordingly, the order of the original authority, which rightly followed Prabhat Zarda Factory (supra), has to be restored and the impugned order, which ignored Prabhat Zarda Factory has to be set aside. At this stage, it is noticed that the plea of limitation raised by the assessee was not considered by ld. Commissioner (Appeals). The claim of the party for the benefit of Section 80 of the Finance Act, 1994 against the penalty imposed on them by the original authority under Section 76 of the said Act was also not examined. The lower appellate authority has got to examine these issues and render a decision thereon.
4. After setting aside the impugned order, I remand the case to the Commissioner (Appeals) for the above limited purpose. It goes without saying that the assessee should be given a reasonable opportunity of being heard.