Custom, Excise & Service Tax Tribunal
Cce, Ludhiana vs M/S Singhania Chemicals Agency on 28 August, 2008
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL NEW DELHI PRINCIPAL BENCH - COURT NO. 1 Service Tax Appeal Nos. 273 & 284 of 2006 (Arising out of order-in-appeal No. 350-351/CE/Appl/LDH/05 dated 25.07.2005 passed by the Commissioner of Central Excise (Appeals), Ludhiana) DATE OF HEARING : 28.08.2008 DATE OF DECISION : 28.08.2008 FOR APPROVAL AND SIGNATURE : HONBLE MR. JUSTICE S.N. JHA, PRESIDENT HONBLE MR. M. VEERAIYAN, 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 their Lordships wish to see the fair copy of the Order ? 4. Whether Order is to be circulated to the Departmental Authorities? CCE, Ludhiana . Appellant (Rep by Sh. A.K. Madan, DR) VERSUS M/s Singhania Chemicals Agency . Respondent
(Rep. by Sh. Navneet Singhal, Conslt.) CORAM : HONBLE MR. JUSTICE S.N. JHA, PRESIDENT HONBLE MR. M. VEERAIYAN, MEMBER (T) ORDER NO._________________________________ PER M. VEERAIYAN :
These two appeals are filed by the Department against the orders of the Commissioner (Appeals) No. 350-351/CE/Appl/LDH/05 dated 25.07.2005.
2. Heard both sides.
3. The relevant facts, in brief, are as follows:
(a) The respondents have entered into agreements with manufacturers of goods to sell the goods as consignment agents. As per the agreements, the goods were entrusted to the respondents for sale on behalf of the company;
(b) The respondents are required to keep sign board indicating that the goods are stored on behalf of the company. They are required to undertake loading and unloading of the goods and are entitled to reimbursement of actual expenses;
(c) They are required to sell on such prices and terms and conditions as directed by the company; the consignment agent is not empowered to charge more rates than fixed by the company.
(d) The goods so sold are required to be delivered to the customers by the consignment agent on behalf of the company;
(e) They are required to provide storage facilities and also keep the goods insured in the companys name. The consignment agent is eligible for re-imbursement of actual expenses like octroi, sales tax and other local tax payable in respect of the products. The invoices of the consignment agents and the letterheads are required to specifically indicate that they are acting as companys agent;
(f) After taking into account the terms of the agreements, the original authority held the respondents as consignment agents and also held that they rendered the services in connection with clearing and forwarding operations and confirmed demand of service tax under the heading Clearing & Forwarding Agent and rejected the claim of refund by the respondents;
(g) The Commissioner (Appeals), however, held that they are not undertaking any clearing and forwarding activities and, therefore, they were not rendering the service of clearing and forwarding agent attracting levy of service tax. Accordingly, he held that the respondents were entitled to refund of service tax paid by them, subject to the provisions of Section 11-B of the Central Excise Act, 1944 as made applicable to the service tax;
(h) The Department is in appeal against the above orders of the Commissioner (Appeals).
4.1. Learned DR took us extensively through the terms of the agreements and also took us through the classification issued by the Central Board of Excise & Customs which is as follows :
A clearing and forwarding agent normally undertakes the following activities :
a) Receiving goods from the factories or premises of the principal or his agents
b) Warehousing these goods
c) Receiving dispatch of goods as per the directions of the principal by engaging transport on his own or through the authorized transporters of the principal
d) Maintaining records of the receipt and dispatch of goods and the stock available at the warehouse
e) Preparing invoices on behalf of the principal. 4.2 He submits that the respondents are not owner of the goods; they undertake storage of the goods; the sales are done only on behalf of the principals; the invoices are also prepared only on behalf of the principals as required under the agreements. He also submits that the claim of the respondents that they were not receiving any despatch orders from the principals is not relevant as the principals have over-riding power to sell the products in the jurisdiction allotted to the consignment agents. He also draws our attention to the definition of clearing and forwarding agent which is an inclusive definition and specifically includes, a consignment agent. He also submits that for a consignment agent to be considered as clearing and forwarding agent it is not necessary that they should undertake all the six activities mentioned in the Boards clarification. He relies, for this submission, on the decision of the Larger Bench of the Tribunal in the case of Medpro Pharma Pvt. Ltd. vs CCE, Chennai, 2006 (3) STR 355 (T-LB), and particularly on paras 31, 32 & 35.
5.1 Learned Chartered Accountant, appearing for the respondents, submits that though they are described as consignment agent in the agreements, but they are actually doing the job of selling agents and the receipt and storage of the goods are incidental to the selling operations; the sales are undertaken by the respondents on their own and raising their own invoices though a stamping is made to the effect that they are consignment agents of the principals. He submits that they cannot be considered as clearing and forwarding agents, in view of the fact that no despatch orders are received from the principals; sale of goods was being undertaken on their own decision; goods are dispatched as per their decision; invoices are raised in their own name and that collection of sale proceeds has been done at their own risk.
5.2 He relies on the following decisions :
(i) Larsen & Toubro Ltd. vs CCE, Chennai, 2006 (136) ECR 0634;
(ii) CCE, Jalandhar vs United Plastomers, 2008 (10) STR 229 (P&H);
(iii) CCE&ST vs Transasia Sales Syndicate, 2007 (8) STR 467;
(iv) Premier Sport Ltd vs CCE, 2007 (5) STR 150;
(v) CCE, Vadodara vs Parekh Apparels, 2008 (9) STR 87;
(vi) Style Cell vs CCE, 2008 (10) STR 456;
(vii) MTR Foods Lts. Vs CST, Bangalore, 2008 (9) STR 353;
(viii) Bellary Computers vs CCE, 2007 (8) STR 470;
(ix) City Gold Metal Pvt. Ltd.vs CCE&ST, Patna, 2008 (9) STR 403;
(x) Dina Iron & Steel Ltd. vs CCE, Patna, 2007 (7) STR 19;
(xi) CCE, Bangalore vs Sidharth Polymers, 2007 (7) STR 472
(xii) CCE, Allahabad vs Chandan Chemicals, 2007 STR 578;
(xiii) Mitsum Steels Pvt. Ltd. vs CCE, Bangalore, 2007 (6) STR 115; and
(xiv) Glaxo Smith Kline Pharma Ltd. vs CCE, Bangalore, 2008 (9) STR 361.
5.3 He submits that they are not undertaking any clearing and forwarding operations and, therefore, seeks upholding the order of the Commissioner (Appeals).
6.1 We have carefully perused the records and also considered the submissions from both sides. From a reading of the agreements, we have no doubt in our mind that the respondents are not owner of the goods. Therefore, they are not entitled to sell on their own. Admittedly, the goods have been sold with the stamping on the invoices which indicated that the status of the respondents as consignment agents. Even otherwise, the various conditions governing, the relationship between the respondents and the principals indicate that the goods are sold at prices fixed by the principals and sold on behalf of the principals and delivered to the customers on behalf of the principals and the entire sequence of activities/responsibilities undertaken by the respondents show that they act only as consignment agent.
6.2 The consignment agent is specifically included under the category of clearing and forwarding agent by the inclusive definition. The respondents have undertaken several activities which have been considered to be activities of clearing and forwarding agent.
7. The relevant portion of the decision of the Larger Bench of the Tribunal in the case of Medpro Pharma Pvt. Ltd. vs CCE, Chennai (supra) is worth reproducing at this stage 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 fore-going 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 connoisseurs experience of harmony in western classical music. While listening to Mahlers 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 Agents 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 forwarding 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 nature 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 this 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 posts or subsequent transits.
35. In new of the above discussion and findings, we hold that the C&F Operations cannot be dissected into Clearing and Forwarding as they fall in the common category and hence all or any of the services of that category will be services provided by a C&F Agent, connected with C&F Operations and would attract levy of service tax under Section 65(23). Question No. 1 referred to us is accordingly answered in the affirmative and the question No. 2 in the negative.
8. The decisions cited by the learned Chartered Accountant are not directly relevant to the facts of the case which have been elaborately discussed above. In view of the above, we find that order of the Commissioner (Appeals) is not sustainable. The same is set aside and the order of the original authority is restored.
9. Both the appeals are accordingly allowed.
(Dictated and pronounced in the open Court on the 28th day of August, 2008) (JUSTICE S.N. JHA) PRESIDENT (M. VEERAIYAN) MEMBER (TECHNICAL) Golay