Customs, Excise and Gold Tribunal - Calcutta
Prabhat Zarda Factory (India) Ltd. vs Commr. Of C. Ex. on 19 February, 2002
Equivalent citations: 2002(81)ECC736, 2002ECR885(TRI.KOLKATA), 2002(145)ELT222(TRI-KOLKATA), 2006[2]S.T.R.584, [2007]7STT226
ORDER Archana Wadhwa, Member (J)
1. Both the appeals are being disposed of by a common order as they arise out of the same impugned order of Commissioner of Central Excise, Patna vide which he has confirmed demand of Rs. 18,99,027.97 against M/s. Prabhat Zarda Factory (India) Ltd. under the provisions of Section 72 of the Finance Act, 1994 as Service Tax and has imposed penalties upon the said appellants. In addition, penalties have also been imposed on the second appellant, Mr. Pradeep Kumar Arya who is director of M/s. Prabhat Zarda Factory.
2. The appellants, M/s. Prabhat Zarda Factory, are engaged in the manufacture of tobacco product. The said appellants entered into an agreement dated 25-10-89 with M/s. Rama Zarda Company (hereinafter referred to as RZC), appointing the said M/s. RZC as an agent of M/s. Prabhat Zarda Factory. As per the terms of the said agreement, M/s. RZC was appointed as agent for the purpose of marketing the appellants' product and for the function of booking of orders, managing, supervising and developing of the market. The said M/s. RZC was also to act as the appellants' attorney to demand, to sue, to recover, to receive and to give effectual receipts for all sums which may be due from any person or persons for or on account of goods sold by the Principal. In consideration of the services rendered by the said agent M/s. RZC, the appellant, M/s. Prabhat Zarda Factory was to pay commission at the rates mentioned in the scheduled to the contract on the net sale proceeds of the orders received through the agent and executed by the Principal. The agent was to maintain complete records of market survey condition and market position of the orders booked by him and will keep watch over dealer appointed by the Principal.
3. That the appellants were issued show cause notice dated 9-2-99 alleging that as the appellants M/s. Prabhat Zarda Factory was availing services of M/s. RZC who were working as 'Clearing and Forwarding Agent' on commission basis, M/s. Prabhat Zarda Factory was liable for payment of Service Tax. Accordingly, the notice proposed to confirm Service Tax against M/s. Prabhat Zarda Factory for the period 16-7-97 to 31-10-98 as also for the period November, 1998 onwards along with interest on late payment of Service Tax under the provisions of Section 75 of the Finance Act, 1994. The notice also proposed imposition of personal penalty upon both the appellants.
4. The appellants took a stand before the adjudicating authority that the Service rendered by M/s. RZC does not come under the perview of clearing and forwarding agent and the same is entirely different. As such, the question of payment of Service Tax does not arise. Initially, they also took a stand that it is the receiver of the commission who was to pay Service Tax on the quantum of commission received by him and they cannot be made liable to pay the same. However, during the course of personal hearing, they contended that after the amendments in Service Tax Rules through the Finance Bill, they should have been issued a fresh show cause notice. During the course of personal hearing before Commissioner they filed figures of the value of sales effected through their agent and the amount of commission paid by them during the period 1-11-98 to 31-8-99.
5. After considering the submissions made by the appellants, the Commissioner did not find favour with the same and confirmed the amount of Rs. 18,99,027.97 as Service Tax not paid by the appellants. In addition, he imposed personal penalties upon them under the various sections of the Finance Act. The said order of the Commissioner is impugned before us.
6. Shri K. Narasimhan, ld. Advocate appearing for the appellants, has mainly contended that the adjudicating authority has erred in holding M/s. RZC as clearing and forwarding agent for the appellants. Shri Narasimhan submits that the terms and conditions of the agreement between the two show that M/s. RZC was to only help the appellants in procurement of orders and in improving the market condition. He submits that M/s. RZC did not receive the goods from M/s. Prabhat Zarda Factory for further despatch of the same to the ultimate customers. The orders are procured by M/s. RZC and forwarded to M/s. Prabhat Zarda Factory who actually deals with the goods. As such they could not be branded as clearing and forwarding agent. Drawing our attention to the Trade Notice No. 59/99, dated 4-10-99 issued by Mumbai Commissionerate-I, he submits that the said Trade Notice details the activities of the clearing and forwarding agent and clearly stipulates that the clearing and forwarding agent would be the person who would be receiving the goods from the factory of his Pincipal, warehousing the same, receiving despatch orders, arranging for despatch of the goods as per the direction of the Principal by employing transport of his own, maintaining records of the receipt and despatch of goods and the stock available at the warehouse and preparing invoices on behalf of the Principal. He submits that inasmuch as M/s. RZC is not doing any of the activities enumerated in the said Trade Notice, they cannot be called as clearing and forwarding agent and the commission so earned by them cannot be made liable to Service Tax and the appellants cannot be held guilty of non-payment of Service Tax.
7. Shri Narasimhan also urged that after amendment in the Service Tax Rules through the Finance Bill, 2000, the Revenue authorities should have issued a fresh show cause notice inasmuch as the earlier show cause notice dated 1-2-99 had become redundant.
8. We have heard Shri A.K. Pandit, ld. JDR for the Revenue who draws our attention to the definition of clearing and forwarding agent as appearing in Sub-section 12 of Section 65 of Finance Act, 1994. As per the definition, any persons who is engaged in providing any service, either directly or indirectly connected with clearing and forwarding operations in any manner to any other person and includes a consigning agent. The taxable service has been defined as any service provided to a client by Clearing and Forwarding agent in relation to clearing and forwarding operations in any manner. As such, he submits that the said definition is wide definition and by applying the same M/s. RZC becomes clearing and forwarding agent of the appellants.
9. We have considered the submissions made from both the sides. The main contention of the appellants is that M/s. RZC cannot be held to be a clearing and forwarding agent of M/s. Prabhat Zarda Factory inasmuch they do not undertake the activities as enumerated in the Mumbai Commis-sionerate's Trade Notice relied upon by them. However, we find that, that in the very same Trade Notice, it is mentioned that clearing and forwarding agent has been defined as any person who is engaged in providing any service, either directly or indirectly connected with clearing and forwarding operations in any manner to any other person and includes a consigning agent. The details of the activities given in the said Trade Notice are only few of the activities undertaken by clearing and forwarding agent as is apparent by the use of the expression 'normally'. As such, it is clear that the activities given in the said Trade Notice are not exhaustive but are inclusive in nature and describes the jobs to be normally undertaken by the clearing and forwarding agent. As per the definition of clearing and forwarding agent, he is a person who is, engaged in providing 'any' service, either directly or 'indirectly' connected with clearing and forwarding operations in 'any' manner to any other person (Emphasis provided). The use of expression 'any' and 'indirectly' in the said definition of clearing and forwarding agent, is indicative of the fact that the scope of the services to be provided by clearing and forwarding agent is quite wide. He is not only the person who is actually dealing with the goods which has to be termed as clearing and forwarding agent. Even if the services are indirect, but the same are connected with the clearing and forwarding operations in any manner of the other persons, he would be covered by the definition of clearing and forwarding agent. In the instant case admittedly M/s. RZC is procuring orders from the dealer and passing on the same to M/s. Prabhat Zarda from whom they are receiving the commission, in lieu of services so provided. The said services are definitely connected with the clearing and forwarding operations of the various tobacco product being manufactured by M/s. Prabhat Zarda Factory. It is further seen that the taxable service has been defined as any service provided by clearing and forwarding agent 'in relation' to clearing and forwarding operations in 'any manner' (Emphasis supplied). From the above, it is clear that the service has to be relatable to the clearing and forwarding operations and can be in any manner and it is not necessary that the said agent must deal with the goods directly. As such, we are of the view that the lower authority has rightly concluded that M/s. RZC is a clearing and forwarding agent of M/s. Prabhat Zarda Factory and services provided by them are liable to tax.
10. The appellants have also contended that after the introduction of Finance Act, 2000, they should have been issued a fresh show cause notice. The Commissioner has observed that through the Finance Bill, 2000, the Government of India has validated certain action taken under Service Tax Rules. As per Clause 113(1) of the Finance Bill, 2000, any action taken or anything done or purported to have been taken or done at any time during the period commencing on and from the 16th day of July, 1997 and ending with the day, the Finance Act, 2000 receives the assent of the President shall be deemed to be valid and always to have been valid for all purposes, as validly and effectively taken or done. Accordingly, he has held that the show-cause notice issued on 9-2-99 is a valid show cause notice. We do not find any infirmity in the above views of the ld. Adjudicating authority.
11. As regards the imposition of personal penalty on Mr. Pradeep Kumar Arya, Director of M/s. Prabhat Zarda Factory, we find that M/s. Prabhat Zarda Factory has already been penalised and there is no justification for imposition of separate penalty upon the Director. Accordingly, we set aside the penalty imposed upon the Director.
12. In view of the foregoing, the appeal filed by M/s. Prabhat Zarda Factory (India) Ltd. is rejected and the appeal filed by Mr. Pradeep Kumar Arya, Director of the said Company, is allowed.