Customs, Excise and Gold Tribunal - Delhi
Larson And Toubro Ltd. vs Cce, Chennai on 22 June, 2006
Equivalent citations: 2006(110)ECC634, 2006ECR634(TRI.-DELHI)
ORDER
R.K. Abichandani, J. (President)
1. In all these appeals the question involved before the authorities below was whether the assessees were clearing and forwarding agents under their respective agreements, and liable to pay service tax for providing services connected with the forwarding and clearing operations.
2. When Appeal No. Service Tax/81/05 came up for hearing before a Division Bench, the Division found it difficult to agree with the proposition laid down by the earlier Division Bench decision in Prabhat Zarda Factory v. CCE Patna referred the following question for decision by a Larger Bench:
Whether mere procuring/booking orders for the principal by an agent on payment of commission basis would amount to providing services as 'clearing and forwarding agent' within the meaning of the definition of the expression 'clearing and forwarding agent' under Section 65(25) of the Finance Act, 1994, as held in the decision of the Tribunal in Prabhat Zarda Factory (Pvt.) Ltd. v. CCE Patna, .
Since in the other three appeals similar question regarding applicability of the ratio of Prabhat Zarda Factory (Pvt.) Ltd. had also arisen, the above question was also referred to the Larger Bench in all those appeals.
3. We make it clear, before embarking upon the discussion on the controversy referred to the Larger Bench, that what we say should not be construed so as to be deciding any of the other issues involved in any of these appeals or deciding whether, on the facts of those appeals, the assessees were or were not providing services as "clearing and forwarding agent".
4. The controversy has arisen over the proposition laid down in Prabhat Zarda Factory (Pvt.) Ltd., supra, to the effect that procuring orders by an agent from the dealers and passing on the same to the principal, from whom the agent received commission in lieu of services so provided, amounted to services definitely connected with clearing and forwarding agent of the product manufactured in the factory of the principal.
5. It has been contended by the learned Counsel appearing for the appellants in all these appeals that various services are required in a scenario covering manufacture of goods and their purchase. They argued that amongst various services required in such scenario would be: financing. inspecting, packing, loading, procuring order, opening LC, clearance, and forwarding, transportation, insurance, storage and warehousing, unloading of goods etc. Different combination of these services may be required for selling goods to different buyers and the pattern of placement of orders may also differ. It was argued that procurement of order was a distinct kind of service than other services such as clearance and forwarding of the goods subsequent to procurement of orders. It was submitted that under Clause (j) of Sub-section (105) of Section 65 of the Act, taxable service provided by clearing and forwarding agent would mean any service provided to a client, by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner. It was contended that the expression "in relation to" restricted the services to the operations which were in the nature of clearing and forwarding of the goods. It was further submitted that under Sub-section (121) of Section 65, it was provided that words and expressions used, but not defined in Chapter V of the Finance Act, 1944 and defined in the Central Excise Act, 1944 or the rules made thereunder, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise. In this context, reference was made to the provisions of Section 2(aaa) of the Central Excise Act which defined "broker" or "commission agent" so as to mean a person who, in the ordinary course of business makes contract for sale or purchase of excisable goods for others. On the basis of this definition, it was submitted that a person procuring orders as commission agent was a person who, in ordinary course of business, made contracts for the sale or purchase of goods for others. Therefore, an agent who only procured orders and was not concerned with the clearing and forwarding operations was not a clearing and forwarding agent, but was only a commission agent. It was submitted that a person who only procured orders for the principal, was not directly or indirectly concerned with removal of goods. It was submitted that procuring of order was not an operation undertaken for clearance or forwarding of goods. It was also contended that for classifying taxable service essential characteristics of service were required to be examined and on that basis, mere procurement of orders for the principal was not essential characteristic that would make it fall within the meaning of "clearing and forwarding agent".
6. The learned Counsel for these appellants placed reliance on the following decisions in support of their contentions:
(a) The decision of the Supreme Court in Commissioner of Central Excise, Pondichery v. ACER India Ltd. , was cited for the proposition that it was impermissible to levy a tax indirectly.
(b) The decision of the Supreme Court in Navin Chemicals Mfg. and Trading Co. Ltd. v. Collector of Customs , was referred to for pointing out that it was held that, in the context of Section 129C of the Customs Act, though the phrase "relation to" is ordinarily of wide import, it must be read as meaning a direct or proximate relationship to the rate of duty and to the value of goods for the purposes of assessment.
(c) The decision of the Tribunal in KULCIP Medicines (P) Ltd. v. Commissioner of Central Excise, Delhi-III reported in 2006 (1) STR 36, was cited for the proposition that in order to attract the levy, the services must be "in relation to clearing and forwarding operations" and that the definition of "clearing and forwarding agent" makes it clear that all services rendered by the clearing and forwarding agent are not within the scope of the levy; the levy is limited to "clearing and forwarding operations.
(d) The decision of this Tribunal in Commissioner of Central Excise, Meerut v. Purshottam Industries Ltd. reported in 2006(1) STR 82(Tri.-Del.), was cited to point out that it was held in paragraph 2 of the order that since the respondents were only procuring order and passing to the principal for execution and there was no evidence on record to show that the respondents directly or indirectly, were connected with the clearing and forwarding operations, the Tribunal rejected the appeal of the Revenue in which it was contended that the respondent was working as clearing and forwarding agent, and, therefore, liable to pay service tax.
(e) The decision of the Tribunal in Commissioner of Central Excise, Kanpur v. Ram Shree Steels Pvt. Ltd. , was cited to point out that where the assessees working only as commission agent involved in the finalization of sales transactions, neither handled the goods of the seller nor did they carry out any clearing and forwarding operations, the appeal of the Revenue contending to the contrary was rejected.
6. The learned authorized representative for the department submitted that the definition of "clearing and forwarding agent" was wide enough to include all indirect activities which have a bearing on clearing and forwarding operations and that without procurement of orders there would be no such operations. Therefore, procuring orders coupled with a stipulation that commission will be paid after delivery of goods on receipt of prices by the principal, would bring the services provided by such commission agent within the meaning of "clearing and forwarding" operations. It was submitted that the expressions "in relation to" and "in any manner" have wide significance and, therefore, Prabhat Zarda Factory (Pvt.) Ltd. has been correctly decided and procurer of order will be considered as clearing and forwarding agent. The learned authorized representative placed reliance on the decision of the Supreme Court in Doypack Systems Pvt. Ltd. v. Union of India and Ors. , cited in Tamil Nadu Kalyana v. Union of India and Ors. reported in 2004-TOIL-36 SC-ST to point that in paragraph 47 of the judgment it was, inter alia, observed that the words "in relation to" have a wide meaning and are used in the expansive sense.
7. The proposition that the activity of procuring orders on commission basis is a service definitely concerned with clearing and forwarding operations occurs in paragraph 9 of the order passed in Prabhat Zarda Factory (Pvt.) Ltd. which is reproduced hereunder:
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 Commissionerate'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. 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. Is 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 Prabhat Zarda Factory and services provided by them are liable to tax.
[Emphasis added]
8. The definition of "clearing and forwarding agent" under Section 68(25) of Chapter V of the Finance Act, 1994 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.
9.1 From the above definition of "clearing and forwarding agent", it is borne out that the service should be connected with clearing and forwarding operations. The 'clearing and forwarding' operations would be various activities having bearing on clearance of goods which would involve documentary processes and arrangements for transfer of goods to their destination, which process may also involve clearance at subsequent stages during forwarding operations. The procurer of orders on commission basis renders services, which are not connected with such clearing and forwarding operations which have bearing on the movement of goods.
9.2 It will be significant in this context to refer to the nature of operations undertaken by clearing and forwarding agents, as spelt out in paragraph 2.2 of Trade Notice No. 87/97 10/Service Tax/97 of the Madurai-2 Commissionerate dated 14, July 1997, in which it was observed that normally there was a contract between the principal and the clearing and forwarding agent detailing the terms and conditions and also indicating the commission or remuneration to which the C&F agent is entitled. A clearing and forwarding agent normally undertakes the following:
(a) Receiving the goods from the factories or premises of the principal or his agents;
(b) Warehousing these goods;
(c) Receiving despatch orders from the principal;
(d) Arranging despatch of goods as per the directions of the principal by engaging transport on his own or through the authorized transporters of the principal;
(e) Maintaining records of the receipt and despatch of goods and the stock available at the warehouse;
(f) Preparing invoices on behalf of the principal 9.3 An agent engaged only for procuring purchase orders for the vendor on commission basis does not engage in any of the above activities, directly or indirectly. Commission agent engaged to procure orders and not entrusted with the work of clearing and forwarding of the goods would be a person who, in the ordinary course of business, makes contracts for sale or purchase of goods for others. The definition of "commission agent" in Section 2(aaa) of the Central Excise Act, 1944, would apply in relation to service tax as it applies in relation to duty of excise by virtue of Sub-section (121) or Section 65 of the Act. Services of commission agent are included in the definition of "business auxiliary service" under Sub-section (19) of Section 65 w.e.f. 1.7.2003, which includes service of a commission agent. As defined in Explanation (a) to Sub-section (19) of Section 65 commission agent is a person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for consideration, and includes any person who, while acting on behalf of another person: deals with goods or services or documents of title to such goods or services; or collects payment of sale price of such goods or services; or guarantees for collection or payment for such goods or services; or undertakes any activities relating to such sale or purchase of such goods or services. This clearly shows that the activity of mere procurement of purchase orders for the principal on commission basis of a commission agent is treated separately by the Parliament from the activities of a clearing and forwarding agent. Activity of procuring orders is thus independent of clearing and forwarding operations. The agents doing these activities can be different. Moreover, clearing and forwarding operations do not flow directly or indirectly from mere procurement of orders. There is no obligation on the person procuring orders as a commission agent for the principal, only by virtue of that agency, to carry out clearing and forwarding operations in respect of the goods which are to be supplied pursuant to the orders so procured.
10. It appears to us that the expressions "directly or indirectly" and "in any manner" occurring in the definition of "clearing and forwarding agent" cannot be isolated from the activity of clearing and forwarding operations. A person may undertake to provide service of procurement of orders as agent of the principal without agreeing to provide services of clearing and forwarding of the goods. Clearing and forwarding has a very specific connotation in the context of movement of goods from the supplier to their destination and agents undertaking clearing and forwarding operations may never have been concerned with procurement of orders for the goods which are cleared and forwarded. A person entrusted with the work of commission agent for procuring orders for the principal cannot insist on also providing services as clearing and forwarding agent in respect of those goods and it would be open for the principal to engage some other person for the purpose of forwarding such goods. In cases where the buyer is under an obligation to take delivery of the goods from the vendor's premises, there would not be even any need on the part of the vendor to engage any forwarding agent, nor can a person engaged for the purpose of clearing and forwarding operations, insist on procuring orders for the principal in the absence of any stipulation to that effect.
11. We, therefore, hold that mere procuring or booking orders for the principal by an agent on payment of commission basis would not amount to providing services as "clearing and forwarding agent", within the meaning of the definition of that expression under Section 65(25) of the Finance Act, 1994, as has been held in the decision of the Tribunal in Prabhat Zarda Factory (Pvt.) Ltd. v. CCE Patna reported in 2002 (145) ELT : 2002 (50) RLT 326(CEGAT-KOL.). The decision in Prabhat Zarda Factory (Pvt.) Ltd. stands overruled to the extent of the aforesaid ratio laid down thereunder. The reference is answered accordingly. All these appeals will now be placed before the concerned Division Bench for decision on merits in the light of this judgment and in accordance with law.
(Pronounced in the open Court on 22-06-2006)