By TIOL News Service

ALLAHABAD, DEC 05, 2017: THIS is a Revenue appeal against the order of the CESTAT dated 06.07.2007 [2007-TIOL-1520-CESTAT-DEL] .

By the impugned Majority order, the Tribunal had held thus –

Service Tax - Clearing and Forwarding Agents vis-à-vis Commission Agents - Appellants appointed as commission agents for the purpose of procuring orders - they are not warehousing the goods or taking any steps for clearance of the goods from the manufacturer's place - not a C & F agent  (para 7)

The following question of law has been raised in appeal -

"Whether the agreement entered into by the party for providing host of services viz. Supervision of transportation, Arranging transportation, Commission on Sale & Follow-up of Payment, would not constitute the service "Clearing & Forwarding Operations?"

The counsel for the revenue submitted that the respondent was providing a bundle of services which, amongst others, included service of commission agency to procure orders and supervision of transportation as also supervising supplies to be made by the Rampur Distillery and Holosticks India Pvt. Ltd . and, therefore, the said activities taken together lead to the conclusion that the assessee was providing 'clearing and forwarding service' as defined under the Finance Act, 1994.

The respondent assessee submitted that the issue what constitutes 'clearing and forwarding service' for the purpose of the Act is no longer res integra . Inasmuch as the said issue had been specifically dealt with and decided by the Supreme Court in the case of Coal Handlers Pvt. Ltd. -   2015-TIOL-101-SC-ST.

Relying on the reasoning given by the Supreme Court, the assessee submitted that the decision of the larger bench of the Tribunal in the case of  Larsen & Toubro Ltd.-  2006-TIOL-814-CESTAT-DEL-LB  and also Trade Circular relied upon by the Judicial Member in the order impugned had been specifically approved by the Supreme Court.

Furthermore, it was also held by the Larger Bench (and which observation was also approved by the Supreme Court) that for a service to qualify as 'clearing and forwarding service', the activity must pertain not only to clearing of the goods but thereafter it must also include forwarding of those goods to a particular destination at the instance and on the direction of the principal; that it may also include warehousing of the goods, receiving dispatch orders from the principal, arranging dispatch of the goods as per instructions of the principal by engaging transport on his own or through transporters of the principal agency, maintaining records of the receipt and dispatch of the goods and stock available at the warehouse and prepare invoices.

The High Court observed that the findings of the Member (Judicial) [agreed by the third Member on reference] that the service provided by the assessee was not 'clearing and forwarding' service are based on the decision of the Larger Bench (supra) which was approved by the Supreme Court in Coal Handlers Pvt. Ltd. (supra) and which is now the law on the subject.

Incidentally, the Member (J) had also held that the assessee was engaged merely in procurement of purchase orders for it's principal on commission basis which service became taxable only upon an amendment made to the Act and by introduction of new service being 'business auxiliary service', under Section 65(19) of the Act w.e.f. 01.09.2009. And the third Member on reference while concurring with the said view also noted that the revenue did not lead any evidence to show that the appellant had received other consideration except commission for procurement of orders.

The High Court also reproduced the reasoning given by the Technical Member (differing from the Judicial Member) and observed –

"…The reasoning given by Technical Member is inconsistent with the reasoning given by the Supreme Court in the case of Coal Handlers Pvt. Ltd. (supra). Besides procurement of orders, the Technical Member has found that the assessee pursued the purchaser to make early payment to its principal as also raised certain debit note on the principal to make payment of its commission and other similar tasks. Thus, all the activities that have been noted by the Technical Member to conclude that the assessee was engaged in 'clearing and forwarding' service are such activities as are not involved either with clearing of goods or with forwarding of any goods to any destination or person. Rather, those activities are only ancillary or supplementary to the activity of commission agency as they only seek to ensure prompt placement of orders; prompt supply of goods and prompt payment against such supplies etc. These are all arising from contract of commission agency. In any case, those activities are not such as may be linked with any of the activities required to be performed to treat the service as "clearing and forwarding" service."

Concluding that the question of law is answered in affirmative i.e. in favour of the assessee and against the revenue, the Revenue appeal was held to lack merit and, therefore, dismissed.

(See 2017-TIOL-2509-HC-ALL-ST)