2005 (5) TMI 370 - AT - Service Tax

Summary

Issues:
- Demand of service tax on commission paid to brokers for clearing and forwarding services.
- Interpretation of the term "Clearing and Forwarding Agent" under Section 65 of the Finance Act, 1994.
- Comparison of decisions cited by both sides regarding similar cases.
- Applicability of Board's order on the nature of services provided by Clearing and Forwarding Agents.

Analysis:
The judgment by the Appellate Tribunal CESTAT, CHENNAI dealt with the demand of service tax amounting to Rs. 2,05,382/- imposed on the appellants for the period July, 1997 to March, 1998, concerning the commission paid to brokers for what was claimed to be "clearing and forwarding" services. Additionally, a penalty of Rs. 2,31,902/- was also levied on the appellants. The contentious issue revolved around whether the service provided by the brokers could be categorized under the definition of "Clearing and Forwarding Agent" as per Section 65 of the Finance Act, 1994. The appellants argued that the commission paid was for procuring purchase orders and not directly related to the dispatch of goods, thus falling outside the scope of a Clearing and Forwarding Agent.

The case involved a comparison of decisions cited by both sides, with the appellants relying on the case of Mahavir Generics v. CCE and the Revenue citing the case of Coal Handlers Pvt. Ltd. The Tribunal noted that the nature of service provided by the brokers was akin to that in the case of Prabhat Zarda Factory, where service tax was held leviable on commission paid to agents for procuring orders and improving market conditions for the manufacturer. The appellants argued that the Board's order on the activities carried out by Clearing and Forwarding Agents supported their position, as the brokers did not engage in physical activities related to goods clearance and delivery.

The Tribunal acknowledged the similarity between the service provided by the appellants' brokers and that in the Prabhat Zarda Factory case, indicating that the appellants did not have a strong prima facie case. However, considering the non-functioning status of the appellants' factory for the past three years, the Tribunal ordered them to pre-deposit 50% of the adjudged tax dues within four weeks, with a compliance report due on 24-6-2005. The judgment highlighted the importance of the nature of services provided in determining the applicability of service tax, emphasizing the need for a clear understanding of the activities falling under the definition of a Clearing and Forwarding Agent.