2009 (2) TMI 89 - HC - Service Tax

Interpretation of word and occurring between Clearing and Forwarding - assessee did not cleared the medicines manufactured by Cipla; consignment were cleared from the factory by the manufacturer and delivered to the premises of assessee- once there is no clearing activity taken by the dealer therefore the service rendered by him would make of C&F Agent- service tax is not payable of mere forwarding activity (i.e. handling and distribution of the products).

Issues Involved:
1. Liability of Service Tax on Clearing and Forwarding Agent.
2. Interpretation of "Clearing and Forwarding Operations".
3. Binding Nature of Circulars Issued by the Board.
4. Consistency in Tribunal Decisions and Revenue's Acceptance.

Issue-Wise Detailed Analysis:

1. Liability of Service Tax on Clearing and Forwarding Agent:
The core question was whether a person (agent) who handles and distributes products for a principal, without undertaking any clearing activity directly from the manufacturer's premises, is liable to pay Service Tax under the category of "Clearing and Forwarding Agent". The Tribunal concluded that for Service Tax to be levied under this category, the agent must perform both clearing and forwarding activities. Since the assessee only handled forwarding activities, the Tribunal held that the service provided did not meet the criteria for "Clearing and Forwarding Agent" and thus was not taxable under this category.

2. Interpretation of "Clearing and Forwarding Operations":
The Tribunal emphasized that the term "Clearing and Forwarding Operations" must involve both clearing and forwarding activities. It relied on the definition under Section 65(105)(j) of the Finance Act, 1994, which specifies that taxable service means any service provided by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner. The Tribunal interpreted that the conjunction "and" should be read in its usual conjunctive sense, meaning both activities must be performed for the service to be taxable.

3. Binding Nature of Circulars Issued by the Board:
The Tribunal referred to a circular issued by the Central Board of Excise and Customs, which clarified that the levy of Service Tax on clearing and forwarding agents would be attracted only when both clearing and forwarding operations are performed. The Tribunal held that such circulars are binding and meant to ensure uniformity in tax administration. Therefore, the Tribunal's interpretation aligned with the circular, reinforcing that the agent must perform both activities to attract Service Tax.

4. Consistency in Tribunal Decisions and Revenue's Acceptance:
The Tribunal's decision was consistent with its earlier ruling in the case of M/s Mahavir Generics, where it was held that if an agent does not perform clearing activities, they cannot be considered a clearing and forwarding agent for the purposes of Service Tax. The Tribunal noted that the revenue had accepted the Mahavir Generics decision and had not appealed against it. This acceptance by the revenue further supported the Tribunal's stance that the service in question was not taxable under the "Clearing and Forwarding Agent" category.

Conclusion:
The High Court upheld the Tribunal's decision, agreeing that the term "clearing and forwarding operations" requires both activities to be performed for the service to be taxable. The Court emphasized the importance of adhering to the plain language of the statute and the binding nature of the Board's circulars. The Court also noted the consistency in Tribunal decisions and the revenue's acceptance of such interpretations. Consequently, the question of law was decided against the revenue and in favor of the assessee.

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