2009 (5) TMI 71 - AT - Service Tax

Clearing and forwarding (C & F) agent - Manufacturer dispatch the goods from their respective factories to the depots/marketing network/distribution network of the appellants. Selling/distribution agreement was entered into between the appellants and BMF on 01.04.1995. held that - the scope of the contract between the appellants and BMF does not cast any obligation whatsoever on the appellants to provide clearing and forwarding services - The goods are sold to various buyers at depots and the appellants do not perform any clearing and forwarding service - Only expenses on sales and distribution of the goods sold by BMF through the appellants are shared. No commission is paid - the appellants did not attend to clearing of goods manufactured by BMF (the consignments were cleared from BMF and dispatched directly to depots/branches of the appellants), we hold that the appellants do not provide clearing and forwarding services and are, therefore, nor liable to service tax under this Heading demand set aside.

Summary

Issues Involved:
1. Whether the services provided by the appellants qualify as "clearing and forwarding" services.
2. The applicability of service tax on the handling and distribution expenses received by the appellants.
3. The relevance of the agreement terms between the appellants and BMF.
4. The interpretation of "clearing and forwarding" services in light of legal precedents.
5. The applicability of limitation for the demand of service tax.

Issue-Wise Detailed Analysis:

1. Qualification as "Clearing and Forwarding" Services:
The core issue was whether the appellants provided services as "clearing and forwarding" agents. The department argued that the appellants were clearing and forwarding agents based on the agreement's terms, which included the utilization of the appellants' distribution system and marketing outlets by BMF. The department's stance was that the payments received by the appellants were for services rendered in selling BMF's products through their established network, thus qualifying as clearing and forwarding services.

2. Applicability of Service Tax:
The show-cause notices and subsequent orders demanded service tax on the handling and distribution expenses received by the appellants, totaling Rs. 1,77,55,356/-. The appellants contested this, stating that no clearing and forwarding services were provided, and only Rs. 19.21 lakhs were received for handling and distribution. The Tribunal found that the scope of the contract did not obligate the appellants to provide clearing and forwarding services, as the goods were dispatched directly to the depots/branches, and the appellants did not perform any clearing services.

3. Agreement Terms:
The terms of the agreement between the appellants and BMF were scrutinized. The agreement explicitly stated that BMF would utilize the appellants' distribution and marketing facilities. The Tribunal noted that the appellants only shared expenses related to sales and distribution of goods sold by BMF and did not receive any commission. This arrangement did not constitute clearing and forwarding services as defined under the relevant laws.

4. Interpretation of "Clearing and Forwarding" Services:
The Tribunal referenced several legal precedents to interpret the term "clearing and forwarding" services. Notably, the Tribunal cited the case of Mahavir Generics vs. Commissioner of Central Excise, Bangalore, where it was held that no clearing and forwarding services were provided when products were supplied on a consignment basis and sold by the appellants. The Tribunal also referenced the larger Bench decision in Medpro Pharma Pvt. Ltd. vs. Commissioner of Central Excise, Chennai, which was overruled by the Punjab and Haryana High Court in Central Excise Appeal No.34/2006. The High Court clarified that the term "clearing and forwarding" should be interpreted conjunctively, meaning both services must be rendered by the same entity.

5. Limitation for Demand of Service Tax:
The Tribunal did not record any findings on the issue of limitation, as the primary issue of whether the appellants provided clearing and forwarding services was decided in their favor. The Tribunal set aside the impugned orders and allowed the appeals without addressing the limitation plea.

Conclusion:
The Tribunal concluded that the appellants did not provide "clearing and forwarding" services as defined under the law. The goods were dispatched directly to the depots/branches, and the appellants only shared sales and distribution expenses. Consequently, the appellants were not liable to pay service tax under the heading of clearing and forwarding services. The impugned orders were set aside, and the appeals were allowed.