2017 (12) TMI 286 - HC - Service Tax

Clearing and forwarding agency services - certain contracts entered into by the assessee, amongst others with Rampur Distillery and Holosticks India Pvt. Ltd. being in the nature of commission agency contracts also involving, in some parts, supervision of transportation of goods in certain circumstances - 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? - Revenue appeal against the majority order of the Tribunal. 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 - 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. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Whether the services provided under the agreements constitute "Clearing & Forwarding Operations" under Section 65(105)(zzzzq) of the Finance Act, 1994.

Issue-Wise Detailed Analysis:

1. Nature of Services Provided:
The primary issue was whether the services rendered by the assessee under various agreements could be classified as "Clearing & Forwarding Operations." The agreements in question involved tasks such as supervision of transportation, arranging transportation, commission on sales, and follow-up of payments.

2. Agreements with Rampur Distillery and Holosticks India Pvt. Ltd.:
The agreements with Rampur Distillery and Holosticks India Pvt. Ltd. were scrutinized. The terms included appointment as a commission agent, supervision of transportation, and ensuring timely payments. The Tribunal extracted specific clauses from these agreements to understand the scope of services provided.

3. Tribunal's Interpretation:
The Assistant Commissioner (Adjudication) initially concluded that the services fell under "clearing and forwarding service" as defined under Section 65(105)(zzzzq) of the Finance Act, 1994. This view was upheld by the Commissioner (Appeals). However, a difference of opinion arose within the Tribunal. The Judicial Member, relying on a trade circular and a larger bench decision in the case of Larsen & Toubro Ltd., concluded that the services did not constitute clearing and forwarding operations. The Technical Member disagreed, citing another Tribunal decision in Medpro Pharma Pvt. Ltd., leading to a referral to a third member who sided with the Judicial Member.

4. Revenue's Argument:
The revenue contended that the services were a bundle, including commission agency, supervision of transportation, and ensuring supplies, which collectively amounted to clearing and forwarding services.

5. Assessee's Argument:
The assessee argued that the issue of what constitutes "clearing and forwarding service" was settled by the Supreme Court in Coal Handlers Pvt. Ltd. v. CCE, which defined the scope of such services. The Supreme Court's definition emphasized that clearing and forwarding operations must involve both clearing goods and forwarding them to a destination.

6. Supreme Court's Definition:
The Supreme Court in Coal Handlers Pvt. Ltd. provided a detailed interpretation of "clearing and forwarding agent," emphasizing activities like warehousing, receiving dispatch orders, arranging dispatch, maintaining records, and preparing invoices. The Court concluded that mere procurement of orders or ensuring timely payments did not constitute clearing and forwarding operations.

7. Tribunal's Majority View:
The majority view in the Tribunal, which aligned with the Supreme Court's reasoning, held that the assessee's activities did not involve clearing or forwarding goods. The Judicial Member found that the assessee was engaged in procurement of purchase orders on a commission basis, which became taxable only after the amendment introducing "business auxiliary service" under Section 65(19) of the Act from 01.09.2009. The assessee did not render services related to receiving or warehousing goods, dispatch orders, or maintaining records as required for clearing and forwarding services.

8. Technical Member's Dissent:
The Technical Member's dissenting opinion noted tasks like procurement of orders, ensuring execution, and pursuing payments. However, these tasks were deemed ancillary to commission agency activities and not related to clearing and forwarding operations.

9. High Court's Conclusion:
The High Court found the majority view consistent with the Supreme Court's decision in Coal Handlers Pvt. Ltd. The Court concluded that the services provided by the assessee did not qualify as "clearing and forwarding" services. The question of law was answered in favor of the assessee and against the revenue, leading to the dismissal of the appeal.

Final Judgment:
The appeal was dismissed, affirming that the services provided by the assessee did not constitute "Clearing & Forwarding Operations" under the relevant section of the Finance Act, 1994. No order as to costs was made.

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