2006 (6) TMI 3 - AT - Service Tax

Service Tax Clearing and Forwarding agents (1) Procuring/booking orders (2) Business auxiliary service (3) Sale/Purchase of goods

Summary

Issues Involved:
1. Whether assessees were clearing and forwarding agents under their respective agreements.
2. Liability to pay service tax for services connected with forwarding and clearing operations.
3. Interpretation of "clearing and forwarding agent" under Section 65(25) of the Finance Act, 1994.
4. Applicability of the decision in Prabhat Zarda Factory (Pvt.) Ltd. vs. CCE, Patna.

Detailed Analysis:

1. Clearing and Forwarding Agents under Agreements:
The primary issue was whether the assessees, under their agreements, were considered clearing and forwarding agents and thus liable for service tax. The Tribunal examined the nature of services provided by the assessees, focusing on whether procuring/booking orders for the principal on a commission basis constituted services as clearing and forwarding agents.

2. Liability to Pay Service Tax:
The Tribunal reviewed the liability to pay service tax for services connected with forwarding and clearing operations. The assessees argued that procuring orders was a distinct service from clearing and forwarding operations. They contended that the taxable service provided by a clearing and forwarding agent should be directly related to clearing and forwarding operations, as specified under clause (j) of sub-section (105) of Section 65 of the Finance Act, 1994.

3. Interpretation of "Clearing and Forwarding Agent":
The Tribunal scrutinized the definition of "clearing and forwarding agent" under Section 65(25) of the Finance Act, 1994, which reads: "Clearing and Forwarding Agent means any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent." The Tribunal highlighted that the service must be connected with clearing and forwarding operations, involving activities that have a bearing on the movement of goods.

4. Applicability of Prabhat Zarda Factory Decision:
The Tribunal examined the applicability of the decision in Prabhat Zarda Factory (Pvt.) Ltd. vs. CCE, Patna, which held that procuring orders by an agent amounted to services connected with clearing and forwarding operations. The Tribunal noted that the definition of "clearing and forwarding agent" should not be isolated from the activity of clearing and forwarding operations. It emphasized that a person providing service of procuring orders without engaging in clearing and forwarding operations does not fall within the definition of a clearing and forwarding agent.

Conclusion:
The Tribunal concluded that mere procuring or booking orders for the principal by an agent on a commission basis does not amount to providing services as a "clearing and forwarding agent" within the meaning of Section 65(25) of the Finance Act, 1994. The decision in Prabhat Zarda Factory (Pvt.) Ltd. was overruled to the extent of this interpretation. The appeals were to be placed before the concerned Divisional Bench for decision on merits in light of this judgment.

Pronouncement:
The judgment was pronounced in open court on 22.06.2006.