2015 (5) TMI 249 - SC - Service Tax

Classification of service - Clearing and forwarding agent service - whether the services were liable to service tax under the provisions of the Act - held that - Larger Bench of the Tribunal in the said case has rightly interpreted the definition of 'clearing and forwarding agent' contained in Section 65(25) of the Act. Notwithstanding the aforesaid dicta of the larger Bench, learned senior counsel appearing for the Revenue submitted that judgment in Prabhat Zarda (2002 (2) TMI 4 - CEGAT, KOLKATA) has not been overruled entirely, as is clear from the reading of para 11 of the judgment where the larger Bench has said that Prabhat Zarda (supra) 'stands overruled to the extent of the aforesaid ratio laid down thereunder'. His endeavour was to demonstrate that in the present case the Tribunal in the impugned judgment had rightly relied upon Prabhat Zarda (supra) and when the services rendered by the appellant are looked into, it would clearly fall within the definition of 'clearing and forwarding agent' contained in Section 65(25) of the Act. In order to qualify as a C F Agent, such a person is to be found to be engaged in providing any service connected with 'clearing and forwarding operations'. Of course, once it is found that such a person is providing the services which are connected with the clearing and forwarding operations, then whether such services are provided directly or indirectly would be of no significance and such a person would be covered by the definition. - In the process, it may include warehousing of the goods so cleared, receiving dispatch orders from the principal, arranging dispatch of the goods as per the instructions of the principal by engaging transport on his own or through the transporters of the principal, maintaining records of the receipt and dispatch of the goods and the stock available on the warehouses and preparing invoices on behalf of the principal. The larger Bench rightly enumerated these activities which the C F Agent is supposed to perform. There is no role of the appellant in getting the coal cleared from the collieries/ supplier of the coal. Movement of the coal is under the contract of sale between the coal company and Ambuja companies. Even the coal is loaded on to the railway wagons by the coal company. The goods are not under any legal detention from which they need to be freed by the appellant. Not only this, destination of the goods is known to the coal company and the railway rakes are placed by the coal company for the said destinations. The destination is the factories of the principal itself, namely, Ambuja companies, where the coal is to be delivered by the coal company as per pre-determined/agreed covenants between them. Therefore, there is no occasion for Ambuja companies to instruct the appellant to dispatch/forward the goods to a particular destination which is already fixed as per the contract between the coal company and the Ambuja companies. The appellant does not even undertake any loading operation. The primary job of the appellant, as per the contract between the appellant and the Ambuja companies, is of supervising and liaisoning with the coal company as well as the Railways to see that the material required by Ambuja companies is loaded as per the schedule. - services rendered by the appellant would not qualify as C F Agent within the meaning of Section 65(25) of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the services provided by the appellants qualify them as Clearing & Forwarding Agents (C&F Agents) under Section 65(25) of the Finance Act, 1994.
2. Whether the appellants are liable to pay service tax for the services rendered under the definition of C&F Agent.

Issue-wise Detailed Analysis:

1. Qualification as Clearing & Forwarding Agents (C&F Agents):

The appellants provided services to Ambuja companies, which included following up the allotment of coal rakes by the Railways, expediting and supervising the loading and labeling of rail wagons, drawing samples of coal, complying with payment formalities for freight, and dispatching rail receipts. The core issue was whether these services fall under the definition of C&F Agent as per Section 65(25) of the Finance Act, 1994, which defines a C&F Agent as "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 initially upheld the service tax liability by aligning with its earlier judgment in the case of Prabhat Zarda Factory (India) Ltd., which broadly interpreted the definition of C&F Agent to include any service connected indirectly with clearing and forwarding operations. However, this interpretation was later overruled by a Full Bench of the Tribunal in the case of Larsen & Toubro Ltd., which clarified that services must be directly connected with clearing and forwarding operations to qualify as a C&F Agent. The Tribunal in Larsen & Toubro Ltd. highlighted that a C&F Agent typically undertakes activities such as receiving goods from the principal, warehousing, receiving dispatch orders, arranging dispatch, maintaining records, and preparing invoices.

In the present case, the Supreme Court found that the appellants did not perform any of these activities. The appellants' role was limited to supervising and liaising with the coal company and the Railways, without taking custody of the coal or arranging its transportation. Therefore, the services rendered by the appellants did not qualify them as C&F Agents under Section 65(25) of the Act.

2. Liability to Pay Service Tax:

Given the Supreme Court's determination that the appellants did not qualify as C&F Agents, the subsequent issue was whether they were liable to pay service tax under the said category. The Supreme Court noted that the Tribunal's reliance on the Prabhat Zarda judgment was misplaced, as it had been overruled by the Full Bench in Larsen & Toubro Ltd. The larger Bench's interpretation was accepted by the Revenue, and no appeal was filed against it.

The Court further emphasized that the appellants' activities did not involve the clearing and forwarding operations as envisaged under the Act. The appellants were not engaged in receiving goods, warehousing, dispatching, or maintaining records of goods, which are essential components of clearing and forwarding operations. Instead, their role was supervisory and liaison-based, which does not fall under the purview of C&F services.

Conclusion:

The Supreme Court allowed the appeals, setting aside the Tribunal's orders and quashing the demand for service tax from the appellants. The Court concluded that the services provided by the appellants did not qualify them as C&F Agents under Section 65(25) of the Finance Act, 1994, and thus, they were not liable to pay service tax for the services rendered.

Civil Appeal No. 9967 of 2014:

The Commissioner of Service Tax, Kolkata, appealed against the High Court of Calcutta's order, which dismissed the Revenue's appeal against the CESTAT's decision that the appellant was not liable to pay service tax as a C&F Agent. Since the Supreme Court allowed Civil Appeal No. 5159 of 2013, the appeal by the Commissioner of Service Tax was dismissed accordingly.