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TMI Blog2012 (12) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... and cargo position and communicate to the respective parties, ensuring that all the needful legal and procedural notices to the port and other authorities are given and precautions necessary for the trade are followed and complied within due time ; (5) Following up the freight payment etc .; (6) Assisting both the parties in compliance of charterer party terms and full and final settlement of all dues and claims and to prevent expensive disputes ; (7) If the vessel is involved in arbitration or litigation, assisting the parties. 1.1 The period of dispute in these appeals is from October 2003 to September 2009 and the main point of dispute is the classification of the service. While according to the Department, the appellant's activity is akin to that of a Commission agent and is taxable as "Business Auxiliary Service" under Section 65 (105) ( zzb ) readwith Section 65 (19) (vii) of the Finance Act, 1994, according to the appellants, they being essentially a broker, cannot be treated as 'Commission agent' and hence their service is neither taxable under Section 65 (105) ( zzb ) nor under any other clause of Section 65 (105). 1.2 The second point of dispute is that while accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l No. 54-56/ RDN /2010 dated 26/10/2010 by which - (a) demands of service tax and education cess amounting to Rs.2,79,00,984 /-, Rs . 59,15,909/- and Rs . 18,85,900/- were confirmed against M/s Inter Ocean Shipping (India) Pvt. Ltd., under proviso to Section 73 (1) of the Finance Act, 1994 alongwith interest on it under Section 75 ibid ; and (b) while penalty of Rs . 5,000/- each was imposed under Section 77, penalty of Rs . 2,79,00,984/-, Rs . 59,15,909/-and Rs . 18,85,900/- was imposed under Section 78 ibid. 1.5.1 The show cause notices at Sl. No. 4 and 5 were adjudicated by the same Commissioner vide order-in-original No. 49-50/ RDN /2010 dated 26/10/10 by which - (a) service tax and education cess demands of Rs . 5,60,99,298/- and Rs . 75,24,714/- were confirmed against M/s Inter Ocean Shipping, New Delhi under proviso to Section 73 (1) of the Finance Act, 1994 alongwith interest or it under Section 75 ibid ; and (b) while penalty of Rs . 5,000/- each was imposed under Section 77, penalty of Rs . 5,60,99,298/- and Rs . 75,24,714/- was imposed under Section 78 ibid. 1.5.2 In both of these orders, the Commissioner while quantifying the service tax demand, treated the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms, follow up the freight payments and full and final settlement of all the dues and claims, that none of this activity is covered by the definition of 'commission agent', that the Apex Court in case of Holdsworth (WO) and others vs. State of U.P . reported in 1958 (033) ITR 472 (S.C.) has held that the term "on behalf of" connotes a principal and agent relationship, while the dealings between the appellants and their clients - charterer and ship owners cannot be called the dealings between an agent and his principal, that Hon'ble Nagpur High Court in case of Commissioner of Sales Tax, Madhya Pradesh, Nagpur vs. Pondurang Tukaramdalal reported in [1956] 7 STC 76 (Nag) held that while a commission agent, having control over the goods, sells them to others and though he may act for a disclosed principal at either end, he negotiates the sale with the purchaser on his own behalf, the broker does not sell the goods on his behalf, but merely brings the vendee and the vendor together and settles the price, that the appellants, thus, cannot be treated as commission agent and hence their activity is not taxable under Section 65 (105) ( zzb ) readwith Section 65 (19) of the Finance Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no infirmity in the Commissioner's order except for extending cum duty benefit, which decision of the Commissioner is incorrect in view of Apex Court's judgment in case of Amrit Agro vs. CCE reported in 2007 (210) E.L.T . 183 (S.C.). He, therefore, pleaded for dismissal of the appeals filed by the appellants and allowing of the appeals filed by the Department. 5. We have considered the submissions from both the sides. 6. The main point to be decided in these cases is as to whether the activity of the appellants is covered by the definition of 'Business Auxiliary Service' as given in Section 65 (19) of the Act. Only if this point is decided against the appellant, there would be need to go into the other points of dispute. 7. There is no dispute about the activities of the appellants as ship brokers . According to the Department, this activity of the appellants is the activity of a 'commission agent', as defined in Section 65 (19) of the Finance Act and on this basis this activity is taxable under Section 65 (105) ( zzb ). According to the appellants, since they do not represent either the charterer or the ship owner and since their job is only to bring the ship owner and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of service on behalf of the client ; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses ( i ) to (vi), such as billing, issue or collection or recovery of cheques , payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision and includes services as a commission agent but does not include any information technology service and any activity that amounts to "manufacture" within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944". Explanation: It is hereby declared that for the purposes of this clause "information technology service" means any service in relation to designing, developing or maintaining of computer software, or computerized data processing or system networking or any other service primarily in relation to operation of computer systems'." 8.3 Definition during the period w.e.f . 16/6/ 05 :- " 'Business Auxiliary Service' means any service in relation to ,- (i) promotion or marketing or sale of goods produced or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1994 w.e.f . 16/5/05. During period prior to 16/5/05, while this term had not been defined in Section 65 (19), the same had been defined in exemption notification No. 13/03-ST dated 20/6/03 exempting the service provided by a commission agent from the service tax leviable thereon. The definition of 'Commission agent' as given in this notification was as under - "Commission agent' means a person who causes sale or purchase of goods, on behalf of another person for a consideration which is based on the quantum of such sale or purchase" 8.5 The words, 'on behalf of in the statute connote an agency when one person acts on behalf of the other. The former acts as the agent of the latter. No doubt, ordinarily, an agency is the relationship of principal and agent in terms of a contract express or implied while an agency may also be created by a statute. The broker by the nature of the role played by him is different from a commission agent. The distinction between a broker and a commission agent is that a commission agent, having control over the goods sells them to others. Though he may act for a disclosed principal at either end, he negotiates the sale with the purchaser on his own b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, a 'commission agent' acts on behalf of a principal and sells or buys the goods or provides or receives the services on behalf of his principal for some commission, The commission agent as agent of the principal can also deal with the goods or services, collect payment for sale price of goods or services sold or provide guarantee for the payment or undertake any activity relating to such sale or purchase of such goods or service. But all this activity must be as a agent acting on behalf of principal. Hon'ble Supreme Court in case of Holdsworth (WO) and others vs. State of U.P . (supra) has held that the words 'on behalf of" connote an agency which brings about a relationship as between principal and agent between the parties, one of whom is acting on behalf of another. 10. A ship broker , as the name itself suggests, is essentially a broker. Ship brokers are specialist intermediaries for negotiations between ship owner and charterers who use the ship to transport some cargo or between the buyers and sellers of the ship. A ship broker bring together a ship owner who wants employment/fixture for his ship located at a particular Port and ship charterer who requires a particular typ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h they have a fee or reward. (Jacob, cited by Best, CJ), Gibbous vs. Rule, 1827 - 4 Bing 301 (F)" The distinction between the two is that a commission agent, having control over to goods, sells them to others. Though he may act for a disclosed principal at either end, he negotiates the sale with the purchasers on his own. The broker does not sell the goods on his own, but merely brings the vendee and vender together and settles the price. Bearing in mind the facts in the present case and considering the making of the bills by the assessee in his name according to the practice of the trade, we are of the opinion that the assessee belongs to the category of brokers, rather than agents who stock goods from sellers for sale on their own behalf to purchases, charging commission either one way or both way." 11.1 In our view, the above judgment of Hon'ble Nagpur High Court is squarely applicable to the facts of this case and the appellants while acting as ship brokers cannot be called commission agents of the ship owner or ship charterer and thus are not covered by the definition of 'Business Auxiliary Service". 12. Since the main question has been decided in favour of the appellants, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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