Case Law Details

Case Name : CST Vs. Acer India Pvt. Ltd. (Karnataka High Court)
Appeal Number : Appeal No: CEA No. 61 of 2007
Date of Judgement/Order : 28/05/2010
Related Assessment Year :
Courts : All High Courts (4307) Karnataka High Court (214)



This appeal is filed by the Revenue by challenging the order dated 27.11.2006 passed in Final Order No. 1979/2006 by the Customs, Excise and Service Tax Appellate Tribunal (CESTATJ at Bangalore by raking the following substantial questions of law:

i Whether the CESTAT is legal and correct in setting aside the impugned OIO No.18/2006 dated 26.2.2006 on the ground that the activities of the respondent did not fall under the taxable category of Clearing and Forwarding Agent Services?

ii. Whether activities undertaken by the respondent would fall within the ambit of C & F Agent Services, within the definition of Section 65(25) of the Finance Act, 1994?

2. The facts of the case giving rise to filing of this appeal are that/the respondent herein is said to be engaged in Clearing and Forwarding Agency services (for short, C & F Agent’), according to the appellant herein. The respondent was served with a show cause notice for the period from 2001-02 to 2002-03 by contending that the service tax for the &aid period had not been remitted by the respondent. In terms of the said show cause notice dated 17.10 2005 thus issued a demand for payment of service tax, interest and as to why penalty should not be imposed were sought The respondent submitted its reply by contending that it was not rendering any services of Clearing and Forwarding Agency and that it was not amenable to pay service tax. The said show cause notice was adjudicated upon and an Order-m-Original was passed on 28.2.2006 confirming the demand made in the show cause notice. Aggrieved by the said order, the respondent preferred an appeal before the CESTAT which, by its order dated 27.11.2006 has held that the respondent was not carrying any activity of `C and F Agent’ in terms of the definition in the Finance Act, 1994 (for short the Act! and by relying upon the decision of the Larger Bench of the Tribunal in the case of LARSBN & TOURED LTD., -VS- CCE, CHENNAI, set aside the order passed in appeal and held that the respondent was not liable to pay any service tax as `C and F Agent’. Being aggrieved by the said order, the Revenue hiss preferred the appeal by raising the aforesaid substantial questions of law.

3. We have heard the learned counsel for the appellant-Revenue and the learned counsel for the respondent-aasessee.

4. It is contended on behalf of the appellant that the respondent herein was providing services in the nature of a `C and F Agent’ and that though the respondent is providing clearing and forwarding services indirectly, the respondent has to be considered within the scope of the definition in Section 65(25) of the Act, and therefore, CESTAT was not right in holding that the respondent is not a `C and F Agent’ and in this regard he relied upon the decision of this Court in the case of M/S. MAHAVEER GENERICS, in support of his submission to contend that the order passed by the CESTAT is not in accordance with law and that the same requires to be set aside and the substantial questions of law shall be answered in favour of Revenue.

5. Per contra, Learned counsel appearing for the respondent-Assessee has stated that the nature of the activity of the respondent is not that of a t and F Agent. He referred to the definition of `C and F Agent’ under the Act and referred to the Trade notice No.8/ 97-ST dated 11.7.1997 to contend that the activities of a `C and F Agent” are totally different from that of the assesses and also relying upon the copy of the Commission Agent Agreement entered into by the Assessee with the Foreign principal wherein the main activity of the Assessee is to procure the sale orders and maintaining the machines supplied, by the foreign partner for the period of three years from the date of sales and such of those services which are not connected directly/indirectly to C and. F operations. According to him, if at all, from the year 2003 onwards the nature of the activity of the Aessssee would be of that of “business auxiliary service” and that the Tribunal was therefore justified by relying upon the decision in Laraen 8s Tourbo’s case by holding that the respondent was not liable to pay service tax since he waa net carrying any activity of C and F Agent*. He also brought to our notice that the decision of the Tribunal in Larsen & Tourbo’s case has been affirmed by Punjab and Haiyana High Court and hence in view of the said decisions and taking into consideration the nature of the business activity of the assessee, the Tribunal was justified in granting relief and which order does not call for any interference by this Court.

6. Having heard the learned counsel on both sides and on perusal of the material on record, at the out set, it would be necessary to extract Section 65(25) of the Finance Act, 1994 which reads as under:

“Clearing and Forwarding Agent means any person who is engaged m providing any service, either directly or indirect, connected with the Clearing and Forwarding operations in any manner to any other person and includes a consignment agent”

7. In this context, it is necessary to quote from Track Notice No.87/97 dated 14.7.1997 of Madurai-2 Commissionerate, wherein the nuances of a Clearing and Forwarding Agent are given.

“2, Clearing and Forwarding Agents

2.1 Clearing and forwarding agent has been defined as any person who is engaged in providing any service, either directly or indirectly, connected with clearing and forwarding operations in any manner to any other person and includes a consigning agent. The taxable service has been defined as any service provided to a client, by C & F agent in relation to clearing and forwarding operations in any manner. The clearing and forwarding agents are engaged/ appointed by manufacturer of goods (both excisable and non excisable goods), producers and distributors of goods and shall also include such agents appointed for agricultural and mineral goods.

2.2 Normally, there is a contract between the principal and the clearing and forwarding agent detailing the terms and conditions and also indicating the commission or remuneration to which the C & F agent is entitled. A clearing and forwarding agent normally undertakes the following:

(a) Receiving the goods from the factories and premises of the principal or his agents;

(b) Warehousing these goods; a

(c) Receiving despatch orders from the principal;

(d) Arranging despatch of goods as per the directions of the principal by engaging transport on his own or through the authorized transporters of the principal;

(e) Maintaining records of the receipt and despatch of goods and the stock available at the ware house;

(f) Prospering invoices on behalf of the principal}, ‘•

The relevant terms of the Commission Agreement dated 1 .2.2002 are as follows;

(Both parties have agreed that service fee is to be paid to AIL by LGS for the following;-

1. AIL to provide operating services to LGS – Servicing customer of LGS located at India Any other operating activities required for the sales to India

2. AIL to cover all marketing and promotional activities in India

3. AIL to cover all warranty cost incurred in fulfilling Acer’s liabilities to end customer.

Commission will be computed monthly and shall be agreed by both parties through e-mail correspondence.)

8. In the instant case, on a reading of the aforesaid definition and terms of the Agreement, we find that the Assesses is not engaged in collecting and receiving goods of the foreign principal but it is engaged “in procuring the customers for the foreign principal and-fulfilling their obligations. Therefore, in our view the nature of activities of the respondent Assessee cannot be brought within the scope of definition of `C and F Agent’ under Section 65(25) of the Act. In this context, it would be of relevance to note that the contention of the learned counsel for the appellant-Revenue that any indirect activity of the Assessee which is in the nature of `C & F Agent’ would have to be brought into scope of that definition also cannot be accepted for the reason that the Punjab and Haryana High Court in the case of COMMISSIONER OF C.EX., JALANDHAR -VS- UNITED PLASTOMERS reported in 2008 (10) STR 229 {P & K) has affirmed the order of the Larger Bench of the Tribunal in the case of Larsen & Tourbo Ltd., (Supra) wherein it has been held that the services of commission agent are included in this definition of ‘business auxiliary service’ and mere procuring or having orders for the principal by an agent on payment of commission bask would not amount to providing services as C and F Agent’ and that the expression `directly or indirectly’ and “in any manner” occurring in the definition of `C and F Agent’ cannot be isolated or the activity of clearing and forwarding operations. Therefore, if the main activity of the Assessee is in the nature of `C & F Agent’ and procuring orders would have been brought into the said definition. On the other hand, we find that the main activity of the respondent- Assessee is not that of a `C & F Agent’. Therefore, the contention of the counsel for the appellant cannot be accepted. Hence, the substantial questions raked in this appeal have to be answered against the appellant-revenue and consequently, the appeal is dismissed as being devoid of merits.

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