In the case of Somani Agencies Vs. CCE & ST, Indore, it was held that the definition of clearing and forwarding agent nowhere requires the clearing to be effected from the factory and even if the assessee is not clearing the goods from the factory and engaged in activities that are of the nature of clearing and forwarding agent, service tax is required to be levied under the category of Clearing and forwarding agent.
Brief Facts of the Case
The appellant is providing the services of Loading,unloading and storing the goods sent by service recipient. The Department alleged that the activity carried on by appellant falls under the category of Clearing and forwarding agent and hence demanded service tax. The adjudicating authority confirmed the demand along with penalty. The appellant preferred the present appeal against the order.
Contentions of the assessee
The assessee contended that
(i) It was not engaged in clearance of the goods from the factory and therefore in the light of the judgement of Punjab and Haryana High Court in the case of CCE Vs. Kulcip Medicines (P) Ltd. – 2009 (14) STR 608 (P&H), it was not covered under the scope of clearing and forwarding agent service because to be covered thereunder the assessee has to be engaged in both clearing and forwarding of the goods.
(ii) It was under bona fide belief regarding its non-liability to service tax and therefore extended period is not invocable.
(iii) The appellant also contended that the reasoning in the impugned order is inadequate.
Contentions of the Department
The department contended that in this case the appellant acted as a clearing and forwarding agent and provide the service of loading, unloading storing of goods sent by the service recipient and maintained warehouse/godown for the same. The appellant was fully responsible for making arrangement for dispatch and transportation of goods to various destinations as per the directions of the service recipient and the ownership of the goods remained with the service recipients and the appellant merely acted as a custodian of the goods. The goods were dispatched as advised by the service recipient. Thus the service clearly fell within the scope of C&F agent service. It cited the judgement of Karnataka High Court in the case of CCE Vs. Mahavir Generics – 2010 (17) STR 25 (Karnataka).
Held by Hon’ble CESTAT
The Hon’ble CESTAT stated that to understand the nature of service it is useful to quote from the agreement/contract/appointment of the appellant in terms of which the appellant rendered the impugned service.
(i) Noticee shall act as C&F agent for the purpose of receiving, storing and forwarding of goods.
(ii) Noticee shall unload, load, stock and store merchandise sent by the principals.
(iii) Noticee shall maintain a warehouse/godown for storing of the goods and maintain proper records of the receipts and dispatches of the goods.
(iv) The Noticee is fully responsible for making arrangements for dispatch delivery and transportation thereof to various destinations as per directions from the company.
(v) Ownership of the goods is fully with the company and C&F Agent merely acts as a custodian of the goods.
(vi) Goods are dispatched as advised by the company.
(vii) The notice is fully responsible for collection of the payments for goods and deposit the same in the principals account.
(viii) Noticee shall comply with all statutory and legal requirements such as registration/license for operation of C&F agency and for any other legal requirements that may be applicable to the operations of the C&F agency.
It is clear from the provisions of the above-quoted agreement that as per the agreement itself the appellant was to act as clearing and forwarding agent for the purpose of receiving, storing and forwarding of goods. It was to unload, load and stock and store the merchandise sent by the service recipient and the ownership of the goods remained with the service recipient and the appellant merely acted as a custodian of the goods and dispatched them as per the advice of the service recipient. It is thus obvious that the appellant cleared the goods received at its end and stored them in the warehouse and thereafter forwarded them as per the directions of the service recipient.
The Hon’ble CESTAT further stated that Section 65 (25) of Finance Act, 1994 defines clearing and forwarding agent as under:
“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 taxable service is defined under section 65 (105) (j) ibid is as under:
“Taxable service” means any service provided or to be provided to a client, by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner.
It is thus clear that as per the activities performed by the appellant, it is squarely covered within the definition of clearing and forwarding agent and it provided service to a client in relation to clearing and forwarding operations. The Hon’ble CESTAT noted the Punjab and Haryana High Court judgement in the case of Kulcip Medicines Pvt. Ltd. (supra) wherein the word “clearing” was given the meaning as if such clearing was required from the factory. Supreme Court vide its order (2012 (25) STR J127 (Supreme Court) summarily dismissed the special leave petition against the said order of Punjab and Haryana High Court. Thus in the wake of Supreme Court judgement in the case of Kunhayammed Vs. State of Kerala-2001 (129) ELT 11 (SC) there was no merger of the Punjab & Haryana High Court order with the order of Supreme Court and consequently the judgement of Punjab & Haryana High Court did not acquire the strength and vitality of the Supreme Court order. The definition of clearing and forwarding agent nowhere requires the clearing to be effected from the factory. Indeed the said judgement of Punjab and Haryana High Court has been taken due note of by the Karnataka High Court in the case of Mahavir Generics (supra). In the said judgement Karnataka High Court considered the service rendered by Mahavir Generics in terms of the agreement which has been quoted in the said judgement. The said agreement is similar (if not identical) to the one under which the appellant rendered service and therefore the said judgement of Karnataka High Court is squarely applicable to the present case. It may be pertinent to note that P&H High Court in its judgement in the case of Kulcip Medicines (supra) took note of the assertion of Madhav Rao, ld. Counsel that the CESTAT judgement in the case of Mahavir Generics was not appealed against by Revenue which was factually incorrect as the judgement of CESTAT in the case of Mahavir Generics was appealed against before Karnataka High Court. Indeed as per the agreement under which the appellant rendered service all the ingredients required for coverage of the service under C&F agent service are so clearly present that there was no scope for any confusion or ambiguity with regard to the taxability of the said service and therefore the appellant’s contention that it had bona fides belief about the non-taxability of service rendered by it is totally untenable. Bona fide belief is not a hallucinatory belief; it is a genuine belief of a reasonable person operating in an appropriate environment. When the terms of the agreement were so clear, any reasonable person operating in an appropriate environment would have no basis to entertain a belief that the service rendered by it in terms of the agreement cited above by any stretch of imagination would not be covered under the scope of clearing and forwarding agent service. Therefore the extended period has been rightly invoked. As regards the contention of the appellant that the reasoning of the Commissioner (Appeals) in the impugned order is inadequate, suffice to say that even if that is the case, the appellate court can use different reasoning based on transactional documents and come to an appropriate finding and the appellate court is not in any way bound by the reasoning of the lower authorities this regard.
In the light of the foregoing analysis, the appeal is dismissed.