Case Law Details

Case Name : Interocean Shipping Company Vs Commissioner of Service-Tax, Delhi (CESTAT Delhi)
Appeal Number : Final Order Nos. ST/A/694-697/2012-CUS., Appeal Nos. ST/145, 146, 545 & 546 of 2011
Date of Judgement/Order : 12/11/2012
Related Assessment Year :

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 type of ship at or around a particular Port to transport some cargo. They help in negotiating the terms of the charter and finalisation of charter-party agreement and also assist both the parties in compliance of the charter – party terms and full and final settlement of all the dues and claims. The ship broker also acts as an intermediary for bringing together a ship owner who wants to sell his ship and the prospective buyer and assisting in sale of the ship. For providing these services, the ship brokers have to maintain database of ship owners, the class of ships owned by them and their location. It is not the case of the Department that the appellants have agreements with shipping companies etc. for representing them in negotiations. The essential ingredient of a ‘Commission agents’ service is acting on behalf of a principal which is missing is the case of the appellants. From the nature of their activity it is clear that brokers are purely intermediaries who do not act on behalf of either ship owner or the charterer and, therefore, they cannot be said to be commission agents.

In the case of CST v. Pandurang Tukaram Dalal (supra), Hon’ble High Court at Nagpur vide judgment reported in AIR 1957 Nagpur 61 (V44 C 19 Mar.), the respondent was giving the facility of displaying their goods to weavers in his shop, where the prospective buyers of the fabrics brought by the weavers, could come and examine the same. The price of the goods was negotiated between the buyers and the weavers through the respondent. On the price being settled between a buyer and the weaver, the weaver used leave his goods in the respondent’s shop and get the price from the respondent and the respondent used to recover the amount from the buyer by giving him a bill in the name of his shop. The point of dispute was as to whether the respondent was only a broker or a commissioner agent and hence a dealer liable to pay sales tax. Hon’ble High Court in this can held that the activity of the respondent is of a broker, not a commission agent, observing as under –

“This distinction is borne out by a reference to strand’s Judicial Dictionary. The meaning of a broker is –

“Brokers are those that contrive, make and conclude bargain and contracts between merchants and tradesmen, in matter of money and merchandise, for which 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.”

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”.


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