Full Judgment Text
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CASE NO.:
Appeal (civil) 1713 of 2007
PETITIONER:
M/s. Super Poly Fabriks Ltd
RESPONDENT:
Commissioner of Central Excise, Punjab
DATE OF JUDGMENT: 24/04/2008
BENCH:
S.B. Sinha & V.S. Sirpurkar
JUDGMENT:
J U D G M E N T
REPORTABLE
CIVIL APPEAL NO.1713 OF 2007
S.B. Sinha, J.
1. Short question arising in the appeal is whether in the facts and
circumstances of this case, the petitioner renders any services so as to incur
the liability to pay service tax.
2. The factual background leading to the said question may briefly be
noticed.
Appellants herein entered into an agreement with Gas Authority of
India Ltd. (GAIL) titled ’Consignment Stockistship Agreement’.
3. Inter alia, on the premise as to why they should not be asked to pay
’services taxes’, a show cause notice was issued on the appellant on
20.10.2003. Cause was shown by it saying that no service is being provided
by it as a clearing and forwarding agent of GAIL. An order in original was
passed by the Deputy Commissioner, Central Excise on 17.3.2004 directing
payment of service tax with interest as also penalties as demanded under the
show cause notice.
4. An appeal preferred thereagainst by the appellant was dismissed by
the appellate authority by a judgment and order dated 15.2.2005. A further
appeal preferred by the appellant before the Central Excise and Sales Tax
Appellate Tribunal has also been dismissed.
5. Mr. P.K. Sahu, learned counsel appearing on behalf of the appellant,
drawing our attention to the impugned order, would submit that from a bare
perusal thereof, it would be evident that the appellant merely accepts offer
on behalf of its principal and its activities being not extended to the job of a
clearing and forwarding agent, the impugned order cannot be sustained.
It was urged that the authorities under the Act in determining the
liabilities of the appellant had proceeded only on the premise that a
processing agent would be a clearing and forwarding agent as was held in
the case of Prabhat Zarda Factor (Pvt.) Ltd. v. CCE, Patna [2002 (145) ELT
222] which having subsequently been overruled by the larger Bench of the
Tribunal, the impugned judgment cannot be sustained.
6. Mr. Gopal Subramanium, learned Additional Solicitor General
appearing on behalf of the Respondent, on the other hand, would contend
that a document must be read as a whole. So read, it would appear that the
appellant not only receives orders on behalf of GAIL but also gets the
insurance cover for the goods and sale of the goods which would clearly
come within the purview of clearing and forwarding activities. Such
activities on the part of the appellant, it was urged, being not incidental to
the main purpose for which it was appointed as a stockist agent, the
impugned judgment cannot be faulted.
7. Before we embark upon the rival contentions of the parties, we may
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notice the definition of ’clearing and forwarding agent’ as also ’business
auxiliary service’ as contained in Section 65(19) and Section 65(25) of the
Act, which read as under :
"65(19) "business auxiliary service" means any
service in relation to\027
(i) promotion or marketing or sale of goods
produced or provided by or belonging to the
client; or
(ii) promotion or marketing of service provided
by the client; or
(iii) any customer care service provided on
behalf of the client; or
(iv) procurement of goods or services, which are
inputs for the client; or
(v) production or processing of goods for, or on
behalf of, the client;
(vi) provision 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(1 of
1944).
(25) "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;
8. There cannot be any doubt whatsoever that a document has to be read
as a whole. The purport and object with which the parties thereto entered
into a contract ought to be ascertained only from the terms and conditions
thereof. Neither the nomenclature of the document nor any particular
activity undertaken by the parties to the contract would be decisive.
9. In V. Lakshmanan v. B.R. Mangalagiri and Ors. [1995 Supp.(2) SCC
33] , the Supreme Court in regard to interpretation of the clause stipulating
the payment of money as advance and not earnest money provided for in the
Sale Deed opined :
"The nomenclature or label given in the agreement
as advance is not cither decisive or immutable."
10. In Assam Small Scale Ind. Dev. Corp. Ltd. and Ors. v. J.D.
Pharmaceuticals and Anr. [2005 (8) SCALE 298 = (2005) 13 SCC 19], on
the decisiveness of the nomenclature of the agreement entered into between
the state corporation and small scale industrial unit, opined:
"The expressions ’principal’ and ’agent’ used in a
document are not decisive. The nature of
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transaction is required to be determined on the
basis of the substance there and not by the
nomenclature used. Documents are to be construed
having regard to the contexts thereof wherefor
’labels’ may not be of much relevance."
11. For the purpose of ascertaining as to whether the appellant in effect
and substance was a clearing and forwarding agent or it was merely
accepting orders for and on behalf of GAIL, the same must be ascertained
from the terms of the agreement itself.
12. Section 68 of the Act envisages every person providing taxable
service to any person shall pay the service tax at the rate specified in Section
66 thereof in such manner and within such period as may be prescribed.
Section 70 of the Act provides for furnishing of returns to the
Superintendent of the Central Excise by every person liable to pay service
tax.
13. Rule 7 of the Finance Rules, 1994 provides for submitting a half-
yearly return by the assessee in the prescribed form. Section 77 provides for
penalty for contravention of any provision for which no other penalty is
provided.
14. Unfortunately, the appellant did not appear before the assessing
authority. He also did not appear before the appellate authority. The
appellate authority in its order dated 15.2.2005, inter alia, noticed :
"During the appeal no one appeared for personal
hearing fixed on 12.7.2004 and 20.7.2004.
Therefore, I am going to decide the case on the
basis of evidence available on records. I have
carefully gone through the facts and records of the
case and observe that the issue involved is non-
payment of Service Tax by the appellant. The
appellant has contended that levying of Service
Tax on amount received as commission for
procuring orders for another person is not legal.
Under Section 65(25) "C&F Agent" has been
defined as any person who is engaged in the
providing any service, directly or indirectly
connected with clearing and forwarding operation
in any manner to any other person and "C&F
agent" includes consignment agent. The appellant
has themselves admitted that they were procuring
orders for M/s. GAIL. Since during the relevant
period appellant was providing services to M/s.
GAIL so service tax has been correctly demanded
from them."
15. The High Court, however, relying on clauses 4, 5, 11, 14 and 15 of the
Agreement opined :
"The agent were not at all concerned with the
handling or movement of goods unlike in the
present case where the consignment agent is
required to lift the goods from the factory of the
principal and distribute the same either directly to
the buyers or bring them to his godown for future
sale and delivery. From the agreement under our
scanner, it also appears that the liability for delays
in delivery in transit through the air, road or water
ways solely rested on the appellant. There is a
more explicit indication of the fact that the
appellant was required by his agency terms to lift
the goods for delivery and arrange for distributing
them to the buyers, by making necessary transit
arrangements. Therefore, the activities of lifting,
receiving, stocking and delivering the goods to the
buyers, clearly make a clear chain of activities,
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involving clearing and forwarding operations."
16. The High Court also, while distinguishing the judgment of the larger
Bench of the Tribunal, in Larsen & Tourbo Ltd. v. Commissioner of Central
Excise, Chennai [(2006) 3 STR 321 (T-LB)] and Medpro Pharma Pvt. Ltd.
v. CCE, Chennai [(2006) 3 STR 355 (T-LB), opined :
"In this context, a plain reading of Section
65(105)(j), would reveal that ’Taxable Service’
should mean any service provided to a client by a
clearing and forwarding agent including a
consignment agent (Emphasis supplied) in relation
to clearing and forwarding operations, in any
manner. In the present case, the appellant is
admittedly a consignment stockist, who is actively
involved in "Clearing & Forwarding Operation" by
taking responsibilities for the movement of goods
right from the factory/warehouse of the principal
upto the stage of delivery to the buyers in one or
many ways. There is, therefore, no doubt, that the
appellant is fully covered within the tax
framework, being a "Clearing & Forwarding
Agent" engaged in relation to ’Clearing &
Forwarding Operations’."
17. The agreement is titled as "Consignment Stockistship Agreement".
Appellant has various jobs to perform thereunder. It does not arrange for
any transport. It, however, provides for godowns. It gets the insurance
company to conduct a survey. It has to furnish dates as regards stock in its
custody. It has to furnish guarantee to recover full value of the stocks which
it holds for the company or sell on behalf of the company or for such a sum
as would be determined by the company in its discretion. The company,
however, has to indicate the recommended list prices for the sale of the
product whereto the appellant is entitled to at octroi duty, terminal tax, sales
tax or other local taxes or levies in forced in the local area and recover the
same from their customers and maintain proper accounts for the same.
Clauses 13 and 14 of the said agreement empower to sell the goods as also to
issue Form ’F’ to the Company.
It is also responsible for collection of tax.
18. What is necessary for determining the question is as to whether the
purported job of the appellant as a clearing and forwarding agent was
incidental to its main activity, namely, getting orders from the clients and
selling the products to various customers of the company or not. The notice
to show cause contained the following elements:
"(i) Service charges of Rs.500/- PMT shall be
paid by M/s GAIL to the consignment
stockist (i.e. noticee) for the quantity sold by
them.
(ii) Rs.400/- PMT shall be paid to the
consignment stockist for getting/booking
orders for the product of M/s. GAIL.
(iii) Rs.100/- PMT shall be paid to the
consignment stockist for release/clearance of
product locally from their stock on the
orders booked by M/s. GAIL directly."
19. The period in question is from 1.9.1999 to 31.7.2002. The notice to
show cause had referred only to paragraph 20.1 and 20.3 of the agreement.
Its activities are said to be sale and/or getting booking orders for the product.
20. Whether in the aforementioned situation, the appellant has incurred
any liability to pay service tax or not has not been determined. Its principal
activities, as indicated hereinbefore, have not been determined.
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21. It is true that the appellant has not appeared before the assessing
authority or the appellate authority.
However, keeping this in view, we are of the opinion, that the interest
of justice would be subserved if the matter is remitted to the assessing
authority with liberty to the parties to adduce such evidence as may be found
necessary for determining the issue(s).
Appellant, however, shall not take any adjournment before the
assessing authority and shall render all cooperation with it in the matter of
determination of the question.
22. The impugned orders are set aside including the order of penalty with
the aforementioned directions. Appeal is allowed to the aforementioned
extent with no orders as to costs.