Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7215 OF 2004
M/S. COAL HANDLERS PRIVATE LIMITED .....APPELLANT(S)
VERSUS
COMMISSIONER OF CENTRAL EXCISE
RANGE KOLKATA – I .....RESPONDENT(S)
W I T H
CIVIL APPEAL NO. 5159 OF 2013
A N D
CIVIL APPEAL NO. 9967 OF 2014
J U D G M E N T
JUDGMENT
A.K. SIKRI, J.
CIVIL APPEAL NO. 7215 OF 2004
CIVIL APPEAL NO. 5159 OF 2013
Appellants in both these appeals are the assessees and the
issue involved in these appeals is common. Both the appellants
provide certain services as Agents under the contracts signed
with their respective Principals. The issue is as to whether such
services provided by them would label them as Clearing &
Civil Appeal No. 7215 of 2004 & Ors. Page 1 of 19
Page 1
Forwarding Agents (for short, 'C&F Agents') and, thus, make them
liable to service tax in accordance with the Finance Act, 1994
(hereinafter referred to as the 'Act'), as amended from time to
time. Since the issue to be decided in both the appeals is
identical and also arises almost in the same factual background, it
would serve our purpose if we reproduce the facts from Civil
Appeal No. 7215 of 2004.
2) The appellant in this case is providing certain services as Agent.
Such services are provided to M/s. Gujarat Ambuja Cements
Limited and M/s. Ambuja Cements Eastern Limited (hereinafter
collectively referred to as 'Ambuja companies'). At the material
time, these were public sector undertakings under the
Government of Gujarat. These industries need coal as a raw
material for production of cement, which is the main
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manufacturing activity undertaken by the said companies.
Industries that need coal as a raw material generally approach the
Ministry of Industries, Government of India with their
requirements. The Ministry of Industries, after enquiry,
recommends to the Ministry of Coal the quantity that is required to
be supplied to such industries. Thereafter, the Ministry of Coal,
as per the norms prescribed, allots the coal to these industries
Civil Appeal No. 7215 of 2004 & Ors. Page 2 of 19
Page 2
through the Long Term Linkage Committee indicating the coal
companies and the location from which coal can be made
available to them. While fixing the locations from where the coal
is to be supplied to such companies, the Committee takes into
account the Railways commitment for movement of the coal. The
Railways is responsible for placing of rail rakes according to the
programme. To maintain constant liaison with the Railways for
the actual placing of coal rakes, such companies generally
appoint its Agents. The aforesaid Ambuja companies, for this
purpose, had appointed the appellant for this purpose and a
contract was entered into between the said Ambuja companies
and the appellant. Under this Agency agreement, the appellant
was required to undertake the following activities on behalf of the
Ambuja companies:
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(i) following up the allotment of coal rakes by the Railways;
(ii) expediting and supervising the loading and labeling of rail
wagons;
(iii) drawing the samples of coal loaded on the wagons;
(iv) complying with the formalities relating to payments for
freight to the Railways; and
(v) dispatching of rail receipts to Ambuja companies.
3) The issue that arose for consideration was as to whether
aforesaid services were liable to service tax under the provisions
Civil Appeal No. 7215 of 2004 & Ors. Page 3 of 19
Page 3
of the Act. By the said Act, sub-section (25) was inserted in
Section 65, which defines C&F Agent as under:
“(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;”
We may also note that the taxable service as provided in
Section 65(48)(j) of the Act in relation to service of C&F Agent
means 'any service provided to a client, by a clearing and
forwarding agent in relation to clearing and forwarding operations
in any manner' .
4) It so happened that the appellant had filed an application for
registration in Form ST-I under Section 69 of Chapter V of the Act
on November 17, 1999 for the service of 'handling agents' (C&F
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Agent). Certification of Registration was granted on November
18, 1999. Thereafter, on May 30, 2000, the appellant surrendered
the said Registration Certificate on the ground that services
rendered by them were not covered by Section 65(25) of the Act.
The application for surrender was, however, rejected by the
Superintendent of Central Excise (SCE), Service Tax Cell,
Kolkata-I, Commissionerate on February 08, 2001 by passing the
Order-in-Original. The SCE, in that order, took the view that the
Civil Appeal No. 7215 of 2004 & Ors. Page 4 of 19
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services rendered by the appellant under the aforesaid contract
with Ambuja companies would be covered by Section 65(25) of
the Act and, therefore, exigible to service tax. Aggrieved by the
said order, the appellant preferred an appeal before the
Commissioner of Central Excise (Appeals), Kolkata, which was
also dismissed by the Commissioner on November 05, 2002.
This order was challenged by the appellant before the Customs,
Excise & Service Tax Appellate Tribunal (for short, 'CESTAT').
5) The CESTAT has also dismissed the appeal by the impugned
order dated May 24, 2004 by observing that the matter is covered
by its own judgment in the case of M/s. Prabhat Zarda Factory
1
(India) Ltd. v. Commissioner of Central Excise, Patna . The
Tribunal has noted in this behalf that in the said case the Bench of
the Tribunal had considered the definition of C&F Agent and has
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held that such definition was very wide and includes any service,
even provided indirectly. It was also noted that the said judgment
was delivered on February 09, 2002 and thereafter Finance Act of
2003 was introduced and the new service, viz. 'Business Auxiliary
Service' appearing in Section 65(19) was introduced. The said
service is in relation to promotion or marketing of service provided
by the client; any customer care service provided on behalf of the
1 2002 (145) ELT 222
Civil Appeal No. 7215 of 2004 & Ors. Page 5 of 19
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client and any incidental or auxiliary support service such as
billing, collection or recovery of cheques, accounts and
remittance, evaluation of prospective customer and public relation
services, and includes services as a commission agent. The
CESTAT, however, held that the activities undertaken by the
appellant were not covered by the expression 'Business Auxiliary
Service' , which include Commission Agents, and stand exempted
from service tax with effect from July 01, 2003 vide Notification
No. 13/2003 dated June 20, 2003. Therefore, no such exemption
was available. The relevant paras of the impugned order
containing the aforesaid discussion are as under:
“5) The appellants have agreed that the issue
involved stands decided in the case of Prabhat
Zarda Factory (India) Ltd. (Supra). The Tribunal
under the said judgment has observed that as per
definition of clearing and forwarding agent, he is a
person who is engaged for providing any service,
either directly or indirectly connected with clearing
and forwarding operations in any manner to any
other person and includes a commission agent.
The use of the expression “any” and “indirectly” in
the said definition of clearing and forwarding agent,
is indicative of the fact that the scope of the
services to be provided by clearing and forwarding
agent is quite wide. He is not only the person who
is actually dealing with the goods, which has to be
termed as clearing and forwarding agent, but even
if the services are indirect and if the same are
connected with the clearing and forwarding
operations in any manner of the other persons, he
would be covered within the scope of the said
definition. The appellants in the instant case
render their services in all the sections of pre load
of the coal rakes i.e. obtaining consent on behalf of
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Civil Appeal No. 7215 of 2004 & Ors. Page 6 of 19
Page 6
their customers, sanctions from the office of
Executive Director-Rail Movement, supervising
loading of the wagons, sending samples and
assuring the proper quality and quantities,
complying with the formalities relating to payments
for freight. As such, it is quite clear that the
appellant is covered by the definition of clearing
and forwarding agent, as interpreted by the
Tribunal in the above referred case of Prabhat
Zarda.
6) The appellants have alternative contention that
they are covered by the new i.e. Business Auxiliary
Service introduced vide Finance Act of 2003.
However, we find that the said services are in the
nature of promotional or marketing of the
customers goods or in the nature of doing the other
routine type of jobs like billing or collection of
cheques, maintenance of accounts and evaluation
of prospective customers and public relation
services. The services being provided by the
appellant cannot be equated to the above. It is
also seen that the expression 'commission agent'
th
has been explained by the Notification dated 20
June, 2003 reported in 155 ELT N-171, vide
paragraph 2.1.3 it has been clarified that C&F
agents work on commission basis do not fall under
the definition of 'Business Auxiliary Service', in as
much as they are substantially covered within the
definition C & F service. It has, further, been
clarified that under Section 65A of Finance Act,
1994, it has also been provided that in case of
overlap, a service would be classified under the
head, (a) which provides most specific description,
(b) in case of a composite service having
combination of different taxable services, the
service which give them their essential character
and (c) in case the test of (a) and (b) does not
resolve, the service which comes earlier in the
clauses of Section 65, i.e. the service that was
subjected to service tax earlier. Since Insurance
services and C & F Services are more specific
description and were also subjected to service tax
prior to imposition of tax on business auxiliary
service, the insurance agents, C & F agents
working on commission basis would fall under
those respective categories. From this, it follows
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Civil Appeal No. 7215 of 2004 & Ors. Page 7 of 19
Page 7
that a particular service can be taxed only under
one head of service.”
6) As is clear from the reading of the aforesaid extracted portion of
the order, the Tribunal has rested its impugned decision on its
earlier judgment in the case of Prabhat Zarda (supra) and the
reasons contained in the said judgment are restated in support of
the view taken by the Tribunal in the impugned judgment.
7) It so happened that the ratio of the decision in Prabhat Zarda
(supra) was doubted by another Bench of the Tribunal and the
said Bench referred the matter to the larger Bench. On reference
being made, the Full Bench of the Tribunal decided the issue and
on the aforesaid aspect decision in Prabhat Zarda (supra) has
been overruled by it. The judgment of the Full Bench is known as
Larsen & Toubro Ltd. v. Commissioner of Central Excise,
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2
Chennai . It gets revealed from the decision of the larger Bench
that after taking note of the definition of 'clearing and forwarding
agent' (which has already been extracted above), the larger
Bench observed that the service should be connected with
clearing and forwarding operations. The 'clearing and forwarding'
operations would be various activities having bearing on
clearance of goods, which would involve documentary processes
2 2006 (3) STR 321 (Tri.-LB) :: 2006 (110) ECC 634 :: 2006 ECR 634 Tri Delhi
Civil Appeal No. 7215 of 2004 & Ors. Page 8 of 19
Page 8
and arrangements for transfer of goods to their destination, which
process may also involve clearance at subsequent stages during
forwarding operations. In the opinion of the larger Bench, the
procurer of orders on commission basis renders services which
are not connected with such clearing and forwarding operations,
which have bearing on the movement of goods. It also mentioned
that normally a C&F Agent undertakes the following activities:
(i) receiving the goods from the factories or premises of the
principal or his agents;
(ii) warehousing these goods;
(iii) receiving despatch orders from the principal;
(iv) 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;
(v) maintaining records of the receipt and despatch of goods
and the stock available at the warehouse; and
(vi) preparing invoices on behalf of the principal.
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8) Since the appellant in that case was engaged only for procuring
purchase orders for vendor on commission basis and was not
engaged in any of the above activities, the larger Bench
concluded that the services provided by the said appellant would
not fall within the definition of 'clearing and forwarding agent' as
contained in the Act. The detailed discussion on this aspect runs
as follows:
Civil Appeal No. 7215 of 2004 & Ors. Page 9 of 19
Page 9
“9.3 An agent engaged only for procuring
purchase orders for the vendor on commission
basis does not engage in any of the above
activities, directly or indirectly. Commission agent
engaged to procure orders and not entrusted with
the work of clearing and forwarding of the goods
would be a person who, in the ordinary course of
business, makes contracts for sale or purchase of
goods for others. The definition of "commission
agent" in Section 2(aaa) of the Central Excise Act,
1944, would apply in relation to service tax as it
applies in relation to duty of excise by virtue of
Sub-section (121) or Section 65 of the Act.
Services of commission agent are included in the
definition of "business auxiliary service" under
Sub-section (19) of Section 65 w.e.f. 1-7-2003,
which includes service of a commission agent. As
defined in Explanation (a) to Sub-section (19) of
Section 65 commission agent is a person who acts
on behalf of another person and causes sale or
purchase of goods, or provision or receipt of
services, for consideration, and includes any
person who, while acting on behalf of another
person: deals with goods or services or documents
of title to such goods or services; or collects
payment of sale price of such goods or services; or
guarantees for collection or payment for such
goods or services; or undertakes any activities
relating to such sale or purchase of such goods or
services. This clearly shows that the activity of
mere procurement of purchase orders for the
principal on commission basis of a commission
agent is treated separately by the Parliament from
the activities of a clearing and forwarding agent.
Activity of procuring orders is thus independent of
clearing and forwarding operations. The agents
doing these activities can be different. Moreover,
clearing and forwarding operations do not flow
directly or indirectly from mere procurement of
orders. There is no obligation on the person
procuring orders as a commission agent for the
principal, only by virtue of that agency, to carry out
clearing and forwarding operations in respect of the
goods which are to be supplied pursuant to the
orders so procured.
JUDGMENT
Civil Appeal No. 7215 of 2004 & Ors. Page 10 of 19
Page 10
10. It appears to us that the expressions "directly or
indirectly" and "in any manner" occurring in the
definition of "clearing and forwarding agent" cannot
be isolated from the activity of clearing and
forwarding operations. A person may undertake to
provide service of procurement of orders as agent
of the principal without agreeing to provide services
of clearing and forwarding of the goods. Clearing
and forwarding has a very specific connotation in
the context of movement of goods from the supplier
to their destination and agents undertaking clearing
and forwarding operations may never have been
concerned with procurement of orders for the
goods which are cleared and forwarded. A person
entrusted with the work of commission agent for
procuring orders for the principal cannot insist on
also providing services as clearing and forwarding
agent in respect of those goods and it would be
open for the principal to engage some other person
for the purpose of forwarding such goods. In cases
where the buyer is under an obligation to take
delivery of the goods from the vendor's premises,
there would not be even any need on the part of
the vendor to engage any forwarding agent, nor
can a person engaged for the purpose of clearing
and forwarding operations, insist on procuring
orders for the principal in the absence of any
stipulation to that effect.
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11. We, therefore, hold that mere procuring or
booking orders for the principal by an agent on
payment of commission basis would not amount to
providing services as "clearing and forwarding
agent", within the meaning of the definition of that
expression under Section 65(25) of the Finance
Act, 1994, as has been held in the decision of the
Tribunal in Prabhat Zarda Factory (Pvt.) Ltd. v.
CCE Patna reported in 2002 (145) ELT : 2002 (50)
RLT 326 (CEGAT-KOL.). The decision in Prabhat
Zarda Factory (Pvt.) Ltd. stands overruled to the
extent of the aforesaid ratio laid down thereunder .
The reference is answered accordingly. All these
appeals will now be placed before the concerned
Division Bench for decision on merits in the light of
this judgment and in accordance with law.
(emphasis added)”
Civil Appeal No. 7215 of 2004 & Ors. Page 11 of 19
Page 11
9) Significantly, the Revenue accepted the aforesaid decision in the
case of Larsen & Toubro (supra) and did not file any appeal
thereagainst. Even otherwise, we find that the larger Bench of the
Tribunal in the said case has rightly interpreted the definition of
'clearing and forwarding agent' contained in Section 65(25) of the
Act. Notwithstanding the aforesaid dicta of the larger Bench,
learned senior counsel appearing for the Revenue submitted that
judgment in Prabhat Zarda (supra) has not been overruled
entirely, as is clear from the reading of para 11 of the judgment
where the larger Bench has said that Prabhat Zarda (supra)
'stands overruled to the extent of the aforesaid ratio laid down
thereunder' . His endeavour was to demonstrate that in the
present case the Tribunal in the impugned judgment had rightly
relied upon Prabhat Zarda (supra) and when the services
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rendered by the appellant are looked into, it would clearly fall
within the definition of 'clearing and forwarding agent' contained in
Section 65(25) of the Act.
Let us, therefore, examine whether services rendered by the
appellant would qualify it as C&F Agent?
10) It would be relevant to point out the definition of 'forwarding
agent' , as known in legal parlance, from Black's Law Dictionary
Civil Appeal No. 7215 of 2004 & Ors. Page 12 of 19
Page 12
(Seventh Edition), which is as under:
“ forwarding agent. 1. A person or company whose
business is to receive and ship goods for others –
Also termed freight-forwarder . 2. A freight-
forwarder who assembles less-than-carload
shipments 'small shipments' into carload
shipments, thus taking advantage of lower freight
rates.”
The Penguin Business Dictionary defines this expression in
the following words:
“ Forwarding agent. A GENERAL AGENT who
specializes in moving goods from a factory or port
of entry to their proper destination. Such an agent
normally owns the transport necessary for this work
and often arranges FREIGHT and customs
formalities for his principal.”
In Fourth Edition of Halsbury's Laws of England (Volume 5),
the characteristics of 'forwarding agents' are narrated in the
following manner:
“ 442. Characteristics of forwarding agents. A
forwarding agent is one who carries on the
business of arranging for the carriage of gods for
other people. It must be clearly understood that a
forwarding agent is not, in general, a carrier: he
does not obtain possession of the goods: and he
does not undertake the delivery of them at the
other end. All that he does is to act as agent for
the owner of the goods to make arrangements with
the people who do carry, such as shipowners, road
hauliers, railway authorities and air carriers, and to
make arrangements, so far as they are necessary,
for the intermediate steps between the ship and the
rail, the customs or anything else.
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Although there is a clear distinction between
a forwarding agent and a carrier, the same person
may carry on both activities at once, and contract
sometimes as one and sometimes as the other.
Civil Appeal No. 7215 of 2004 & Ors. Page 13 of 19
Page 13
The fact that a person describes himself as a
forwarding agent is not conclusive: and it is a
question of fact to be decided according to the
circumstances of each case whether a person
normally carrying on business as a forwarding
agent contracts solely as agent so as to establish a
direct contractual link between his customer and a
carrier (or possibly with several carriers, each
undertaking a different part of the transit), or
whether he contracts as principal to carry the
goods, the customer appreciating that he will
perform the contract vicariously through the
employment of sub-contractors. The nature of the
carriage, the language used by the parties in
describing the role of the person concerned, and
any course of dealing between the parties will be
relevant factors.
Persons properly described as shipping and
forwarding agents frequently act as carriers
themselves with respect to part of the carriage, for
example, by performing collection and delivery
services between the customers' premises, their
own depots, and warehouses, docks and carriers'
depots. In such cases they would have the rights
and duties of carriers with respect to such carriage
as they undertake personally, but the rights and
duties of forwarding agents with respect to the
remainder of the transit.
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443. Rights and liabilities of forwarding agents.
The rights and liabilities of a forwarding agent are
governed by the general principles of the law of
agency: and so he is entitled to be indemnified
against all expenses incurred on behalf of his
principal and to be paid his proper charges for his
services. He is liable for failure to make proper
arrangements for the carriage and for ancillary
matters which he has undertaken, such as customs
clearance. He is not liable for the failings of
persons with whom he makes contracts on behalf
of his principal, unless he know of those failings
and ought to have taken action either to remedy
them or at least to inform his principal so that
damage might be avoided or mitigated: thus he is
under no duty to supervise the actions of carriers
Civil Appeal No. 7215 of 2004 & Ors. Page 14 of 19
Page 14
whom he reasonably and properly expects to
perform their normal obligations competently.
In ordinary transactions a forwarding agent
is not liable for failing to insure the goods, in the
absence of instructions from his customer to do so:
but he may, in certain circumstances, be liable for
not consulting his customer and advising him as to
the proper transport and insurance arrangements
which should be made for valuable goods.
A forwarding agent is not normally
personally liable to pay the charges of carriers
whom he engages to carry the gods on behalf of
his principal; but there is a custom of the London
freight market that forwarding agents incur
personal liability to shipowners for the payment of
freight or of dead freight for booked space left
unfilled.
A forwarding agent who tenders dangerous
goods to carriers without warning them of their
nature or of the precautions which should be taken
in their carriage is personally liable to the carriers
for any resulting damage through breach of the
implied warranty that the goods are fit for carriage.”
11) From the reading of the definition contained in the aforesaid
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provision, together with its dictionary meanings contained in Legal
and Commercial dictionaries, it becomes apparent that in order to
qualify as a C&F Agent, such a person is to be found to be
engaged in providing any service connected with 'clearing and
forwarding operations' . Of course, once it is found that such a
person is providing the services which are connected with the
clearing and forwarding operations, then whether such services
are provided directly or indirectly would be of no significance and
Civil Appeal No. 7215 of 2004 & Ors. Page 15 of 19
Page 15
such a person would be covered by the definition. Therefore, we
have to see as to what would constitute clearing and forwarding
operations. As is clear from the plain meaning of the aforesaid
expression, it would cover those activities which pertain to
clearing of the goods and thereafter forwarding those goods to a
particular destination, at the instance and on the directions of the
principal. In the context of these appeals, it would essentially
include getting the coal cleared as an agent on behalf of the
principal from the supplier of the coal (which would mean
collieries in the present case) and thereafter dispatching/
forwarding the said coal to different destinations as per the
instructions of the principal. In the process, it may include
warehousing of the goods so cleared, receiving dispatch orders
from the principal, arranging dispatch of the goods as per the
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instructions of the principal by engaging transport on his own or
through the transporters of the principal, maintaining records of
the receipt and dispatch of the goods and the stock available on
the warehouses and preparing invoices on behalf of the principal.
The larger Bench rightly enumerated these activities which the
C&F Agent is supposed to perform.
Civil Appeal No. 7215 of 2004 & Ors. Page 16 of 19
Page 16
12) On the facts of the present case, we find that none of the
aforesaid activities are performed by the appellant. There is no
role of the appellant in getting the coal cleared from the collieries/
supplier of the coal. Movement of the coal is under the contract of
sale between the coal company and Ambuja companies. Even
the coal is loaded on to the railway wagons by the coal company.
The goods are not under any legal detention from which they
need to be freed by the appellant. Not only this, destination of the
goods is known to the coal company and the railway rakes are
placed by the coal company for the said destinations. The
destination is the factories of the principal itself, namely, Ambuja
companies, where the coal is to be delivered by the coal company
as per pre-determined/agreed covenants between them.
Therefore, there is no occasion for Ambuja companies to instruct
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the appellant to dispatch/forward the goods to a particular
destination which is already fixed as per the contract between the
coal company and the Ambuja companies. The appellant does
not even undertake any loading operation. The primary job of the
appellant, as per the contract between the appellant and the
Ambuja companies, is of supervising and liaisoning with the coal
company as well as the Railways to see that the material required
by Ambuja companies is loaded as per the schedule. At no stage
Civil Appeal No. 7215 of 2004 & Ors. Page 17 of 19
Page 17
custody of the coal is taken by the appellant or transportation of
the coal, as forwarders, is arranged by the appellant. We are,
thus, of the clear opinion that the services rendered by the
appellant would not qualify as C&F Agent within the meaning of
Section 65(25) of the Act.
13) In view of the aforesaid discussion, the appeals are allowed and
the impugned orders passed by the Tribunal are set aside by
quashing the demand of service tax made from the appellants.
No costs.
CIVIL APPEAL NO. 9967 OF 2014
The Commissioner of Service Tax, Kolkata, is aggrieved by
the orders dated August 21, 2013 passed by the High Court of
Calcutta, which has dismissed the appeal of the Revenue by the
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impugned judgment, refusing to entertain the said appeal which
was preferred by the Revenue against orders dated April 02, 2013
passed by CESTAT. In the said appeal before the CESTAT, it had
taken the view, in the case of same appellant, that the appellant
was not liable to pay any service tax as it was not covered by the
definition of C&F Agent as contained in Section 65(25) of the Act.
The appeal preferred by the Revenue was dismissed by the High
Court on the ground that Civil Appeal No. 5159 of 2013 is pending
Civil Appeal No. 7215 of 2004 & Ors. Page 18 of 19
Page 18
in this Court. Since the said appeal of the appellant is allowed by
us, as a consequence, this appeal warrants to be dismissed and it
is ordered accordingly.
No costs.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ROHINTON FALI NARIMAN)
NEW DELHI;
MAY 05, 2015.
JUDGMENT
Civil Appeal No. 7215 of 2004 & Ors. Page 19 of 19
Page 19