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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.