ST- C&F Agents - clearing and forwarding operations would cover those activities which pertain to clearing of goods and thereafter forwarding those goods to a particular destination, at instance and on directions of principal: SC

NEW DELHI, MAY 06, 2015: THE appellant is providing certain services as Agent. Such services are provided to M/s. Gujarat Ambuja Cements Limited and M/s. Ambuja Cements Eastern Limited

(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 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 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:

(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.

The issue that arose for consideration was as to whether aforesaid services were liable to service tax under the provisions of the Act. By the 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;"

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'.

The Superintendent of Central Excise, in his order dated February 08, 2001, held that the 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 dismissed by the Commissioner on November 05, 2002. This order was challenged by the appellant before the Customs, Excise & Service Tax Appellate Tribunal ('CESTAT'). The CESTAT has also dismissed the appeal by the impugned order dated May 24, 2004 (2004-TIOL-579-CESTAT- KOL) by observing that the matter is covered by its own judgment in the case of M/s. Prabhat Zarda Factory (India) Ltd. v. Commissioner of Central Excise, Patna - 2002-TIOL-232-CESTAT-KOL. 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 held that such definition was very wide and includes any service, even provided indirectly.

The Twist : 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, Chennai - 2006-TIOL-814-CESTAT-DEL-LB . 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 and arrangements for transfer of goods to their destination, which process may also involve clearance at subsequent stages during forwarding operations.

Significantly, the Revenue accepted the aforesaid decision in the case of Larsen & Toubro (supra) and did not file any appeal thereagainst . Even otherwise, the Supreme Court found 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.

In the instant case, the Supreme Court observed,

"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 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 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.

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 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 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."

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.