2004 (4) TMI 2 - AT - Service Tax

Tribunal rules in favor of appellant, exempting from service tax under Finance Act

The Tribunal ruled in favor of the appellant, setting aside the order to pay service tax under Section 65(105)(j) of the Finance Act, 1994. The Tribunal ... Clearing and forwarding agent - consignment agent - taxable service - service tax liability attached to taxable service - inclusive definitionClearing and forwarding agent - consignment agent - taxable service - service tax liability attached to taxable service - Whether the services rendered by the appellant under the consignment agency agreement attract service tax as a service provided by a clearing and forwarding agent within Section 65(105)(j) of the Finance Act, 1994. - HELD THAT: - The agreement demonstrates that the appellant received products on consignment from the principal, sold them as the principal's consignment agent at prices fixed by the principal, collected and remitted sale proceeds to the principal, bore the risk of non-collection and was remunerated by commission. These obligations and rights show the appellant acted as a consignment agent and not as a clearing or forwarding agent engaged in clearing and forwarding operations. The scheme of the Finance Act, 1994 attaches liability only to a taxable service; inclusion of a consignment agent within the definitional sweep of clearing and forwarding agent does not, by itself, impose tax unless the particular service performed is a taxable service under Section 65(105)(j). The Tribunal's decision in Prabhat Zarda Factory is distinguishable: there the agent had no authority to sell and only procured orders and performed market-related functions, which justified treating those services as connected with clearing and forwarding operations. That factual nexus is absent here. Reliance on the departmental circular and the inclusive definition cannot override the contractual reality that the appellant's activities do not amount to clearing and forwarding operations in any manner to the principal or a client and therefore do not constitute a taxable service under Section 65(105)(j). [Paras 8, 9, 10]Appellant's services as consignment agent do not fall within Section 65(105)(j) as services by a clearing and forwarding agent and are not taxable; the impugned order is set aside and the appeal is allowed.Final Conclusion: The Tribunal allowed the appeal, holding that the appellant's consignment agency services are not services of a clearing and forwarding agent within the meaning of Section 65(105)(j) and therefore not liable to service tax; the order of the Commissioner (Appeals) is set aside. Issues:Liability to pay service tax under Section 65(105)(j) of the Finance Act, 1994 for services provided by the appellant as a consignment agent.Analysis:The appeal challenges an order by the Commissioner of Central Excise (Appeals) regarding the liability to pay service tax on services provided by the appellant as a consignment agent for M/s. Cipla Limited. The issue revolves around whether the services rendered by the appellant fall under Section 65(105)(j) of the Finance Act, 1994, as amended.The definition of 'clearing and forwarding agent' includes a consignment agent as per Section 65(25) of the Act. The Commissioner opined that the appellant's activities of receiving, storing, and distributing goods make them liable for service tax under the category of 'clearing and forwarding agents.' This interpretation was supported by a CBEC Circular clarifying the scope of persons liable to pay service tax.The appellant argued that their activities align more with those of a consignment agent rather than a clearing and forwarding agent. They referenced various legal definitions and dictionaries to support their claim that they do not fall under the definition of a clearing and forwarding agent.The Tribunal analyzed the agreement between the appellant and M/s. Cipla Limited, noting that the appellant's role was that of a consignment agent based on the specific clauses outlined in the agreement. The Tribunal differentiated between the responsibilities of a clearing and forwarding agent and those of a consignment agent, concluding that the appellant's services did not qualify as those provided by a clearing and forwarding agent.In contrast to a previous decision relied upon by the opposing party, where the agent had different responsibilities, the Tribunal found that the appellant in this case was not involved in clearing or forwarding goods but was engaged in consignment sales. Therefore, the Tribunal ruled in favor of the appellant, setting aside the order to pay service tax as they were not providing a taxable service under Section 65(105)(j) of the Finance Act, 1994.