2006 (8) TMI 600 - AT - Service Tax

Tribunal rules selling agent not liable for service tax

K.K. CORPORATION Versus COMMISSIONER OF SERVICE TAX, CHENNAI

The Tribunal ruled in favor of the assessee, determining that their activities as a selling agent did not constitute them as a clearing and forwarding ... - Issues:Interpretation of service tax liability for acting as a selling agent and clearing and forwarding agent.Detailed Analysis:1. The case involved a dispute regarding the service tax liability of an assessee who had entered into an agreement to act as a selling agent for promoting the sale of a company's products in return for a commission. The Assistant Commissioner demanded service tax, interest, and penalties from the assessee, considering them to be acting as a clearing and forwarding agent.2. The lower appellate authority upheld the demand, stating that the assessee's activities of procuring orders and promoting sales fell under the scope of a clearing and forwarding agent. This decision was based on the agreement terms where the assessee was responsible for appointing dealers, receiving goods on consignment, and ensuring the protection of goods while in custody.3. The assessee argued that they only procured orders and did not handle goods directly, as the goods were dispatched by the company directly to the buyers. They were responsible for following up on payments and handling cases where buyers did not accept goods, incurring charges like demurrage and bank interest.4. The assessee contended that they were registered for Business Auxiliary Service and did not engage in activities typical of a clearing and forwarding agent. They highlighted that they provided market trends and surveys to promote sales, but did not handle goods directly.5. During the hearing, it was argued that the demand was not sustainable as the assessee did not handle goods, and the decision relied upon by the Commissioner was overruled by a Larger Bench of the Tribunal in a different case.6. The Tribunal analyzed the activities of the assessee, noting that they acted as a selling agent by promoting the company's products, procuring orders, and pursuing payments from buyers. The Tribunal reviewed the agreement clauses and concluded that the assessee did not meet the statutory definition of a clearing and forwarding agent.7. The definition of a 'Clearing and Forwarding Agent' under Section 68(25) of the Finance Act 1994 and the detailed scope of services provided by such agents were considered. It was found that the assessee did not undertake activities specified for a clearing and forwarding agent as per the Trade Notice.8. The Tribunal referenced previous cases to establish that merely procuring orders and receiving commissions did not qualify the assessee as a clearing and forwarding agent. The Tribunal highlighted that the activities of a clearing and forwarding agent were specific to the movement and clearance of goods, which the assessee did not engage in.9. Ultimately, the Tribunal applied the ruling of a Larger Bench in a similar case to the present situation and set aside the impugned order, allowing the appeal in favor of the assessee.This detailed analysis outlines the key arguments, interpretations of legal definitions, and the Tribunal's decision regarding the service tax liability of the assessee acting as a selling agent and the distinction from a clearing and forwarding agent.