2015 (5) TMI 249 - SC - Service Tax

Coal supervision services don't qualify as clearing and forwarding agent services under Section 65(25) Finance Act 1994

The SC held that the appellant's services did not qualify as clearing and forwarding agent services under Section 65(25) of the Finance Act, 1994, and ... Classification of service - Clearing and forwarding agent service ('C&F Agents') - liability to pay service tax in accordance with the Finance Act, 1994 - manufacturing activity undertaken - HELD THAT:- 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. Thus, 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. 1. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment was whether the services provided by the appellants, who acted as agents under contracts with their principals, classified them as Clearing & Forwarding Agents (C&F Agents) under the Finance Act, 1994, thereby making them liable for service tax. This involved interpreting the definition of a C&F Agent and determining if the appellants' activities fell within this scope.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The legal framework involved the definition of a C&F Agent under Section 65(25) of the Finance Act, 1994, which describes a C&F Agent as any person engaged in providing services connected with clearing and forwarding operations, either directly or indirectly. The case also referenced the taxable service definition in Section 65(48)(j) related to C&F Agents. Precedents considered included the Tribunal's earlier decision in Prabhat Zarda Factory (India) Ltd. and the larger Bench decision in Larsen & Toubro Ltd.Court's interpretation and reasoning:The Court analyzed whether the appellants' activities qualified as clearing and forwarding operations. It emphasized that such operations involve activities related to the clearance of goods and their forwarding to destinations, including warehousing, dispatching, and maintaining records. The Court noted that the appellants' activities, which primarily involved liaising with the Railways and supervising coal loading, did not constitute clearing and forwarding operations as they did not involve handling, warehousing, or dispatching goods.Key evidence and findings:The Court examined the appellants' contracts with their principals, which outlined their responsibilities, such as liaising with the Railways and supervising coal loading. It found that these activities did not involve the actual clearance or forwarding of goods, nor did they involve taking custody of goods or arranging transportation.Application of law to facts:The Court applied the definition of a C&F Agent to the facts, determining that the appellants' activities did not meet the criteria for clearing and forwarding operations. The Court referenced the larger Bench's interpretation in Larsen & Toubro Ltd., which clarified that procuring orders or acting as a commission agent does not equate to clearing and forwarding operations.Treatment of competing arguments:The Revenue argued that the appellants' services fell within the definition of a C&F Agent based on the broad interpretation in Prabhat Zarda Factory. However, the Court favored the interpretation in Larsen & Toubro Ltd., which provided a more specific delineation of activities constituting clearing and forwarding operations. The Court found that the appellants' activities were not covered by the C&F Agent definition.Conclusions:The Court concluded that the appellants were not liable for service tax as C&F Agents under Section 65(25) of the Finance Act, 1994, as their activities did not constitute clearing and forwarding operations. Consequently, the demands for service tax were quashed.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:The Court emphasized 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.' It highlighted that mere procurement of orders or acting as a commission agent does not fall under clearing and forwarding operations.Core principles established:The judgment clarified that clearing and forwarding operations involve specific activities related to the movement and handling of goods, including warehousing, dispatching, and maintaining records. It distinguished these from activities like order procurement or liaisoning, which do not qualify as clearing and forwarding operations.Final determinations on each issue:The Court determined that the appellants' activities did not qualify them as C&F Agents under the Finance Act, 1994, and thus, they were not liable for service tax. The appeals were allowed, and the Tribunal's orders were set aside, quashing the service tax demands against the appellants.