2023 (9) TMI 770 - AT - Service Tax

Clearing and forwarding agent's dual services taxed as one entity under Finance Act.

The Tribunal held that when a clearing and forwarding agent provides both clearing and forwarding services, even under separate contracts, it constitutes ... Clubbing of clearances - rules of classification - C & F service - clearing and transporting the goods under two separate contracts and bills have also been raised separately - HELD THAT:- C&F Agent Service includes two kinds of service providers i.e. the freight forwarders and the clearing agent. When the C&F himself is providing both the services to the principle, he is liable to tax under Section 65(25) of the Finance Act. However, when C&F agent is engaging a GTA or another agency who are freight forwarders than the levy cannot be raised against the C&F agent for providing C&F agent service. This Tribunal in the case of MEDPRO PHARMA PVT. LTD. VERSUS COMMISSIONER OF C. EX., CHENNAI [2006 (6) TMI 2 - CESTAT, NEW DELHI] had held that even isolated activity of freight forwarding is covered under C & F operations and is taxable as C & F Agent Service. It was held by the Tribunal that segregation of holistic concept of clearing and forwarding into divisible activities is not possible due to presence of word ‘and’ in between ‘clearing’ and ‘forwarding - however the said findings have been overturned by the High Court of Punjab and Haryana while deciding the appeal of Revenue in the case of COMMISSIONER OF CENTRAL EXCISE, PANCHKULA VERSUS M/S KULCIP MEDICINES (P) LTD. [2009 (2) TMI 89 - PUNJAB AND HARYANA HIGH COURT], where while interpreting the definition of Clearing and Forwarding Agent Service it was held that taxable service has been defined to mean any service provided or to be provided to a client by a ‘clearing and forwarding agent in relation to clearing and forwarding operations in any manner’. If the clearing operations are separated from forwarding operation, the levy of tax would not be attracted as it only involves one of the two activities. This decision though has taken a contrary view than decision in Medpro Pharma Pvt. Ltd. in the sense that clearing & forwarding can be segregated. However, the rationale of the Kulcip Medicines (P) Ltd. decision still is that if clearing & forwarding both the operations are undertaken by only one person, the activity shall be clearing & forwarding agent service only. The outcome of this decision therefore is that if one person has rendered service as ‘forwarding agent’ and also the service as ‘clearing agent’ then he be deemed to have rendered both services would amount to replacing the conjunctive ‘and’ by a disjunctive which is not possible. The conclusion which stands finalized to understanding is that for the service of clearing and forwarding agent to be taxable, the activities of clearing as well as forwarding shall be performed by one and the same agent - the service provider for the forwarding activity since is a person different from C&F agent that the value of freight forwarding shall not be included in the value of taxable C&F Agent Service. If fact, service cannot be taxed as C&F Agent Service. Reverting to the facts of the present case, it is observed that irrespective there are two separate agreements between the principle and the agent, one for transportation and another for clearing. In addition, the consideration received is also in two different modes with respect to the invoices of respondent’s clearing activity, he is receiving the consideration as commission. Whereas for the invoices about providing forwarding services, he is receiving the contractual payment. But the forwarding activity has been provided by the C&F agent i.e. the assessee and he, himself is clearing the product of his principle. The bifurcation of both the services, there is no doubt, permissible as per the decision in Kulcip Medicines (P) Ltd. - even if respondent is rendering transportation service under a separate contract but said service rendered by him cannot be called as Goods Transport Service. Thus, when one and the same person is providing service of clearing as well as forwarding irrespective under two separate contracts, it shall not amount to be the bifurcation of C&F Service. The agent has to be assessed for rendering C&F Service 65(25) and 65(105) of the Finance Act. The question framed is answered in negative that two separate contracts bifurcating the activity of clearing and forwarding will not discharge the C&F Agent from his liability of C&F Service taxable under Section 65(105)(i) of the Finance Act. It is for the sole reason that under two separate contracts, the respondent himself is the service provider. We hold that such an arrangement is to camouflage the C&F Agent’s liability for providing clearing & Forwarding Agent Service. The impugned order of Commissioner (Appeals) set aside - appeal of Revenue allowed. Issues Involved:1. Whether the clearing and forwarding agent is to be assessed separately when he is clearing and transporting the goods under two separate contracts.2. Whether the transportation charges received by the clearing and forwarding agent should form part of the consideration for providing Clearing and Forwarding Agent Service.Summary:Issue 1: Assessment of Clearing and Forwarding Agent Under Separate ContractsThe core issue addressed was whether a clearing and forwarding agent should be assessed separately when clearing and transporting goods under two distinct contracts. The Tribunal examined the definitions and relevant legal precedents to determine that for the service of a clearing and forwarding agent to be taxable, both clearing and forwarding activities must be performed by the same agent. The Tribunal referenced Section 65(25) of the Finance Act, 1994, and various case laws, concluding that the service provider must render both services to attract the levy. The Tribunal found that in this case, the respondent was providing both clearing and forwarding services under separate contracts but as the same agent, thus liable for tax under the category of Clearing and Forwarding Agent Service.Issue 2: Inclusion of Transportation Charges in Taxable ValueThe Tribunal also addressed whether transportation charges should be included in the taxable value for Clearing and Forwarding Agent Service. The department argued that transportation charges should be part of the consideration, while the respondent contended that transportation and C&F services were separate and should not be combined for tax purposes. The Tribunal referred to the definitions of clearing and forwarding agents and goods transport agencies, concluding that when the same agent provides both services, the transportation charges should be included in the taxable value. The Tribunal noted that the respondent was not registered as a Goods Transport Agency and that the transportation service rendered could not be considered separate from the C&F services.Conclusion:The Tribunal held that when one and the same person provides both clearing and forwarding services, even under separate contracts, it constitutes a single synchronized service of a clearing and forwarding agent. Consequently, the respondent is liable for tax under Section 65(25) of the Finance Act. The Tribunal set aside the order of the Commissioner (Appeals) and allowed the department's appeal, holding that the arrangement of separate contracts was an attempt to camouflage the C&F agent's liability.