2006 (6) TMI 20 - AT - Service Tax

Tribunal Limits Service Tax Liability for Clearing & Forwarding Agents

BS REFRIGERATION LTD. Versus COMMR. OF SERVICE TAX, BANGALORE

The Tribunal ruled in favor of the appellants, holding that the service tax liability should only apply to services provided as a clearing and forwarding ... Service Tax – Consignment agent marketed goods of appellant and carried out all expenses including services of C & F agents - Statutory levies reimbursed by appellant to consignment agent – Demand and penalty of service tax on entire amount reimbursed, not sustainable Issues:Service tax liability on activities undertaken by consignment agent and clearing and forwarding agent.Analysis:The case involved the appellants, who manufactured refrigerators and plastic molded parts, appointing BPL as a consignment agent for marketing their goods. The agreement between the parties outlined various activities to be undertaken by BPL, including stocking goods, selling products, advertising, and undertaking C & F operations. The dispute arose when the Department issued a show cause notice demanding service tax on the amount reimbursed to BPL, alleging the entire amount was liable to service tax under the head 'clearing and forwarding agent'. The lower authorities confirmed the demand, imposing penalties and interest. The appellants challenged this decision before the Commissioner (Appeals) and later before the Tribunal.The learned Advocate for the appellants argued several key points. Firstly, he contended that the service tax liability should only apply to the service of a 'clearing and forwarding agent' and not to all activities undertaken by BPL. He emphasized that BPL's services encompassed a wide range of activities beyond just clearing and forwarding. Additionally, he cited a precedent where it was held that activities clearly indicated in an agreement as those of a consignment agent cannot be taxed as those of a clearing and forwarding agent. Furthermore, he raised a procedural issue regarding the issuance of the show cause notice demanding service tax from the service receiver for a specific period.The Tribunal carefully examined the facts and arguments presented. It noted that the amount reimbursed by the appellants to BPL was not solely for clearing and forwarding services but also for various other activities as per the agreement. Drawing from a previous case precedent, the Tribunal emphasized that unless the service provided can be treated as that of a clearing and forwarding agent in relation to clearing and forwarding operations, it cannot be taxed as such. Therefore, the Tribunal found no merit in the orders of the lower authorities and concluded that the imposition of penalties was unjustified. As a result, the Tribunal allowed the appeal with consequential relief, ruling in favor of the appellants.In conclusion, the Tribunal's decision clarified that the service tax liability should be limited to the specific services provided as a clearing and forwarding agent, rather than encompassing all activities undertaken by a consignment agent. The judgment highlighted the importance of interpreting agreements and services accurately to determine the appropriate tax liability, ensuring fairness and adherence to legal principles in taxation matters.