Relevant Provisions of Service Tax:

Section 65(19) - Meaning of Business Auxiliary Services

Section 65(25) - Meaning of Clearing and Forwarding Agent 

Facts of the Case:

Appellants herein entered into an agreement with Gas Authority of India Ltd. (GAIL) titled 'Consignment Stockistship Agreement'.

On the premise as to why they should not be asked to pay 'services taxes', a show cause notice was issued on the appellant on 20.10.2003.  Cause was shown by it saying that no service is being provided by it as a clearing and forwarding agent of GAIL.  An order in original was passed by the Deputy Commissioner, Central Excise on 17.3.2004 directing payment of service tax with interest as also penalties as demanded under the show cause notice.

An appeal preferred thereagainst by the appellant was dismissed by the appellate authority by a judgment and order dated 15.2.2005.  A further appeal preferred by the appellant before the Central Excise and Sales Tax Appellate Tribunal has also been dismissed.

Findings and Decision of Honorable Supreme Court:

There cannot be any doubt whatsoever that a document has to be read as a whole.  The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof.  Neither the nomenclature of the document nor any particular activity undertaken by the parties to the contract would be decisive.

For the purpose of ascertaining as to whether the appellant in effect and substance was a clearing and forwarding agent or it was merely accepting orders for and on behalf of GAIL, the same must be ascertained from the terms of the agreement itself.

The agreement is titled as "Consignment Stockistship Agreement".  Appellant has various jobs to perform thereunder.  It does not arrange for any transport.  It, however, provides for godowns.  It gets the insurance company to conduct a survey.  It has to furnish dates as regards stock in its custody.  It has to furnish guarantee to recover full value of the stocks which it holds for the company or sell on behalf of the company or for such a sum as would be determined by the company in its discretion.  The company, however, has to indicate the recommended list prices for the sale of the product whereto the appellant is entitled to at octroi duty, terminal tax, sales tax or other local taxes or levies in forced in the local area and recover the same from their customers and maintain proper accounts for the same.  Clauses 13 and 14 of the said agreement empower to sell the goods as also to issue Form 'F' to the Company.  It is also responsible for collection of tax.

Whether in the aforementioned situation, the appellant has incurred any liability to pay service tax or not has not been determined.  Its principal activities, as indicated hereinbefore, have not been determined. 

Matter remanded back for determining the principle activity. 

(For full text of judgment - visit 2008 -TMI - 3769 - Supreme court)

Substance over form: contractual substance determines whether agency services attract service tax, not the agreement's title. Determination of service tax coverage depends on the substance of the contractual relationship, not the agreement's title; contractual terms-read as a whole-must be examined to decide whether obligations (storage, insurance surveys, stock guarantees, tax collection, authority to sell, issuance of statutory forms) render the party a clearing and forwarding agent or an agent acting only on behalf of the principal. The matter was remitted for factual determination of the principal activity and resulting service tax liability.