M/S.
Super Poly Fabriks Ltd Vs. Commissioner of Central Excise, Punjab [2008] INSC 705 (24 April 2008)
S.B. Sinha & V.S. Sirpurkar
REPORTABLE CIVIL APPEAL NO.1713 OF 2007 S.B. Sinha, J.
1. Short question arising in the appeal is whether in the facts and circumstances
of this case, the petitioner renders any services so as to incur the liability
to pay service tax.
2. The factual background leading to the said question may briefly be
noticed.
Appellants herein entered into an agreement with Gas Authority of India Ltd.
(GAIL) titled 'Consignment Stockistship Agreement'.
3. Inter alia, 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.
4. 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.
5. Mr. P.K. Sahu, learned counsel appearing on behalf of the appellant,
drawing our attention to the impugned order, would submit that from a bare
perusal thereof, it would be evident that the appellant merely accepts offer on
behalf of its principal and its activities being not extended to the job of a
clearing and forwarding agent, the impugned order cannot be sustained.
It was urged that the authorities under the Act in determining the
liabilities of the appellant had proceeded only on the premise that a
processing agent would be a clearing and forwarding agent as was held in the
case of Prabhat Zarda Factor (Pvt.) Ltd. v. CCE, Patna [2002 (145) ELT 222]
which having subsequently been overruled by the larger Bench of the Tribunal,
the impugned judgment cannot be sustained.
6. Mr. Gopal Subramanium, learned Additional Solicitor General appearing on
behalf of the Respondent, on the other hand, would contend that a document must
be read as a whole. So read, it would appear that the appellant not only
receives orders on behalf of GAIL but also gets the insurance cover for the
goods and sale of the goods which would clearly come within the purview of
clearing and forwarding activities. Such activities on the part of the
appellant, it was urged, being not incidental to the main purpose for which it
was appointed as a stockist agent, the impugned judgment cannot be faulted.
7. Before we embark upon the rival contentions of the parties, we may notice
the definition of 'clearing and forwarding agent' as also 'business auxiliary
service' as contained in Section 65(19) and Section 65(25) of the Act, which
read as under :
"65(19) "business auxiliary service" means any service in
relation to (i) promotion or marketing or sale of goods produced or provided by
or belonging to the client; or (ii) promotion or marketing of service provided
by the client; or (iii) any customer care service provided on behalf of the
client; or (iv) procurement of goods or services, which are inputs for the
client; or (v) production or processing of goods for, or on behalf of, the
client;
(vi) provision of service on behalf of the client;
or (vii) a service incidental or auxiliary to any activity specified in
sub-clauses (i) to (vi), such as billing, issue or collection or recovery of
cheques, payments, maintenance of accounts and remittance, inventory
management, evaluation or development of prospective customer or vendor, public
relation services, management or supervision, and includes services as a
commission agent, but does not include any information technology service and
any activity that amounts to "manufacture" within the meaning of
clause (f) of section 2 of the Central Excise Act, 1944(1 of 1944).
(25) "clearing and forwarding agent" means any person who is
engaged in providing any service, either directly or indirectly, connected with
the clearing and forwarding operations in any manner to any other person and
includes a consignment agent;
8. 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.
9. In V. Lakshmanan v. B.R. Mangalagiri and Ors. [1995 Supp.(2) SCC 33] ,
the Supreme Court in regard to interpretation of the clause stipulating the
payment of money as advance and not earnest money provided for in the Sale Deed
opined :
"The nomenclature or label given in the agreement as advance is not
cither decisive or immutable."
10. In Assam Small Scale Ind. Dev. Corp. Ltd. and Ors. v. J.D.
Pharmaceuticals and Anr. [2005 (8) SCALE 298 = (2005) 13 SCC 19], on the
decisiveness of the nomenclature of the agreement entered into between the
state corporation and small scale industrial unit, opined:
"The expressions 'principal' and 'agent' used in a document are not
decisive. The nature of transaction is required to be determined on the basis
of the substance there and not by the nomenclature used. Documents are to be
construed having regard to the contexts thereof wherefor 'labels' may not be of
much relevance."
11. 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.
12. Section 68 of the Act envisages every person providing taxable service
to any person shall pay the service tax at the rate specified in Section 66
thereof in such manner and within such period as may be prescribed.
Section 70 of the Act provides for furnishing of returns to the
Superintendent of the Central Excise by every person liable to pay service tax.
13. Rule 7 of the Finance Rules, 1994 provides for submitting a half- yearly
return by the assessee in the prescribed form. Section 77 provides for penalty
for contravention of any provision for which no other penalty is provided.
14. Unfortunately, the appellant did not appear before the assessing
authority. He also did not appear before the appellate authority. The appellate
authority in its order dated 15.2.2005, inter alia, noticed :
"During the appeal no one appeared for personal hearing fixed on
12.7.2004 and 20.7.2004.
Therefore, I am going to decide the case on the basis of evidence available
on records. I have carefully gone through the facts and records of the case and
observe that the issue involved is non- payment of Service Tax by the
appellant. The appellant has contended that levying of Service Tax on amount
received as commission for procuring orders for another person is not legal.
Under Section 65(25) "C&F Agent" has been defined as any
person who is engaged in the providing any service, directly or indirectly
connected with clearing and forwarding operation in any manner to any other
person and "C&F agent" includes consignment agent. The appellant
has themselves admitted that they were procuring orders for M/s. GAIL. Since
during the relevant period appellant was providing services to M/s.
GAIL so service tax has been correctly demanded from them."
15. The High Court, however, relying on clauses 4, 5, 11, 14 and 15 of the
Agreement opined :
"The agent were not at all concerned with the handling or movement of
goods unlike in the present case where the consignment agent is required to
lift the goods from the factory of the principal and distribute the same either
directly to the buyers or bring them to his godown for future sale and
delivery. From the agreement under our scanner, it also appears that the
liability for delays in delivery in transit through the air, road or water ways
solely rested on the appellant. There is a more explicit indication of the fact
that the appellant was required by his agency terms to lift the goods for
delivery and arrange for distributing them to the buyers, by making necessary
transit arrangements. Therefore, the activities of lifting, receiving, stocking
and delivering the goods to the buyers, clearly make a clear chain of
activities, involving clearing and forwarding operations."
16. The High Court also, while distinguishing the judgment of the larger
Bench of the Tribunal, in Larsen & Tourbo Ltd. v. Commissioner of Central
Excise, Chennai [(2006) 3 STR 321 (T-LB)] and Medpro Pharma Pvt. Ltd.
v. CCE, Chennai [(2006) 3 STR 355 (T-LB), opined :
"In this context, a plain reading of Section 65(105)(j), would reveal
that 'Taxable Service' should mean any service provided to a client by a
clearing and forwarding agent including a consignment agent (Emphasis supplied)
in relation to clearing and forwarding operations, in any manner. In the
present case, the appellant is admittedly a consignment stockist, who is
actively involved in "Clearing & Forwarding Operation" by taking
responsibilities for the movement of goods right from the factory/warehouse of
the principal upto the stage of delivery to the buyers in one or many ways.
There is, therefore, no doubt, that the appellant is fully covered within the
tax framework, being a "Clearing & Forwarding Agent" engaged in
relation to 'Clearing &
Forwarding Operations'."
17. 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.
18. What is necessary for determining the question is as to whether the
purported job of the appellant as a clearing and forwarding agent was
incidental to its main activity, namely, getting orders from the clients and
selling the products to various customers of the company or not. The notice to
show cause contained the following elements:
-
"Service charges of Rs.500/- PMT shall be paid by M/s GAIL to the
consignment stockist (i.e. noticee) for the quantity sold by them.
-
Rs.400/- PMT shall be paid to the consignment stockist for
getting/booking orders for the product of M/s. GAIL.
-
Rs.100/- PMT shall be paid to the consignment stockist for
release/clearance of product locally from their stock on the orders booked by
M/s. GAIL directly."
19. The period in question is from 1.9.1999 to 31.7.2002. The notice to show
cause had referred only to paragraph 20.1 and 20.3 of the agreement.
Its activities are said to be sale and/or getting booking orders for the
product.
20. 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.
21. It is true that the appellant has not appeared before the assessing
authority or the appellate authority.
However, keeping this in view, we are of the opinion, that the interest of
justice would be subserved if the matter is remitted to the assessing authority
with liberty to the parties to adduce such evidence as may be found necessary
for determining the issue(s).
Appellant, however, shall not take any adjournment before the assessing
authority and shall render all cooperation with it in the matter of
determination of the question.
22. The impugned orders are set aside including the order of penalty with
the aforementioned directions. Appeal is allowed to the aforementioned extent
with no orders as to costs.
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