1. M/s K.K. Corporation (Tamil Nadu) (hereinafter referred to also as 'assessee') had entered into an agreement with M/s Raymond Ltd, (hereinafter Raymond, Company or principal) to act as Selling Agent for promoting the sale of Raymond's fabrics, rugs, blankets, shawls etc in return for commission. The assessee was therefore held to be acting as a clearing and forwarding agent and service tax amounting to Rs. 15,68,027 was demanded from them for the period 1.9.99 to 30.6.2003 by the Assistant Commissioner, Chennai-III Division. He also demanded interest and imposed penalties on the assessee. The asseessee filed an appeal against the above order and the Commissioner (Appeals) upheld the demand and set aside the penalties. The present appeal has been filed by the assessee against the order passed by the Commissioner (Appeals).
2. The lower appellate authority found that the assessee procured orders for the Company's goods which it executed. He observed that as per the agreement between the assessee and the Company, the assessee would appoint adequate number of dealers for promoting sale of the goods of M/s Raymond Ltd; the assessee would receive goods on consignment basis and until paid for, the said goods would belong to and will be the property of the Company and the selling agent or the authorized dealer, as the case may be, would hold such goods as trustees and bailees for the Company. The selling agent/authorized dealer would take all reasonable care for the protection of such goods while in their custody. As the assessee was bound to deal with the goods as trustees and bailees of the Company, the Commissioner held that the services rendered by the assessee were of "Clearing & Forwarding Agent". In taking the above decision, he relied on the decision of the Tribunal in Prabhat Zarda Factory (I) Ltd. v. CCE, Patna . In that case, the Tribunal had decided that procuring orders and passing them on to the principal for execution in lieu of commission received was within the scope of services of "Clearing & Forwarding Agent" even if they had not dealt with the goods directly.
3. In the appeal, the assessee has stated that they procure orders from various buyers in the territory allotted to them as per the agreement for Raymond's products. Raymond would dispatch the goods directly to the buyer. Invoices would be raised in the name of the buyer and consignment note would be duly endorsed in favour of the buyer to enable them to take delivery of the goods. Raymond would directly send the documents to the buyer or to his Bankers. The assessee did not receive dispatches or deal with, directly or indirectly, any goods on behalf of the Raymond or the buyer. In all the cases, the goods were directly despatched by M/s Raymond Ltd. to the buyer. As per the agreement the assessee was required to follow up payment by the buyer.
In cases where buyers failed to honour the bills, it was the responsibility of the assessee as the selling agent to pay such bills and take delivery of the goods not accepted by the buyer. The demurrage, bank interest, and other charges incurred as a result of such refusal or failure would be debited to the selling agent's account. It was also the responsibility of the selling agent to adequately insure the goods from any loss, deterioration or damage while lying with the carriers or from loss due to theft or pilferage.
4. They claimed that they had registered as assessee for Business Auxiliary Service with effect from 9.7.2004 when service tax was imposed on commission agents, covered by that service. They did not handle the goods but only procured orders and promoted sale of the products by furnishing market trends after market surveys. The activities carried out by them did not come within the purview of service of "Clearing & Forwarding Agent".
5. During the hearing, the learned Consultant submitted that the lower appellate authority had decided the case on the ground that the appellants were responsible for any loss of goods at the carriers which was not in the show cause notice. They did not handle goods as per the agreement. The Commissioner had passed the impugned order relying on the decision of the Tribunal in the case of Prabhat Zarda Factory (I) Ltd. v. CCE, Patna . The ratio of that decision was overruled by the Larger Bench of the Tribunal in the case of L & T and Ors. v. CCE reported in 2006 (TIOL) 814 (CESTAT-Del.LB).
He pleaded that the demand was not sustainable and prayed to set it aside. The learned SDR reiterated the reasoning contained in the impugned order.
6. We have carefully gone through the records and the rival submissions. M/s K.K. Corporation (Tamilnadu), is a selling agent of M/s Raymond Ltd. They promote business of Raymond by advertising their products. They conduct periodical market surveys and report trends and tastes of customers to their principal. They procure orders from buyers which are executed by the principal. They pursue payment for the goods by the buyers and act as bailee-cum-trustee in cases where the buyers fail to take delivery of the goods. The selling agent appoints authorised dealers with the approval of the principal. The assessee has undertaken these obligations as per an agreement with the principal.
These activities of the assessee were held to be falling under the Clearing and Forwarding Agent's service by the lower authority and demand made for such services rendered. In passing the above decision, the lower appellate authority has considered the following clauses in the agreement between the assessee and the principal as particularly relevant: The selling agent shall with the prior consent in writing of the Company appoint an adequate number of dealers to the satisfaction of the Company for the sale of the goods.... The Selling Agent shall be responsible for all acts, deeds and any defaults not limited only to timely payment, of the Authorised Dealers appointed.
The Company may supply to the Selling Agent or to the Authorized Dealer in their territory, goods on consignment basis and until paid for, the said goods shall belong to and be the property of the Company and the Selling Agent and/or the Authorized Dealer as the case may be, shall hold such goods as trustess and bailees for the Company. The Selling Agent and/or the Authorised Dealer will take all reasonable care for the protection of such goods while in their custody.
7. "Clearing and Forwarding Agent" is defined in Section 68(25) of the Finance Act 1994 as follows: 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 The scope of the services rendered by "Clearing & Forwarding Agent" is detailed in the Trade Notice No. 87/97710/SErice Tax/97 of the Madurai Commissionerate dated 14.7.97 as follows: (a) Receiving the goods from the factories or premises of the principal or his agents; (d) Arranging dispatch orders of goods as per the directions principal by engaging transport on his own or through the authorized transporters of the principal; (e) Maintaining records of the receipt and dispatch of goods and the stock available at the warehouse; 8. On a perusal of the agreement of the Company with the assessee and the Trade Notice, it is seen that the assessee does not undertake any of the activities enumerated in the Trade Notice. The assessee does not therefore satisfy the statutory definition of "Clearing & Forwarding Agent". Therefore, the demand raised on the appellant sustained in the impugned order is liable to be set aside. In the Prabhat Zarda Factory (I) Ltd. case (supra) the Tribunal arrived at the finding that Ratna Zarda Company (RZC), the agent of Prabhat Zarda Factory (I) Ltd. was a Clearing & Forwarding Agent on the following reasoning: As per definition of clearing and forwarding agent, he is a person who is engaged in providing 'any' service either directly or 'indirectly' connected with clearing and forwarding operations in 'any' manner to any other person (Emphasis provided). The use of the expression 'any' and 'indirectly' in the said definition of clearing and forwarding agent is indicative of the fact that the scope of the services to be provided by clearing and forwarding agent is quite wide. He is not only the person who is actually dealing with the goods which has to be termed as clearing and forwarding agent. Even if the services are indirect, but the same are connected with the clearing and forwarding operations in any manner of the other person, he would be covered by the definition of clearing and forwarding agent. In the instant case, admittedly, M/s RZC is procuring orders from the dealer and passing on the same to M/s Prabhat Zarda from whom they are receiving the commission, in lieu of services so provided. The said services are definitely connected with the clearing and forwarding operations of the various tobacco products being manufactured by M/s Prabhat Zarda Factory 8.1. In the above case, the party had procured orders from the dealers and had passed the same to the principal from whom they had received commission in lieu of such services. In L & T Ltd. v. CCE Chennai 2006 (TIOL-814-CESTAT-DEL-LB), the Larger Bench of the Tribunal overruled the ratio of the Prabhat Zarda Factory (I) Ltd v. CCE Patna (supra).
The Tribunal concluded the clearing and forwarding operations to be various activities having bearing on clearance of goods which would involve documentary process and arrangements for transfer of goods to their destination which may also involve clearance at subsequent stages during forwarding operations. The procurer of orders on commission basis rendered services which were not connected with such clearing and forwarding operations which had a bearing on the movement of goods. The Tribunal found that an agent engaged only for procuring purchase orders for the vendor on commission basis did not engage in any of the activities narrated in the Trade Notice (supra) directly or indirectly.
Such agents were commission agents rendering the 'Business Auxiliary Service'. The Tribunal also found that expressions "directly or indirectly" and "in any manner" occurring in the definition of "Clearing & Forwarding Agent" applied only to the activity of clearing and forwarding. Clearing and forwarding had a very specific connotation in the context of movement of goods from the supplier to their destination and agents undertaking clearing and forwarding operations might not have been concerned with procurement of orders for the goods which were cleared and forwarded. Therefore booking orders for the principal by an agent on payment of commission basis would not amount to providing services as "clearing and forwarding agent".
9. We find that the ratio of the above ruling of the Larger Bench in the case of L & T Ltd. v. CCE (supra), squarely applies to the facts of the present case. In this view of the matter, we set aside the impugned order and allow the appeal.