June 2013
(2012) 28 Taxmann.com 238 (New Delhi – CESTAT), Interocean Shipping Company vs. CST, Delhi.
By Puloma Dalal, Jayesh Gogri, Chartered Accountants
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Whether Broker can be considered as a commission agent and thus be brought to tax net under Business Auxiliary Services? Broker distinguished from Commission Agent.
Facts: The Appellant, a ship broker, was acting as intermediary between the ship owner and the charterer. Appellant also assisted the ship owner (a) in negotiating the price, (b) in drawing the documents/agreements of charter, (c) in follow up of the ship’s movements (d) any correspondence in following of freight payment, (e) compliance of the terms of charter and (f) settlement of dues in case of dispute involving the vessel in litigation, etc. The Appellant also contended, notwithstanding the fact, that they were not commission agents, even if the department contended so, no service tax is leviable if either of the parties (i.e. ship owner or charter is located outside India) and the receipt of consideration is in foreign exchange and therefore, it qualifies to be export of services under the Export of Service Rules, 2005. Further, they also contended that longer period is not applicable as audit was conducted and the department was aware of the facts and thus there is no case of suppression on the part of the Appellant.
The department contended that the activities of the Appellant are that of commission agent and taxable under the category of “business auxiliary services”. The Appellant contended that it cannot be considered as a “commission agent” as it does not act on behalf of nor it is an agent of the ship owner but it is a broker and he only brings the ship owner and the charterer together and assists in negotiating the terms of agreement of the ship charter. The department contended that the services would be qualified as export of services only if both the parties (i.e. charter and ship owner) are located outside India and the receipt is in foreign exchange.
Held:
The word “commission agent” was defined u/s. 65(19) with effect from 16-05-2005 and prior to that the definition as provided under Notification No.13/2003-ST dated 20-06-2003 means “any person acting on behalf of another person”. The words “on behalf of” itself implies that there is an agent-principal relationship and one person acts on behalf of another. The word ‘broker’ merely brings the vendor and the vendee together and settles the price. Broker does not purchase/ sell goods on behalf of the principal and none has the authority to sell the goods belonging to the vendor. Broker is rewarded consideration only for soliciting the prospective purchaser and may also assist in negotiating the price/terms of the goods to be sold. Broker neither represents the ship owner nor the charterer. The Appellant also maintained a database wherein the details of the ship owner, the class of ships owned them, location of the ships, so as to provide its specialise services of bringing the shipper and the charterer together in accordance to their own requirements. The Hon’ble Tribunal held that, as the essential element of commission agent “acting on behalf of the principal” is absent; the Appellant could not be treated as commission agent and thus not covered under “business auxiliary services”.
