Any services in connection with clearing and forwarding operations are covered by the definition of clearing and forwarding agent’s services. Mere inaction is not sufficient but some positive action with intent to evade payment of service tax should be present for invoking extended period of limitation. The burden to prove malafide intention is on the revenue.
Facts:
The appellants were engaged in providing various services relating to movement of goods from collieries to clients at pre-defined destination. The demand with penalty was confirmed by the Commissioner considering the services to be clearing and forwarding agent services. Accordingly, the appeal was made on the following grounds:
• The branches billed from respective locations and they did not opt for centralised registration as there was no centralised accounting system but the accounts were merely consolidated. Therefore, territorial jurisdiction was challengeable. The appellants were engaged in supervision and liaisoning work with respect to loading of coal. Accordingly, they provided business auxiliary services of procurement of goods or services which were inputs for clients except two special clients; namely; for Tamil Nadu State Electricity Board (TNEB) at Paradip Port, the appellants provided composite services of cargo handling services and for Maharashtra State Electricity Board (MSEB), the appellants had a pending at CESTAT, Mumbai.
• Relying on the clarification vide Circular F. No. B43/7/97-TRU dated 11-07-1997 it was contended that their services were not in the nature of clearing and forwarding agent’s services since at no point of time they took custody or possession of coal and the transaction of sale was directly between the purchaser and seller and the destination for delivery was also known to both the parties and the appellants had no role to play in any of the activities of clearing and forwarding.
• In case of Larsen & Toubro Ltd. vs. Commr. Of Central Excise, Chennai 2006 (3) STR 321 (Tri.-LB), the Larger Bench had held that the words ‘directly’, ‘indirectly’ and ‘in any manner’ used in the definition of clearing and forwarding agent should not be read in isolation. Further that the decision of Coal handlers Pvt. Ltd. vs. CCE 2004 (171) ELT 191 (Tri.-Kol.) did not apply to them as it was based on Prabhat Zarda Factory (India) Ltd. vs. CCE, Patna 2002 (145) ELT 222 (Tri.) which was specifically overruled by the Larger Bench in Larsen & Toubro Ltd. decision (supra).
• The appellants received service charges from freight financing activity in the form of prepayment of railway freight under separate and independent contract and transport of goods by rail was covered by the service tax net only in the year 2009 and therefore was not subject to service tax.
• The case was barred by limitation as they had a bonafide belief as to non-taxability based on trade notice and legal opinions.
The department contested the appeal on the grounds that the point of jurisdiction was never raised in reply to SCN or before the adjudicating authority. Since it was a mixed question of law as well as facts and the facts were not determined at adjudication level, the appellants were not to be allowed to raise the point directly before Tribunal. In any case, the appellants had centralised accounting system and therefore, the Commissioner at Kolkata had full jurisdiction to adjudicate the matter. Further, the words ‘directly’, ‘indirectly’ and “in any manner” employed made the gamut of definition very wide and it covered all services connected with clearing and forwarding operations.
Held:
The Tribunal observed and held that issue of jurisdiction could be raised at any stage of proceedings. However, since territorial jurisdiction is a mixed question of facts and law, the same should be raised before adjudicating authority to record findings on the facts. However, since the facts were not in dispute and were available on record, the Tribunal taking opportunity to deal with the issue observed that necessary data was provided by the appellants at Kolkata from time to time and consolidated profit and loss account and balance sheet were prepared at Kolkata and held that there was centralised accounting system and the option given for centralised registration was only for administrative convenience and to avoid overlapping of jurisdiction and conflicting views in assessment. Accordingly, it was held that the Commissioner at Kolkata had jurisdiction to decide the matter of all branches of the appellants. Referring Halsbury’s Laws England (Fourth Edn. – Vol. V), the Tribunal observed the scope of forwarding agent and concluded that there was no need to have custody or possession of goods to be a forwarding agent and the person acting as an agent for movement of goods can be regarded as forwarding agent. The Larger Bench in case of Larsen & Toubro (supra), had concurred with the width and amplitude of meaning of ‘directly’, ‘indirectly’ and “in any manner”, laid down in Prabhat Zarda Factory (Pvt.) Ltd.’s case (supra) and only had not agreed to the conclusions arrived at by the Bench of the facts of the relevant case. Therefore, principle laid down in Prabhat Zarda Factory (Pvt.) Ltd.’s case (supra) and followed later in Coal Handler’s case (supra) was absolutely valid. The instant matter being identical to Coal Handler’s case (supra) wherein it was concluded that even indirect services connected with clearing and forwarding operations i.e. services rendered for movement of coal would be clearing and forwarding services. The services mentioned in Circular and Trade Notice were illustrative and therefore, any service satisfying all ingredients of the definition as discussed in the Circular were covered under clearing and forwarding agent’s services. Freight financing was connected with clearing and forwarding operations and hence, should be chargeable to service tax. The amendment in section 73 of the Finance Act, 1994 with effect from 10-09-2004 was significant and accordingly, relying on various decisions, it was held that mere inaction is not sufficient but some positive action with intent to evade payment of service tax should be present for invoking extended period of limitation and the burden to prove malafide intention is on the revenue. In absence of any evidence and reasoning by department and having regard to the facts of the case, it was observed that although the appellants were negligent while merely placing reliance on the Circular or Trade Notice, the receipts were recorded appropriately in the books of accounts and therefore, no attempt of suppression existed and the appellants were bonafide. Accordingly, extended period of limitation was not invokable.
With respect to certain computational issues on TNEB and MSEB contracts, the matter was remanded to the Commissioner with appropriate directions.
