CEA No.34 of 2006 1
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
CEA No. 34 of 2006
Date of decision 24 .2.2009
Commissioner of Central Excise, Panchkula ...Appellant
Versus
M/s Kulcip Medicines (P) Ltd. ... Respondent.
CORAM: HON'BLE MR. JUSTICE M.M. KUMAR
HON'BLE MR. JUSTICE H.S. BHALLA
Present: Mr.Gurpreet Singh, Central Govt. Standing Counsel
Mr. A.R.Madhav Rao, Mr. Tarun Jain and Mr. Sandeep
Goyal, Advocates for the respondent.
1. Whether Reporters of local papers may be allowed to see the judgement ?
2. To be referred to the Reporter or not ?
3. Whether the judgement should be reported in the Digest ?
M.M.KUMAR, J.
The revenue has approached this Court by filing the instant
appeal under Section 35 G of the Central Excise Act, 1944 challenging
order dated 29.6.2005 ( Annexure A.3) passed by the Custom, Excise and
Service Tax Appellate Tribunal, New Delhi (for brevity ‘the Tribunal’)
claiming that question of law would emerge from the Final Order of the
Tribunal passed in appeal No. ST/37/04. In para 1(viii), the question of law
has been raised and the appeal was admitted on the aforesaid question
which reads thus:
” Whether a person (agent) who has entered into an agreement
with principal (owner) for handling and distribution of the
products of the principal and entrusted with the job of
receiving, storing and distributing the products of the principal
CEA No.34 of 2006 2to his authorised stockists and distributing centers is liable to
pay Service Tax under the category of ‘Clearing and forwarding
Agent” when no clearing activity from the manufacturer’s
(Principal) premises is directly undertaken by the agent or
Service Tax is leviable under the category “Clearing and
forwarding” only if an agent renders both clearing forwarding
services.”
Brief facts of the case may first be noticed. The assessee-
respondent is holding registration certificate in form ST 2 for payment of
Service Tax as ‘clearing and forwarding agent’. Under Section 70 of the
Finance Act, 1994 every person liable to pay service tax is required to
furnish to the proper officer of Central Excise a return in the form of ST 3.
As per amended rule 7(1) of Service Tax Rules, 1994 the return is to be
filed on half yearly basis. The assessee- respondent entered into an
agreement with M/s Cipla for handling and distribution of their products
and were entrusted with the job of receiving, storing and distributing Cipla
products to their authorised stockists and distributing centres. For the
service so rendered, the assessee- respondent was entitled for commission
based on agreed percentage of sales figures and also for reimbursement of
recurring expenses. The assessee- respondent failed to submit the half
yearly return for the period ending 31.3.2001 therefore a show cause notice
dated 15.6.2001 was issued by the Deputy Commissioner, Ambala Division
as to why penalty be not imposed upon them under Section 77 of the
Finance Act,1994 for contravention of Section 70. A penalty of Rs. 1000/-
was imposed and the assessee- respondent was directed to pay service tax
on the taxable service rendered by them alongwith interest and to file the
CEA No.34 of 2006 3
return in form ST 3 for the half year ending 31.3.2001 vide order- in-
original dated 30.10.2002 (A.1). The assessee- respondent preferred an
appeal before the Commissioner (Appeals) but the same was rejected vide
order dated 8.9.2003 ( A.2) by holding that assessee- respondent has been
correctly treated as “C&F agent”.
The assessee- respondent preferred further appeal and the
Tribunal allowed the appeal by setting aside the Order in Original by
observing that taxable service in the instant case is ” any service provided to
a client by a clearing and forwarding agent in relation to clearing and
forwarding operation in any manner. The Tribunal further observed that in
order to attract the levy, the service must be in relation to clearing and
forwarding agents limited to “clearing and forwarding operations”. With
regard to Board’s circular the Tribunal has observed that when a C&F agent
carries out both clearing and forwarding, the levy would be attracted
whereas in the instant case the assessee- respondent did not attend to the
clearing of medicines; consignment were cleared from the factory by the
manufacturer and delivered to the premises of assessee- respondent and as
there was no clearing by the assessee- respondent therefore that service
rendered did not satisfy the requirement of clearing and forwarding.
The Tribunal while placing reliance on sub clause (j) of
Section 65(105) of the Finance Act, 1994 has held that levy of service tax is
attracted in respect of service rendered ‘in relation to clearing and
forwarding operations’. According to the Tribunal the definition is patent in
its meaning that all services rendered by the clearing and forwarding agent
were not within the scope of the levy of service tax which is limited to
clearing and forwarding operations. It has also placed reliance on the
CEA No.34 of 2006 4
circular dated 20.4.2002 issued by the Central Board of Excise and
Customs, New Delhi being circular No. 2/1/2002-ST dt 20.4.2002
F.No.137/04/.2002-CX.4 It interpreted para 10 of the circular which reads
thus:
” The matter has been examined. Normally, a C&F agent
receives goods from the factories or premises of the Principal
or his agents, stores these goods, dispatches these goods as per
orders received from the Principal or owner, arranges transport
etc. for the purpose and prepares invoices on behalf of the
Principal. For this service, the C&F agents receives
commissions on the basis of agreed terms. Therefore, an
essential characteristic of any services, to fall in the category of
C&F agent, is that the relationship between the service provider
and receiver should be in the nature of principal (owner) and
agent. The C &F agent carries out all activities in respect of
goods right from stage of their clearance from the premises of
the principal to its storage and deliver to the customers.”
(emphasis added)
On the basis of the afore-mentioned para, the Tribunal concluded that
even the circular clarified that levy would be attracted only when clearing
and forwarding agent carries out both clearing and forwarding operations.
It referred to the terms of the agreement showing that the dealer only
attended to the clearing of the medicines manufactured by CIPLA. The
consignment of medicines are cleared by the manufacturer and delivered to
the dealer at his premises. After recording the aforesaid finding, the
Tribunal proceeded to hold that once there is no clearing activity taken by
CEA No.34 of 2006 5
the dealer therefore the service rendered by him would not satisfy the
requirement of clearing and forwarding agent and consequently it set aside
the demand. It also followed the earlier view taken by the Tribunal in the
case M/s Mahavir Generics v. Commissioner of Central Excise, Banglore
2004(170) ELT 78 (Tribunal). It is appropriate to notice that in Mahavir
Generics case, (supra) Delhi Bench of the Tribunal has taken the view that
the agreement between the dealer and the company clearly showed that
dealer was not acting as a clearing and forwarding agent then services
rendered by the dealer could not be treated as one to a client by the clearing
and forwarding agent in clearing and forwarding operations in any manner.
Therefore the service cannot be taxed. The tax liability in relation to service
tax as per the scheme of 1994 Act is attached to the taxable service.
Consequently the Tribunal held that so long as the dealer is not providing
taxable service he cannot be brought under the net of service tax.
At the outset, we asked Mr. Gurpreet Singh, learned counsel
appearing for the revenue about the status of the decision rendered by the
Tribunal in Mahavir Generics case (supra) and whether revenue has
accepted the same or has appealed against that decision. Mr. Gurpreet Singh
could not disagree that the decision has attained finality and no appeal has
been filed by the revenue.
However, he has argued that the view taken by the Delhi Bench
of the Tribunal does not hold good in view of the larger Bench decision
taken in the case of Medpro Pharma Pvt. Ltd. v. Commissioner of Central
Excise, Chenai 2006(3) STR 355 (Tribunal). Learned counsel has submitted
that perusal of the aforesaid judgement rendered by the larger Bench of the
Tribunal would show that clearing and forwarding operations cannot be
dissected into clearing and forwarding. Indeed such operations would fall in
CEA No.34 of 2006 6
the common category and hence all or any of the services of that category
would attract the imposition of service tax as per the provisions of sub
section (j) of Section 65(105) of the Act. The view of the larger Bench is
discernible from paras 32,33,34 and 35 which reads thus:
” 32. While arriving at this conclusion, we also go by the trade
understanding based on sheer common sense, which is often
common. Because a buyer buys only rice and not wheat in a
grocery shop, which claims to sell “wheat and rice”, the shop
cannot use to be a shop selling “wheat and rice”. In the same
way, rendering only “forwarding” service cannot make the
appellant cease to be “Clearing and Forwarding Agent”, so as
to save him from the tax. Some customers may want only
clearing operations, while some forwarding and others both.
The expression “clearing and forwarding operations” is a
compendious expression of nature of services offered any of
which will bring the service providers in the tax net of this
category. Moreover, in the process of forwarding operations-
clearance stages may arise such as at octroi posts or subsequent
transits.
33.We, do agree that it is the context in which the word “and”:
is positioned, being sandwiched between the words
“clearing” and forwarding” has to be looked into, while
interpreting the meaning. Like the legendary Trishanku, the
word “and” is dangling between “clearing” and
“forwarding”- neither divorcing from the Heavens, nor from
the Earth. In such a positioning, it is not possible to
CEA No.34 of 2006 7segregate the holistic concept of “clearing and forwarding”
into divisible activities, either or both of which can be
provided for answering the customers needs.
34. It has also been argued before us at length that whenever
any ambiguity exists, the decision should be in favour of the
asseessee. Thanks to the competent assistance available from
the rival parties, the expression “C&F Operations” appears
no longer esoteric. Hence, there is no case to extend any
benefit of doubt to the assessee.
35. In view of the above discussion and findings, we hold that
the “C&F Operations” cannot be dissected into “Clearing”
and “Forwarding” as they fall in the common category and
hence all or any of the services of that category will be
services provided by a ” C & F Agent”, connected with
“C&F Operations”: and would attract levy of service tax
under Section 65(23). Question No.1 referred to us is
accordingly answered in the affirmative and the question
no.2 in the negative.”
Mr. A.R.Madhav Rao, learned counsel for the dealer, has
however vehemently argued that once there are numerous and different
categories carved out by various entries made in the statute for the purpose
of imposition of service tax then to expand the entry by the process of
interpretation by stretching the meaning of expression ‘clearing and
forwarding’ would be doing violence to the plain language of the statute. In
that regard reliance has been placed on the service known as business
auxiliary services covered by Section 65(19) so as to cover some of those
CEA No.34 of 2006 8
services which are not otherwise covered. Mr. Rao has also argued that the
expression ‘and’ has not been used as disjunctive and it has necessarily to
be given its usual general meaning as it has been used as a conjunction
connecting words or phrases expressing the idea that later is to be added to
or taken alongwith the first. He has emphasised that the expression ‘clearing’
connotes entirely a different service than the expression ‘forwarding’ and
one person may not necessarily be able to render both the services. He has
maintained that the aforesaid emphasis should be accepted especially when
the Board has issued a circular. He has further submitted that in any case the
revenue has accepted the view of the Tribunal in the case of M/s Mahavir
Generics (supra) then the filing of the present appeal would be an unholy act
on the part of the revenue.
After hearing learned counsel for the parties, perusing the
record and various provisions of the statute/ circular we find that for
answering the question it would be necessary to first read the provisions of
clause (j) of Section 65(105) of the Act which reads thus:
” 65. Definitions
In this Chapter, unless the context otherwise requires.-
(1)to (104) xx xx xx xx xx
(105) “taxable service” means any service provided or to be
provided.-
(a) to (g) xx xx xx xx
(h) to a client, by a custom house agent in relation to the entry
or departure of conveyances or the import or export of goods. t a
(i) xx xx xx xx
(j) to a client, by a clearing and forwarding agent in relation to
clearing and forwarding operations, in any manner;”
CEA No.34 of 2006 9
A perusal of the aforesaid Section shows that taxable service has been
defined to mean any service provided or to be provided to a client by a
‘clearing and forwarding agent in relation to clearing and forwarding
operations in any manner’. If the clearing operation are separated from
forwarding operations, the levy of tax would not be attracted if it only
involves one of the two activities.
The question which falls for consideration is whether word
‘and’ used after the word ‘clearing’ but before the word ‘forwarding’ at two
places in clause (j) be considered in a conjunctive sense or dis-injunctive
sense. It appears to be fairly well settled that the context and intention of
legislature are the guiding principles. In that regard reliance may be placed
on the judgement of Hon’ble the Supreme Court in the case of Mazagaon
Dock Ltd. V CIT (1958) 34 ITR 368. By necessary intendment the
expression ‘a clearing and forwarding agent in relation to clearing and
forwarding operations, in any manner’ contemplates only one person
rendering service as ‘clearing and forwarding agent’ in relation to ‘clearing
and forwarding operations’. To say that if, one person has rendered service
as ‘forwarding agent’ without rendering any service as ‘clearing agent’ and
he be deemed to have rendered both services would amount to replacing the
conjunctive ‘and’ by a disjunctive which is not possible. The counsel for the
revenue has not been able to bring on record any material to show the word
‘and’ should be construed as disjunctive. He has not shown any ‘trade
practice’ which may lead to a necessary inference that service of one kind
rendered by one is invariably considered to comprise both. No argument has
been advanced before us by him to canvass that the legislature intention is
discernible from the scheme of the statute or from any other relevant
CEA No.34 of 2006 10
material. Therefore the word ‘and’ should be understood in a conjunctive
sense. (See Maharaja Sir Pateshwari Prasad Singh v. State of U.P.(1963) 50
ITR 731). In these circumstances if we read the word ‘and’ as ‘or’ then it
would amount to doing violence to the simple language used by Legislature
which cannot be imputed ignorance of English language. In that regard we
place reliance on the judgement of Hon’ble the Supreme Court rendered in
the case of Inayat Ali Khan v. State of U.P. (1971) 2 SCC 31 (Para 5) and
para 6 of the judgement of Hon’ble the Supreme Court rendered in the case
of Ape Belliss India Ltd v. Union of India (2001) 132 ELT 8. The
observations of their Lordship reads thus :
“6…….. A plain reading of the Section (sic Tariff Public Notice)
clearly shows, as contended by Mr. Bhatt, that for an alloy steel
to be considered as stainless steel, it will have to satisfy two
conditions i.e. The alloy steel should be known in the trade as
stainless steel and further, it should contain 11% chromium as a
component of the allow steel. This is clear from the use of the
word “and”. If the intention of the trade notice was to treat the
two types of alloy steels as stainless steel, then it would have
been made clear by using the word “of” instead of the word
“and”.”
We are further of the view that the circulars issued by the
Board are binding and meant for adoption for the purposes of bringing
uniformity. In that regard reliance may be placed on the judgements of
Hon’ble the Supreme Court in the cases of Ranadey Micronutrients v.
Collector of Central Excise 1996(87) ELT 19 (SC) and Paper Products Ltd.
v. Commissioner of Central Excise (1999) 7 SCC 84. If the aforesaid
principle is applied to the facts of the present case there does not remain any
CEA No.34 of 2006 11
doubt that the circular issued by the Board is to be considered as binding
and cannot be deviated even by the department. On that account also the
expression ‘clearing and forwarding agent’ have to be interpreted in the light
of the circular.
The view taken by the Tribunal in M/s Mahavir Generics’s case
(supra) has been accepted by the revenue as no appeal has been filed.
Moreover we are not able to persuade ourselves to accept the view taken by
the larger Bench of the Tribunal in the case of Medpro Pharma Pvt. Ltd.
(supra) which has been fascinated by musical notes of symphony as is
evident from the following paras:
” 31.We have heard both sides and perused the record. On a
fresh look at the whole issue and after taking into account the
various newfangled arguments and nascent lines of thinking,
unwrapping before us, as discussed in the fore-going
paragraphs, we find ourselves in a better position to appreciate
the wisdom in the words of Jules Romains when he said “What
I say below represents only conclusions with which I would
identify myself, if I were obliged to stop thinking today”. The
underlying wisdom in these words has greatly encouraged us in
this inquest to appreciate the emerging facts and sceniario in a
proper perspective. Crucial key-word the definition of taxable
services, namely “C&F Operations” needs to be viewed afresh
in this scenario. The whole “operations” involved in “C&F
operations” now remind us of an orchestra, performing a
western classical symphony. It reminds us of a connoisseur’s
experience of harmony in western classical music. While
listening to Mahler’s 9th symphony, one does not listen to an
CEA No.34 of 2006 12individual violin or a trumpet, but the harmony emanating
from many different seemingly unrelated instruments. In the
same way, a C&F Agent’s functions consisting of seemingly
unrelated tasks are well orchestrated. This view of ours is
strengthened by various references including the Report of
United Nations Economic Commission for Africa referred to by
us in the preceding paragraphs all revealing in no uncertain
terms that the freight forwarders are known variously as
clearing agent, shipping forwarding agent etc. We are,
therefore,of the view that even if one segment of activities is
not demonstrated to be performed, it cannot be held that the
appellants were not engaged in taxable service. Due to their
orchestrated nature of work, such isolated activity can also be
covered under “C&F Operations”. Merely, because the bassoon
was not played in one of the movements of a symphony, it does
not cease to be otherwise a part of the orchestra. While forming
this view, we have certainly not overlooked the fact that while
music can be sometimes taxing, a tax can never be musical.
32.While arriving at this conclusion, we also go by the trade
understanding based on sheer common sense, which is often
uncommon. Because a buyer buys only rice and not wheat in a
grocery shop, which claims to sell “wheat and rice”, the shop
cannot cease to be a shop selling “wheat and rice”. In the same
way, rendering only “forwarding” service cannot make the
appellant ceases to be “Clearing and Forwarding Agent”, so as
to save him from the tax. Some customers may want only
CEA No.34 of 2006 13clearing operations, while some forwarding, and others both.
The expression “clearing and forwarding operations” is a
compendious expression of nature of services offered any of
which will bring the service providers in the tax net of this
category. Moreover, in the process of forwarding operations-
clearance stages may arise such as at octroi posts or subsequent
transits.
33. We , do agree that it is the context in which the word “and”
is positioned, being sandwiched between the words “clearing”
and “forwarding” has to be looked into while interpreting the
meaning. Like the legendary Trishanku, the word “and” is
dangling between “clearing” and “forwarding”- neither
divorcing from the Heavens, nor from the Earth. In such a
positioning, it is not possible to segregate the holistic concept
of ‘clearing and forwarding” into divisible activities, either or
both of which can be provided for answering the customers’
needs.”
We have not been able to understand with utmost respect to the
Tribunal as to what is ‘Orchestrated nature of work’ involved in the present
transaction. The dealer in the present case as per the arrangements reached
between the parties has to receive goods which are already got ‘cleared’ by
the manufacturer. The dealer is to store those goods and forward to the
buyer of the goods as per direction received. In that regard the findings of
the Tribunal in the instant case is patently clear when it observed as under
in para 6 :
“It is clear from the terms of the agreement that appellant herein
CEA No.34 of 2006 14does not attend to the clearing of the medicines manufactured
by Cipla. Consignments of medicines are cleared from the
factory by the manufacturer and delivered to the appellant at his
premises. In this factual situation, it has to be held that there is
no Clearing by the appellant and for that reason, the service
rendered by the appellant does not satisfy the requirement of
clearing and forwarding. We, therefore, are of the view that the
demand is not sustainable. To the same effect is our earlier
decision in the case of M/s Mahavir Generics”
The example of ‘wheat and rice’ grocery shop is obviously wholly
mis-appropriate and does not fit in the context. We are also not in agreement
with the interpretation of word ‘and’ which has already been dilated upon by
us.
As a sequel to the above discussion, the question of law raised
is decided against the revenue and in favour of the assessee.
(M.M.Kumar)
Judge
(H.S. Bhalla )
24.2.2009 Judge
okg