Custom, Excise & Service Tax Tribunal
Sagar Enterprises vs Commissioner Of Service Tax … on 28 August, 2019Bench: S. K. Mohanty, Sanjiv Srivastava CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, MUMBAI REGIONAL BENCH Service Tax Appeal No. 88532 of 2014 (Arising out of Order-in-Appeal No. 533/PD/2014 dated 02.05.2014
passed by Commissioner of Central Excise (Appeals-IV), Mumbai-I) M/s. Sagar Enterprises Appellant
99/103, Tambakanta,
4th floor, Bhagwan Bhavan,
Mumbadevi Road,
Mumbai 400 003. Vs.
Commissioner of S. Tax, Mumbai-II Respondent
4th floor, New Central Excise Bldg.,
M.K. Road, Churchgate,
Mumbai 400 020.

Appearance:
Shri Vinay S. Sejpal, Advocate for the Appellant
Shri D.M. Shinde, Authorised Representative for the Respondent CORAM:
Hon’ble Mr. S.K. Mohanty, Member (Judicial)
Hon’ble Mr. Sanjiv Srivastava, Member (Technical) FINAL ORDER NO. A/86485/2019 Date of Hearing: 17.05.2019 Date of Decision: 28.08.2019 PER: SANJIV SRIVASTAVA This appeal is directed against the order in appeal No
PD/STC-I/533/ 2014 dated 02.05.2014 of the
Commissioner (Appeals) Central Excise Mumbai – I. By the
impugned order Commissioner (Appeal) as upheld the
order in original No 02/ST II/ADL/YKA/2010-11 dated
22.04.2010 of the Additional Commissioner Service Tax
Mumbai II holdings as follows:

“In view of the above, I confirm the Service Tax amounting
to Rs 14,86,779/- (Rupees Fourteen lakhs eighty six
thousand seven hundred and seventy nine only) under 2 ST/88532/2014 Section 73(2) of the Act. The interest at applicable rate is
confirmed under Sec 75 of the Act.

I impose penalty of Rs 500/- under Sec 75A of the Act.

I impose penalty of Rs 100/- per day till the payment of
service tax under Sec 76 of the Act. However, the penalty
should not exceed the service tax confirmed as above.

I impose penalty of Rs 1000/- under Sec 77 of the Act.

I impose penalty of Rs 14,86,779/- under Sec 78 of the
Act.”

2.1 Acting on the intelligence that appellants are depot
keepers/ depot agent providing taxable services under the
category of “Clearing and Forwarding Agents Services”, to
various yarn manufacturing mills, without obtaining
registration and payment of service tax, investigations
were undertaken by the department.

2.2 After completion of investigations a show cause
notice dated 20.05.2004 was issued to the appellants
asking them to show cause as to why;-

(i) The service tax amounting to Rs 14,86,779/-
(Rupees Fourteen lakhs eighty six thousand seven hundred and seventy nine only) leviable on the consideration/ commission/ remuneration amounting to Rs 2,82,57,464/- received by tem during the period Sept 99 to Sept 2003 should not be recovered from them under Section 68 of the Act and Rule 6 of the Rules read with Section 73(1)(a) of the Act;
(ii) The interest, as applicable should not be recovered from them for nonpayment of their dues within the period prescribed under Section 75 of the Act;
(iii) Penalty should not be imposed under Section 75A of the Act read with Rule 4 of the Service Tax Rules for failure to make an application to the concerned Superintendent, Central Excise in form ST-1 for registration within the prescribed period;
3 ST/88532/2014 (iv) Penalty should not be imposed for failure to pay service tax within the prescribed period under Section 76 of the Act.
(v) Penalty should not be imposed on them for failure to furnish prescribed returns for the period Sept 99 to Sept 2003 under Section 77 of the Act.
(vi) Penalty should not be imposed on them under Section 78 of the Act for deliberately concealing/ suppressing the value of taxable service with intent of evading service tax.

2.3 The show cause notice was adjudicated by the
Additional Commissioner as per the order in original
referred in para 1 above. Aggrieved by the order of
Additional Commissioner, Appellants preferred the appeal
before Commissioner (Appeal).

2.4 The appeal filed by the Appellants was dismissed by
the Commissioner (Appeal) as per the impugned order
referred in para 1, supra. Aggrieved by the dismissal of
appeal, appellants have preferred this appeal before the
tribunal.

3.1 In their appeal, appellants have assailed the
impugned order stating that-

(i) It is nonspeaking and non reasoned order, passed n casual, cursory and perfunctory manner without considering and dealing with the submissions made by them;
(ii) The activities undertaken by them do not fall within the ambit of the clearing and forwarding activities. Both Additional Commissioner and Commissioner (Appeal) have without considering the submissions made by them, proceeded to confirm the demand against them.
(iii) They provide the services as depot agents to their principals and are not covered by the definition of Clearing and Forwarding Agent as provided by 4 ST/88532/2014 Section 65(25) of the Finance Act, 1994. As per the definition, if a person appointed as an agent is undertaking the activity involving receipt, storage and sale of goods on behalf of the principal then only such agent is a Clearing and Forwarding agent.
(iv) As they have not undertaken any activity of clearance of goods either from the premises of the principals or from the depot/godown they will not be covered by the definition of Clearing and Forwarding agent. The remuneration received for unloading and transporting the goods from the railway station or any other place where the goods are unloaded from the carrier to the warehouse would not be covered in the meaning of services rendered by a clearing and forwarding agent.
(v) The warehousing of the goods does not come under either clearing operation or forwarding operation. However a clearing and forwarding agent may render the warehousing services as a ancillary operation.
(vi) Further the definition of clearing and forwarding agent includes consignment agent. At the same time, the taxable service has been defined to be “in relation to Clearing & Forwarding operations in any manner”. Therefore, only if a person acting as a consignment agent and rendering the services of in relation to Clearing & Forwarding operations would he be liable to pay service tax on such services provided by him.
(vii) The trade notice referred to by the Additional Commissioner is not applicable to present facts of case.
(viii) The issue on merits is covered by the decisions in following cases:-
5 ST/88532/2014  Kulcip Medicines (P) Ltd [2009 (14) STR 608 (P & H)]  Mahavir Generics [2006 (3) STR 276 (T-Del)]  VNSS Textiles [2010 (24) STR 385 (T-
Chennai)]  Parekh Apparels [2008 (09) STR 87 (T-Ahd)]  Larsen & Tubro Ltd [2006 (3) STR 321 (T-LB)]  United Plastometers [2008 (10) STR 229 (P & H)]  Pondicherry Agro Services & Indus Corpn Ltd [2010 (17) STR 243 (T-Chennai)]  Vijay Traders [2009 (16) STR (T-Bang)]
(ix) The demand is time barred as they were under a bonafide belief that they were not rendering any taxable service nor undertaking any operations as “Clearing and/ or Forwarding Agent”. For the preposition that the demand is barred by limitation, they rely on the following decisions:-  Sunil Metal Corporation [2009 (16) STR 469 (T-Ahd)]  Nirav Industries [2009 (16) STR 69 (T-Ahd)]  Padam Chand Mutha & Co [2009 (16) STR 721 (T-Del)]  Chemphar Drugs & Liniments [1989 (40) ELT 276 (SC)]  Padmini Products [1989 (43) ELT 195 (SC)]  Tamil Nadu Housing Board [1994 (74) ELT 9 (SC)]  Cosmic Dye Chemical [1995 (75) ELT 721 (SC)]  Pushpam Pharmaceutical Company [1995 (78) ELT 401 (SC)]  Nexcus Computers 9P) Ltd [2008 (9) STR 34 (T-Chennai)]  Bharat Aluminium Co Ltd [2007 (8) STR 27 (T- Del)] 6 ST/88532/2014  NRC Ltd [2007 (5) STR 308 (T-Mum)]
(x) Penalties imposed on them under Section 75A, 76, 77 & 78 are not justified and maintainable in law. They rely on the following decisions:-  Singh Brothers [2009 (14) STR 552 (T-Del)]  Orient Packagings Ltd [2011 (23) STR 167 (T-
Del)]  P T Education & Training Services Ltd [2009 (14) STR 34 (T-Del)  Motilal Padampat Sugar Mills Co Ltd [1979 (118) ITR 326 (SC)]  Azadi Bachao Andolan {2001 (252) ITR 471 (SC)]  Motor World [2012 (27) STR 225 (Kar)]  City Motors [2010 (19) STR 486 (P&H)]  Mohammad Mustikeen [2011 (22) STR 170 (T-
Del)]  Financial Software Systems Pvt Ltd [2014 (33) STR 393 (T-Chennai)]  Jivant Enterprise {2012 (28) STR 582 (T-Ahd)] 4.1 We have heard Shri Vinay S Sejpal, Advocate for the
appellant and Shri D M Shinde, Assistant Commissioner,
Authorized Representative for the revenue.

4.2 Arguing for the appellants learned Advocated
submitted that-

 Appellants are only the “Depot Agent” and not the consignment agents. They are undertaking only “Forwarding Operations” from the depot and are in no way concerned with the “Clearing Operations” which is carried out by the mill owners on the their own account and the goods are brought and delivered at the depot by them at their own cost and on their own.
 For categorizing the services rendered under the category of “clearing and forwarding services” it is 7 ST/88532/2014 essential that service should be that clearing and forwarding both. In case the service provider is not providing both the services of clearing and forwarding then the services rendered will not be classifiable under this category. As have been held in following decisions:-
o Kulcip Medicines [2009 (14) STR 608 (P&H)] & {2012 (25) STR J127 (SC)] o Shreenath Roadways [2018 (16) GSTL 239 (Raj)] o Novacare Drug Specialities Pvt Ltd [2014 (34) STR 247 (T-Mum)] o Narottam & Company [2014 (33) STR 472 (T-
Del)] o Coal Handlers Pvt Ltd [2015 (38) STR 897 (SC)]
 The submissions made by the learned Authorized Representative, in respect of place of removal, as per Section 4 of Central Excise Act, 1944, are contrary to the provisions of the section itself, as the section states that place of removal was only for that section.
 Predominant part of the Show Cause Notice is barred by limitation. The Show Cause Notice dtd 20.05.2004 proposes the demand for period Sept 1999 to Sept 2003. Since the issue involved is one of interpretation of statutory provisions regarding clearing and forwarding agent qua commission agent qua consignment agent has been subject matter of various decisions taking different views at the CESTAT level and the matter was also referred to larger bench of CESTAT. Also the matter was considered by various High Courts. Since issue was one of interpretation of law, the same cannot be made the ground for invoking extending period of limitation to demand tax, by alleging suppression.
8 ST/88532/2014  Commissioner (Appeal) has in his order not dealt with the submissions made by them on merits or on limitation and hence the order of Commissioner (Appeals) is a non speaking order and needs to be set aside.

4.3 Arguing for the revenue learned Authorized
Representative submitted that  appellant had been appointed as Depot Agent” by various mills as per agreement between the mills and them. As per these agreements they have been entrusted certain activities associated with the sale of their manufactured goods. The activities undertaken fall within the scope of Clearing and Forwarding Agent Services as defined under Finance Act, 1994. Appellants have not taken the registration, did not pay the service tax nor had filed the ST-3 returns.
 By Finance Act, 1996 definition of place of removal was amended to include, depot, consignment agents or any other place or premises from where the goods are sold by or on behalf of the assessee  In view of the changes in the definition of place of removal, sale price at the place of removal such as depot etc. has to be taken as normal sale price for determination of assessable value. In view of the above, depot of the manufacturing unit/ company is nothing but an extended arm of such manufacturing unit/ company for the purpose of place of removal. For the purpose of managing the affairs of depot, the mills had appointed the appellants as depot agents.  Trade Notice No 59/99 dated 04.10.1999 of Service Tax – I Mumbai Commissionerate clarified what are the activities under taken by the Clearing and Forwarding Agents. When the activities undertaken by the appellant as per the agreements are mapped 9 ST/88532/2014 with the activities as specified by the trade notice, it is evident that appellant’s will fall within the definition of clearing and forwarding agent.  Thus appellants are engaged in both the activities i.e. clearing the goods from the sales depot of the Mills and forwarding the goods as per the instructions of the Mills, by way of dispatching these goods to their buyers. Hence are covered by the definition of Clearing and Forwarding Agent as defined by Section 65(25) of the Finance Act, 1994.  Failure on the part of appellants to comply with the provisions of Finance Act, 1994 and Rules made thereunder, also make them liable for penal actions as prescribed.

5.1 We have considered the impugned order with the
submissions made in appeal and during the course of
arguments.

5.2 Finance Act, 1994 was amended by Finance Act,
1997 to levy Service tax on various services including the “Clearing and Forwarding Agent Services”. The scope of
the service Clearing & Forwarding Agents was explained by
the Board in its Circular F.No. B.43/7/ 97-TRU dated
11.7.1997. The relevant paragraphs of the said circular
are reproduced below:

“2. Clearing and Forwarding Agents 2.1 Clearing and forwarding agent has been defined as any
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
and includes a consigning agent. The taxable service has
been defined as any service provided to a client, by C&F
agent in relation to clearing and forwarding operations in
any manner. The clearing and forwarding agents are
engaged/appointed by manufacturer of goods (both
excisable and non-excisable goods), producers and 10 ST/88532/2014 distributors of goods and shall also include such agents
appointed for agricultural and mineral goods.

2.2 Normally, there is a contract between the principal and
the clearing and forwarding agent detailing the terms and
conditions and also indicating the commission or
remuneration to which the C&F agent is entitled. A clearing
and forwarding agent normally undertakes the following :

(a) Receiving the goods from the factories or premises of the principal or his agents;
(b) Warehousing these goods;
(c) Receiving dispatch orders from the principal;
(d) Arranging dispatch of goods as per the directions of the principal by engaging transport on his own or through the authorised transporters of the principal;
(e) Maintaining records of the receipt and dispatch of goods and the stock available at the warehouse;
(f) Preparing invoices on behalf of the principal.

2.3 It has been decided that the person responsible for
collecting the service tax in the case of services rendered
by a clearing and forwarding agent shall be the person
engaging/appointing a clearing and forwarding agent
(Notification No. 26/97-Service Tax refers). It may be
noted that unlike in the case of other service tax levies
where the service provider is the person responsible for
collecting the service tax, in the case of services rendered
by clearing and forwarding agents the service tax liability
shall be discharged by the person availing the service so
rendered. In other words, the principal who engages a
clearing and forwarding agent is the person responsible for
collecting and paying the service tax to the exchequer.

2.4 Further under the Finance Act, 1997 the value of
taxable service rendered by a clearing and forwarding
agent has been defined as the gross amount charged by
such agent from the client for the services of clearing and 11 ST/88532/2014 forwarding operations in any manner. However, under
Service Tax Rules it has been provided that the value of
taxable service in relation to services rendered by clearing
and forwarding agents to a client shall deemed to be the
gross amount of remuneration or commission (by
whatever name called) paid to such agent by the client
engaging such agent (Notification No. 27/97-S.T. refers.) 2.5 For the services rendered, the C&F agent receives
commission or remuneration which usually consists of two
components :

(I) Minimum commission on a flat rate or turnover basis depending on the packages/consignments handled;
(II) A variable commission based on performance which is computed on the performance indicators agreed upon between the agent and the principal. This is usually given as a percentage of the turnover. The above two constitute the remuneration or commission paid to the C&F agent by the principal.

2.6 In cases where C&F agents engaged for various
towns, states or areas are paid only by the regional or the
head office of the company appointing such agents, for
service tax purposes it would suffice to register only such
regional or head offices. In such cases the regional office
or the head office, as the case may be, should also be
required to give an undertaking to discharge the service
tax liability.

The above clarification has been issued by the various
Commissionerates as trade notice for information of all
concerned. [Trade Notice No 87/97 (10/Service
Tax/97), dated 14-7-1997 of the Madurai-2
Commissionerate, Trade Notice No 59/99 dated
04.10.1999 of Service Tax – I Mumbai
Commissionerate].
12 ST/88532/2014 5.3 Undisputedly appellants have been appointed as
depot agents by various mills under a contractual
agreement. The terms of contract clearly provide as
follows:

1. “M/s Sagar Enterprises Mumbai, referred to before
shall be the Dept Agent of the Sales Depot of the Mills in
the State of Maharashtra. When the Company increases
production and decides to introduce its yam in
Ichalkarankji and in case the Company is intending to have
its own Depot, Sagar Enterprises will be given the right to
sell on the terms to be fixed latter.
2. The Depot Agent is entrusted with and shall have
overall charge of sales at the said Depot of the Mills
subject to the control and approval of the Mills. The Depot
Agent is hereby authorized and empowered to apply for
registration to the appropriate Sales Tax authorities in the
state of Maharashtra on behalf of the Mills and ensure the
due registration of the Mils as declares of yarn. The Depot
Agent I further empowered and authorised to sign on
behalf of the Mills all necessary forms, Applications and
Returns for Sales Tax purposes and Contracts, Invoices,
Receipt and all other papers necessary for or incidental to
the purpose of proper working of the depot.
3. That the Depot Agent will have to remit an initial
Security Deposit of Rs 14.00 Lakhs (Rupees Fourteen
Lakhs only) by cash to the Mills and the Mills will be
dispatching to the Depot Agent Goods COTTON YARN,
BLENDED YARN AND POLYESTER STAPLE FIBRE YARN and
will send the documents directly to the Depot Agent.
Interest at 12% (twelve percent only) per annum will paid
by the Mills to the depot Agent on the whole advance
amount and will be settled yearly. Such advance amounts
shall be liable to be adjusted at the discretion of the Mill
against all or any amount due from or accountable under
this agreement by the Depot Agent to the Mills from time
to time.
13 ST/88532/2014 4. That the Depot Agent shall at all times during the
continuance of this Agreement carry out and observe all
directions and instructions which may be given to them by
Mills concerning the sale or disposal of the goods or
otherwise relating to and in the course of business under
this Agreement.
5. (a) THAT THE MILLS shall dispatch goods to the
destination of the Depot areas and forward the related
documents to the Depot Agent direct and that the Depot
Agent shall sell the goods and remit the sale proceeds to
MILLS by TT OR DD immediately within 7 days (seven
days) from the date of sale.

(b) For Belated payments, the Mill will be charging
interest @ 24% on the Depot Agent which will have to be
paid by the Depot Agent. Credit shall be given to the
Agents for interest on advance remittances made by them
against sale proceeds before the due date @ 15% on such
advances.

6. THAT THE MILLS will pay the Depot Agent’s
Commission 1.5% (one and half percent only) flat rate for
sales made by them on the Ex mill value of yarn realised
by the Mills, for the services rendered by them. It is
clarified that the Ex-mill realization would be realization
exclusive of all expenses and outgoings such as EXCISE
DUTY, SALES TAX, SURCHARGE, TURNOVER TAX AND
OTHER TRANSIT DUES, INSURANCE, INTEREST, OVERDUE
INTEREST AND DEMURRAGE AND ANY COMMISSION PAID
ON THE SALES. The Depot Agent will have to send their
debit notes for the Commission amount in each month and
the Commission will be settled monthly by the Mills.
7. THAT the goods in the custody of the Depot Agent
shall always be the property of the Mills and the Officers of
the Mills are at liberty to check stocks and Accounts in the
godown at all reasonable times. The Depot Agent shall not 14 ST/88532/2014 pledge or hypothecate the goods consigned or supplied to
them on any account.
8. That the Depot Agent shall not assign or in any other
manner made over this Contract to any other person.
9. THAT the Depot Agent will bear the expenses such as
STAFF SALARIES, TELEPHONE CHARGES, POSTAGE,
STATIONARY, HANDLING CHARGES, GODOWN RENT
incurred at the Depot and HAMALI CHARGES.
10. THAT the Telegraphic transfer charges in respect of
remittances made by the Depot Agent to the Mills will be
borne by the Mills.
11. THAT the Depot Agent has to maintain a godown for
the stocks to be kept on behalf of the Mills.
12. THAT the Depot Agent will take an insurance policy
covering “ALL RISKS” in the name of the Mills and the
premium will be borne by the Mills.
13. THAT the Depot Agent will make best efforts to sell
the Mills’ goods at the maximum rate possible in
consultation with the MILLs.
14. THAT the Mills will bear the expanses such as
FREIGHT, SALS TAX, EXCISE DUTY, OCTROI. The pot
Agent has to collect the Sales Tax from the buyer and
remit the same to the Sales tax Authorities before the due
date. The Depot Agent should send the necessary “F”
forms to the Mills regularly on monthly basis.
15. THAT the Depot Agent shall sell the goods only in the
consuming Centers of Maharashtra State.
16. (a) THAT the Depot Agent will sell the goods in
Cases/ Bags/ Bales actually received and not those which
are in transit.

(b) Though the Excise duty will be paid by the Mills while
dispatching the goods, the Depot Agent has to collect the
same from the buyers and reimburse to the Mills.
15 ST/88532/2014 17. THAT the Depot Agent will solely be responsible for
any loss that may be incurred by any credit of such sales
or damages/ shortages of the goods at the Depot.
18. THAT the Depot Agent will send by post to the Mills
daily sales particulars everyday along with the copies of
Invoices, Delivery orders and Stock statements.
19. THAT the daily sales effected at the Depot have to be
communicated to the Mills telegraphically/ fax. Similarly,
remittances effected to Mills should also be communicated
to the Mills telegraphically/ fax.
20. THAT the Depot Agent shall not be entitled for any
remittance if the goods are sold for export through a party
of the above area by the Mills.
21. THAT the Depot Agent will prepare the yarn invoice
in quadruplicate and post three copes direct to the Mills
and by the next day available post.
22. THAT the Depot Agent shall reconcile the Accounts
once in a month wherever the difference occurs between
the Mills and the Depot. The Depot Agent and Mills will
finalize and settle the Accounts within three months of the
termination of this agreement.”

5.4 From plain reading of the agreement along with the
activities as specified in the Circular dated 11.07.1997 it is
observed that appellants are undertaking all the all the
activities as specified at para 2.2 (a to f). The relevant
clause(s) of the agreement which is in respect of the
specified activity is as indicated in table below:

Sl Activity Clause of
No Agreement (a) Receiving the goods from the factories 3 & 5 or premises of the principal or his agents;

(b) Warehousing these goods; 9, 11 & 12 (c) Receiving dispatch orders from the 4 & 5 principal;
16 ST/88532/2014 (d) Arranging dispatch of goods as per the 4 directions of the principal by engaging transport on his own or through the authorised transporters of the principal;

(e) Maintaining records of the receipt and 2, 18, 19 & dispatch of goods and the stock 22 available at the warehouse;

(f) Preparing invoices on behalf of the 2, 5(a) & 21 principal.

5.5 Thus from the agreement it is quite evident that the
appellant undertakes all activities right from the receipt of
the goods, storage of same, sale from depot, preparation
of invoices, maintenance of records collection of the sale
proceeds and remitting the sale proceeds to their
principals. It is also evident from clause 2, 7 8, 12 & 20
that the substantial ownership of the goods is with the
Mills (principal). Thus in terms of the Circular/ Trade
Notices issued, appellants undertake all the activities that
a Clearing and Forwarding Agent undertakes. Also the
agreement provides for the remuneration for the services
rendered by the appellants as percentage of the sale
effected by them. Hence we do not have any doubt that
the activities undertaken by the appellant are covered by
the definition of “Clearing and Forwarding Agent” as per
Section 65(25) of the Finance Act, 1994.
5.6 Appellants have relied on various dictionary
meanings to argue that the activities undertaken by them
do not qualify to be that of clearing and forwarding, thus
they cannot be held to be clearing and forwarding agent
for the purpose of levy of service tax. We are not in
position to agree with the above preposition, because
when service tax was levied under this taxable category,
CBEC (TRU), has clarified the scope of services sought to
be taxed under this category. Hon’ble Supreme Court has
in case of Kajaria Tiles [2005 (191) ELT 20 (SC)] held that “28.The Circular can be read as a contemporaneous 17 ST/88532/2014 understanding and exposition of the intention and purport
of the Notification. Courts have treated contemporary
official statements as contemporary exposition and used
them as aids’ to interpret even recent statutes.”
Further Hon’ble Apex Court has in case of Ajay Gandhi vs B
Singh [2004 (167) ELT 257 (SC)] held as follows: “16. In CORPUS juris secondum, Volume 82, PP. 761, it is
stated that the controlling effect of this aid which is known
as ‘executive construction’ would depend upon various
factors such as the length of time for which it is followed,
the nature of rights and property affected by it, the
injustice resulting from its departure and the approval that
it has received in judicial decisions or in legislation.
17. In Francis Bennion Statutory Interpretation, Fourth
Edition, the law is stated in the following terms at page
596 :
“Section 231. The basic rule. – In the period immediately
following its enactment, the history of how an enactment is
understood forms part of the contemporanea expositio,
and may be held to throw light on the legislative intention.
The later history may, under the doctrine that an ongoing
Act is always speaking, indicate how the enactment is
regarded in the light of developments from time to time.
COMMENT
On a superficial view, it may be though that nothing that
happens after an Act is passed can affect the legislative
intention at the time it was passed. This overlooks the two
factors stated in this section.
Contemporanea expositio. The concept of legislative
intention is a difficult one. Contemporary exposition helps
to show what people though the Act meant in the period
immediately after it was passed. Official statements on its
meaning are particularly important here, since every Act is
supervised, and most were originally promoted, by a
government department which may be assumed to know
what the legislative intention was.”
18 ST/88532/2014 18. In R.V. Wandsworth London Borough Council, Ex
parte, Beckwith [(1996) 1 All E.R. 129], the House of
Lords has held that a departmental circular is entitled to
respect. It can only be ignored when it is patently wrong.
The said principle has also been followed in Indian Metals
and Ferro Alloys Ltd. v. Collector of Central Excise [1991
(51) E.L.T. 165 (S.C.) = AIR 1991 SC 1028, p. 1034];
Keshavji Ravji and Co. v. Commissioner of Income Tax
[AIR 1991 SC 1806, p. 1817], Raymand Synthetics Ltd. v.
Union of India [AIR 1992 SC 847, p. 859]; Kasilingam v.
P.S.G. College of Technology [1995 (2) SCALE 387, p.
397] and Collector of Central Excise, Vadodra v. Dhiren
Chemical Industries [2002 (139) E.L.T. 3 (S.C.) ].”
5.7 Appellants have relied upon various decisions
including the decision of Punjab and Haryana High Court in
case of Kulcip Medicines to argue that the activities
undertaken by them will not be covered by the definition of
Clearing and Forwarding Agent. It is noticed that the
decision of tribunal in case of Kulcip Medicines, was based
on the decision of Tribunal in case of Mahaveer Generics as
is evident from the paras reproduced below:

“3. Learned Counsel has also submitted that this issue
had come up before this Tribunal in the case of another
C&F agent of Cipla, M/s. Mahaveer Generics, Bangalore
wherein also, the terms of the relationship was similar and
the Tribunal held vide its order ST F. No. 12/04-NB(A),
dated 27-4-2004 [2004 (170) E.L.T. 78 (Tribunal)] that no
Service Tax was attracted. The learned Counsel strongly
relied upon on this decision in support of his case.

4. The learned Departmental Representative’s contention
is that there is no dispute that the appellant is a C&F Agent
of Cipla. It is his contention that once the person is
admittedly a C&F Agent, it is not open to him to argue that
the services rendered by him is not the services of C&F 19 ST/88532/2014 Agent. Learned Departmental Representative, therefore,
submitted that matter is to be treated as settled.

5. The taxable service in the present case is “any service
provided to a client, by a clearing and forwarding agent, in
relation to clearing and forwarding operation in any
manner” [Sub-clause (j) of Section 65(105) of Finance Act,
1994]. A perusal of this definition makes it clear that, in
order to attract the levy, the services must be “in relation
to clearing forwarding operation”. Thus, the definition
makes it clear that all services rendered by the clearing
and forwarding agent are not within the scope of the levy;
the levy is limited to “clearing and forwarding operations”.
The Circular of the Board on this issue may be read :

“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 receive 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 carried out all activities in respect of the goods
right from stage of their clearances from the premises of
the principal to its storage and delivery to the customers.”

6. The above Para in the circular makes it clear that only
when a C&F agent carries out both clearing and
forwarding, the levy will be attracted. It is clear from the
terms of the agreement that appellant herein does 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 20 ST/88532/2014 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 demand is not sustainable.
To the same effect is our earlier decision in the case
of M/s. Mahaveer Generics. Accordingly, following
our earlier decision, the present appeal is allowed
after setting aside the impugned order. The appellant
shall be entitled to relief, if any.”

Punjab and Haryana High Court upheld the said decision
after noting that the decision in case of Mahaveer Generics
have acquired finality as revenue has not appealed against
it as is evident from para 6 of the decision reproduced
below:

“6. 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.”

The decision of tribunal in case of Mahaveer Generics was
set aside by the Karnataka High Court as reported at
[2010 (17) STR 225 (Kar)]. While setting aside the order,
Karnataka High Court took note of decision of Punjab and
Haryana High Court in case of Kulcip Medicines also. The
relevant paragraphs of the said decision are reproduced
below:

6. The learned counsel appearing for the appellant would
contend that authorities were fully justified in rejecting the
claim of the assessee who had sought for surrendering of
the registration Certificate on the ground that it did not
come within the purview or category of clearing &
forwarding agents and the authorities had taken a holistic
view in interpreting the Section 65(25) of the Finance Act 21 ST/88532/2014 which defines the activity of clearing and forwarding agent
and as such the reversal of the said orders by Tribunal, by
interpreting the definition “C & F Agent” on the basis of
dictionary meaning is erroneous and liable to be set aside.
7. Sri Raghavendra B., learned counsel for the appellant
would elaborate his submissions to contend that the
Tribunal ought not to have traversed beyond interpreting
the Section as per the language employed in the Statute
itself and would submit that while interpreting the taxing
Statutes the authorities cannot import which is not
expressed in the provision itself and in this regard he relies
upon the decision in the matter of Commissioner of Sales
Tax U.P v. Modi Sugar Mills Pvt. Ltd., reported in AIR 1961
S.C. 1047. He would also add that Tribunal was in error in
relying upon the dictionary meaning and in this regard he
would rely upon the decision of the Hon’ble Supreme Court
in the case of Ponds India Ltd v. Commr. of Trade Tax,
Lucknow reported in 2008 (227) E.L.T. 497 (S.C.) by
drawing our attention to paragraph 24 contending that
definition of dictionary meaning as found in Wikipedia
should not be used in aid of construction of a Fiscal
Statute. He would also submit that Section itself being
explicitly clear wherein the word consignment agent has
also been included in the Section itself and hence it comes
within inclusive definition of “C & F Agents” and thus
supports the order of Original Authority & 1st appellate
authority. He relies upon the decision of the Hon’ble
Supreme Court in the matter of Karnataka Power
Transmission Corporation Ltd. & Another v. Ashok Iron
Works Pvt. Ltd., reported in 2009 AIR SCW 1502 and seek
for answering the question of law in favour of the
appellant-revenue and against the assessee.

8. Per contra, the learned counsel appearing for
respondent would contend that the authorities relied upon
the decision of Prabhat Zarda Factory (India) Ltd. v. CCE, 22 ST/88532/2014 Patna reported in 2006 (2) S.T.R. 584 (Tribunal) = 2002
(145) E.L.T. 222 (Tribunal) and the said decision having
been overruled by the Larger Bench of the Tribunal in the
case of Larsen and Toubro v. Commissioner of Central
Excise, Chennai reported in 2006 (3) S.T.R. 321 (Tri. – LB)
and affirmed by the Punjab & Haryana High Court in the
case of Commissioner of Central Excise Jalandhar v. United
Plastomers reported in 2008 (10) S.T.R. 229 (P & H), the
tribunal was fully justified in allowing the appeal of the
assessee. He would also contend that the very same
Principal namely, Cipla Ltd., had engaged a similar agent
in Punjab known as Kulcip Medicines Private Ltd., which
activity carried on by the said assessee was identical to the
activity carried on by the present assessee and the Punjab
& Haryana High Court [2009 (14) S.T.R. 608 P&H)] having
taken a view that the activity carried out by the assessee
therein was of commission agent and submits that while
examining the said issue the order of CESTAT in Mahavir
Generics (present case) also came up for consideration &
came to be approved and prays this Court should also fall
in line with the said Judgment and seeks for answering the
question of law against the revenue and in favour of the
assessee. He would also bring to our notice the definition
of “Commission Agent as defined under Section 2(19)(a)
to contend that respondent would fall within the purview of
said definition and the Circular bearing No. 59/8/2003
S.T., dated 20-6-2003 issued by the Department wherein
the definition of Commission Agent with reference to
clearing and forwarding agent has been clearly spelt out
and the nature of activity carried on by the present
assessee is in consonance with the meaning assigned in
the said Circular and thus the activity carried on by the
assessee falls outside the purview of clearing and
forwarding agent and as such prays that the question of
law be answered against the revenue and in favour of the
assessee.
23 ST/88532/2014 11. Further, we are not able to accept the contention of
the assessee for more than one reason. At the outset it is
to be seen that agreement itself terms the assessee as a
consignment agent. Thus, the parties were at ad-idem
when the contract was entered into between them as to
what their status would be. In so far this contention is
concerned the parties namely that the principal and the
agent having understood in unequivocal terms as to their
duties and responsibilities which include not only having
effective control of the goods by the Principal but also in so
far as the price determination is concerned it was in the
hands of both the principal and as well as the agent
namely, the assessee. Hence, by no stretch of imagination
it can be concluded that in the event, of assessee being a
commission agent the price determination would also be
left within the domain of a Commission agent. The said
reasoning would not appeal to logic. Hence, we are unable
to accept the said contention.

12. Another aspect being that the assessee having given
the authority and power to appoint dealers, stockists and
distributors it is clear that it is not a mere case of
commission agent but, on the other hand it is the
responsibility fixed on the assessee to carry out the
activity of getting the goods stored by clearing it and then
forwarding it to the stockists and dealers if any appointed
by the assessee itself or as directed by the Principal. If it
were to be the commission agency only these clauses
would not have found a place in the contract. Hence, we
are unable to agree with the contention of the assessee
that they should be classified under the category of
commission agent. In so far as the Judgment relied upon
by the assessee viz., L & T supra, the Tribunal has held
therein at para 9.3 to the following effect :-
“9.3 An agent engaged only for procuring purchase orders
for the vendor on commission basis does not engage in 24 ST/88532/2014 any of the above activities, directly or indirectly.
Commission agent engaged to procure orders and not
entrusted with the work of clearing and forwarding of the
goods would be a person who, in the ordinary course of
business, makes contracts for sale of purchase of goods for
others, the definition of “Commission agent” in Section
2(aaa) of Central Excise Act, 1944, would apply in relation
to service tax as it applies in relation to duty of excise by
virtue of sub Section(121) or Section 65 of the Act.
Services of Commission agent are included in the definition
of “business auxiliary service” under sub-Section(19) of
Section 65 w.e.f. 1-7-2003, which includes service of a
Commission agent. As defined in explanation (a) to sub-
section (19) of Section 65 Commission agent is a person
who acts on behalf of another person and causes sale or
purchase of goods, or provision or receipt of services, for
consideration, and includes any person who, while acting
on behalf of another person: deals with goods or services
or documents of title to such goods or services; or collects
payment of sale price of such goods or services; or
guarantees for collection or payment for such goods or
services; or undertakes any activities relating to such sale
of purchase of such goods or services. This clearly shows
that the activity of mere procurement of purchase orders
for the principal on commission basis of a Commission
agent is treated separately by the Parliament from the
activities of a clearing & forwarding agent. Activity of
procuring orders is thus independent of clearing &
forwarding operations. The agents doing these activities
can be different. Moreover, clearing & forwarding
operations do not flow directly or indirectly from mere
procurement of orders. There is no obligation on the
person procuring orders as a commission agent for the
principal, only by virtue of that agency, to carry out
clearing & forwarding operations in respect of the goods 25 ST/88532/2014 which are to be supplied pursuant to the orders so
procured.”
and have come to the conclusion that the agent engaged
for procuring the purchase orders for the vendor on
commission basis does not engage in the above activities
as mentioned at para 9.2 therein, if there was mere
procurement of purchase orders for the principal on
commission basis by the assessee, it would have definitely
fallen under the category of commission agent and would
have stood outside the activity of the clearing and
forwarding agent. But, it is not so in the instant case as
seen from the Clauses mentioned in the Agreement. Thus,
we will have to hold in the context of the agreement in
question that apart from procuring the orders the assessee
is also engaged in the activities as mentioned in the
agreement which is thus independent of commission
agency. In certain circumstances there may be a situation
where only commission agency work is carried out and in a
situation as is existing in the present case the assessee
may also indulge or carry on with not only with the work of
commission agent but also with the clearing and
forwarding as a Consignment Agent and thus both these
activities might overlap and on account of such overlap it
cannot be said that the assessee would fall only under the
category of commission agent and claim to distance
himself from coming within the ambit and purview of
clearing and forwarding agent. If it was only the case of
commission agency there was no necessity or requirement
by a commission agent to empower the respondent to
appoint Dealers, Stockiest etc., for the principal as we
have noticed in the instant case. Hence, the said decision
of Larsen and Toubro (supra) pressed into service is
distinguishable on the facts of the present case.
13. In so far as the second case is concerned that is the
Judgment in the case of Commissioner of C.Ex., Jalandhar 26 ST/88532/2014 v. Kulcip Medicines (P) Ltd. (sic) [United Plastomers]
referred to supra wherein the Larsen and Toubro case of
the Larger Bench of the Tribunal having been relied upon it
has been held in paragraph 13 in Kulcip’s case to the
following effect :-

“13…………. and mere procuring or having orders for the
principal by an agent on payment of commission basis
would net amount to providing services as “clearing and
forwarding agent”, within the meaning of the definition of
that expression under Section 65(25) of the Finance Act,
1994. While reaching to this conclusion the Tribunal has
observed that the expression “directly or indirectly” and “in
any manner” occurring in the definition of “clearing and
forwarding” agent cannot be isolated or the activity of
dealing and forwarding operations and an agent it engaged
only for procuring purchase orders for the vendor on
commission basis does not engage in any of the activities
connected with clearing and forwarding operations directly
or indirectly.”
And thus found on facts that it was mere procuring the
orders for the principal by an agent on payment of
commission basis and thus would fall outside the purview
of clearing and forwarding agent. The said decision would
be inapplicable to the facts of the case as we have held
that activity carried on by the assessee is that of a
Consignment Agent. The Judgment of Kulcip Medicine
(supra) relied on by the learned counsel for the
respondent to contend that. Mahaveer Generics case
namely, the judgment in question before this Court
in the present appeal has also been taken into
consideration in Kulcip’s case is liable to be brushed
aside the contention of the assessee is not appealing
to us for the reason that Tribunal in the said decision
(Kulcip’s case) at paragraph 13 has taken the view
that the Judgment in Mahaveer Generic (present 27 ST/88532/2014 case) has been accepted by the revenue and no
appeal has been tiled and accordingly was
persuaded to accept the stand of assessee. The view
taken by the Punjab & Haryana High Court in
Kulcip’s case, we find is factually in error since the
revenue had filed the present appeal challenging the
legality and correctness of Mahaveer Generic case in
the present appeal & it was pending as on the date
of disposal in Kulclp’s case by Punjab & Haryana
High Court and hence, the view taken in Kulcip
Medicine case is inapplicable to the facts &
circumstances of the case and also in the
background or our examination, scrutiny and
interpretation with regard to the agreement in
question.
14. The contention of the learned counsel with regard to
the definition of commission agent as defined under the
Finance Act namely, Section 65 (19) under the heading
Business Auxiliary Service that they would come within the
said purview and would fall outside the purview under the
definition of the clearing and forwarding agent is examined
in the background of definition Clauses which has been
extracted by us herein above and we find that in the
definition of “Clearing & Forwarding Agent” itself the
consignment agent has been brought within the said
Section. We have also examined the agreement in
question and we find not only the consignment agent is
expressly described at various places as stated herein
above and on combined reading of the agreement we find
that assessee in question has not restricted its activities to
business of commission agency but has also carried on
business as Consignment Agent as mentioned in Clause
(iii), (v) and (vii) of the agreement and as such we are
unable to accept the contention of the learned counsel for
the assessee to hold that they would stand outside the 28 ST/88532/2014 definition of clearing and forwarding agent. In this context,
it would be of benefit to extract the Judgment of the
Hon’ble Supreme Court of India in the case of KPTCL supra
at paras 12, 13 & 14 which reads as follows :
“12. Lord Watson in Dilworth v. Commissioner of Stamps
(1899) AC 99 made the following classic statement :
“The word “include” is very generally used in interpretation
clauses in order to enlarge the meaning of words or
phrases occurring in the body of the statute; end when it is
so used these words or phrases must be construed as
comprehending, not only such things as they signify
according to their natural import, but also those things,
which the interpretation clause-declares that they shall
include. But the word “include” is susceptible of another
construction, which may become imperative, if the context
of the Act is sufficient to show that it was not merely
employed for the purpose of adding to the natural
significance of the words or expressions defined, It may be
equivalent to “mean and include”, and in that case it may
afford an exhaustive explanation of the meaning which, for
the purposes of the Act, must invariably be attached to
these words or expressions.”

15. Dilworth (supra) and few other decisions came up for
consideration in Peerless General Finance and Investment
Co. Ltd. and this Court summarized the legal position that
inclusive definition by the Legislature is used; (one) to
enlarge the meaning of words or phrases so as to take in
the ordinary, popular and natural sense of the words and
also the sense which the statute wishes to attribute to it;
(two) to include meaning about which there might be some
dispute; (three) to bring under one nomenclature all
transactions possessing certain similar features but going
under different names.
29 ST/88532/2014 16. It goes without saying that interpretation of a word of
expression must depend on the text and the context. The
resort to the word ‘includes’ by the Legislature often shows
the intention of the Legislature that it wanted to give
extensive and enlarged meaning to such expression.
Sometimes, however, the context may suggest that word “includes” may have been designed to mean “means” The
setting, context and object of an enactment may provide
sufficient guidance for interpretation of word “includes” for
the purposes of such enactment.”
Thus, the activity carried on by the assessee with
reference to the text of the enactment would depend on
the nature and activity and as held by Their Lordships both
in text and context the word ‘includes’ as mentioned in the
definition clause of clearing and forwarding agent we find
that the Legislature in its wisdom have desired to give
extended and enlarged meaning to such expression and as
such we accept the contention of the revenue to hold that
the activity carried on by the assessee in question would
fall within the purview of clearing and forwarding agent
and accordingly we answer the question of law framed
herein above by holding that the services rendered by the
respondent would fall within the category of “clearing and
forwarding agent” and thus, amenable to the definition of
taxable service. Accordingly, the following order is passed
:
ORDER The substantial question of law formulated herein above is
answered in favour of the appellant revenue and against
the assessee and the order passed by the Tribunal in
Appeal No. 18/2003 vide its Final Order No. 12/2004 dated
27-4-2004 is hereby set aside and the order passed by the
original authority dated 12-5-2003 is hereby confirmed. No
costs.”
30 ST/88532/2014 In our view Karnataka High Court has in this decision
considered all the argument including the case laws
advanced by the appellants before us and have rejected
the same.

5.8 In case of Medpro Pharma Pvt Ltd [2006 (3) STR 355
(T-LB)], a larger bench of tribunal has already rejected the
arguments in relation to use of word “and” in the definition
and has held as follows:

“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, upwrapping 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 scenario in a proper
perspective. Crucial key-word in 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 individual 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 the 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 31 ST/88532/2014 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 cease to
be a “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
segregate the holistic concept of “clearing and forwarding”
32 ST/88532/2014 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 assessee. 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 new 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.”

5.9 Tribunal has in case of Telera Logistics Pvt Ltd [2014
(33) STR 514 (T-Mum)] while upholding the demand made
under taxable category of Clearing and Forwarding Agent
Services have also upheld the invocation of extended
period of limitation as per proviso to section 73(1) of
Finance Act, 1994 stating as follows:

“4.5 The next plea of the appellants is that keeping in
view the nature of operation they were under the bona fide
belief that no Service Tax is payable and hence extended
period of limitation cannot be extended. We note that the
demand is from October, 1999 onwards. The appellant had
not taken any registration. The first time they took
registration was in December, 2001 relating to clearing
and forwarding services. However, after taking the
registration they did not pay Service Tax or filed any
returns. After sometime they started correspondence
disputing the leviability of Service Tax. Keeping in view the
conduct of the appellants, we have no hesitation in holding 33 ST/88532/2014 that there was a clear cut suppression of activities before
2002 and later on also the act of correspondence, not filing
the returns, etc., clearly indicates the wilful intention to
evade Service Tax. We therefore hold that the extended
period is correctly invoked.”

This decision has been upheld by the Hon’ble Apex Court
as reported at [2014 (35) STR J182 (SC)].

5.10 Similarly in case o0f Somani Agencies [205 (43) STR
242 (T-Del)], Delhi bench has also upheld the demand
made under the taxable category of Clearing and
Forwarding Agent Services in similar situation. They have
also upheld the invocation of extended period of limitation.
The relevant paras of the aid decision is reproduced below:

“4. We have considered the contentions of both sides. We
appreciate the nature of service rendered by the appellant.
It is useful to quote from the
agreement/contract/appointment of the appellant in terms
of which the appellant rendered the impugned service.

(i) Noticee shall act as C & F agent for the purpose of
receiving, storing and forwarding of goods.

(ii) Noticee shall unload, load, stock and store
merchandise sent by the principals.
(iii) Noticee shall maintain a warehouse/godown for
storing of the goods and maintain proper records of the
receipts and dispatches of the goods.

(iv) The noticee is fully responsible for making
arrangements for dispatch, delivery and transportation
thereof to various destinations as per directions from the
company.

(v) Ownership of the goods is fully with the company
and C&F Agent merely acts as a custodian of the goods.
34 ST/88532/2014 (vi) Goods are dispatched as advised by the company. (vii) The noticee is fully responsible for collection of the
payments for goods and deposit the same in the principals’
account.

(viii) Noticee shall comply with all statutory and legal
requirements such as registration/license for operation of
C & F agency and for any other legal requirements that
may be applicable to the operations of the C & F agency.

It is clear from the provisions of the above-quoted
agreement that as per the agreement itself the appellant
was to act as clearing and forwarding agent for the
purpose of receiving, storing and forwarding of goods. It
was to unload, load and stock and store the merchandise
sent by the service recipient and the ownership of the
goods remained with the service recipient and the
appellant merely acted as a custodian of the goods and
dispatched them as per the advice of the service recipient.
It is thus obvious that the appellant cleared the goods
received at its end and stored them in the warehouse and
thereafter forwarded them as per the directions of the
service recipient. Section 65(25) of Finance Act, 1994
defines clearing and forwarding agent as under :
“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 taxable service is defined under Section 65(105)(j)
ibid is as under :

“Taxable service” means any service provided or to be
provided to a client, by a clearing and forwarding agent in 35 ST/88532/2014 relation to clearing and forwarding operations, in any
manner.”
It is thus clear that as per the activities performed by the
appellant, it is squarely covered within the definition of
clearing and forwarding agent and it provided service to a
client in relation to clearing and forwarding operations. We
have taken note of the Punjab and Haryana High Court
judgment in the case of Kulcip Medicines Pvt. Ltd. (supra)
wherein the word “clearing” was given the meaning as if
such clearing was required from the factory. Supreme
Court vide its order [2012 (25) S.T.R. J127 (S.C.)]
summarily dismissed the special leave petition against the
said order of Punjab and Haryana High Court. Thus in the
wake of Supreme Court judgment in the case of
Kunhayammed v. State of Kerala – 2001 (129) E.L.T. 11
(S.C.) there was no merger of the Punjab & Haryana High
Court order with the order of Supreme Court and
consequently the judgment of Punjab & Haryana High
Court did not acquire the strength and vitality of the
Supreme Court order. We find that the definition of
clearing and forwarding agent nowhere requires the
clearing to be effected from the factory. Indeed the said
judgment of Punjab and Haryana High Court has been
taken due note of by the Karnataka High Court in the case
of Mahavir Generics (supra). In the said judgment
Karnataka High Court considered the service rendered by
Mahavir Generics in terms of the agreement which has
been quoted in the said judgment. The said agreement is
similar (if not identical) to the one under which the
appellant rendered service and therefore the said
judgment of Karnataka High Court is squarely applicable to
the present case. It may be pertinent to note that P & H
High Court in its judgment in the case of Kulcip Medicines
(supra) took note of the assertion of Madhav Rao, ld.
Counsel that the CESTAT judgment in the case of Mahavir 36 ST/88532/2014 Generics [2006 (3) S.T.R. 276 (Tribunal)] was not
appealed against by Revenue which was factually incorrect
as the judgment of CESTAT in the case of Mahavir
Generics was appealed against before Karnataka High
Court. Indeed as per the agreement under which the
appellant rendered service all the ingredients
required for coverage of the service under C & F
agent service are so clearly present that there was
no scope for any confusion or ambiguity with regard
to the taxability of the said service and therefore the
appellant’s contention that it had bona fide belief
about the non-taxability of service rendered by it is
totally untenable. Bona fide belief is not a
hallucinatory belief; it is a genuine belief of a
reasonable person operating in an appropriate
environment. When the terms of the agreement
were so clear, any reasonable person operating in an
appropriate environment would have no basis to
entertain a belief that the service rendered by it in
terms of the agreement cited above by any stretch of
imagination would not be covered under the scope of
clearing and forwarding agent service. Therefore the
extended period has been rightly invoked. As
regards the contention of the appellant that the
reasoning of the Commissioner (Appeals) in the
impugned order is inadequate, suffice to say that
even if that is the case, the appellate Court can use
different reasoning based on transactional
documents and come to an appropriate finding and
the appellate Court is not in any way bound by the
reasoning of the lower authorities in this regard.”
In our view all the arguments advanced by the appellants
both on the merits and limitation have been considered
and rejected in these decisions. In view of these decisions
appeal filed should fail both on merits and limitation.
37 ST/88532/2014 5.11 Since the demand of tax has been upheld the
demand for interest will follow. It is now settled law that
interest under Section 75, is for delay in the payment of
tax from the date when it was due. Since appellants have
failed to pay the said Service Tax by the due date interest
demanded cannot be faulted. In case of P V Vikhe Patil
SSK [2007 (215) ELT 23 (Bom)] Hon’ble Bombay High
Court has stated as follows:

“10.So far as interest u/s. 11AB is concerned, on
reference to text of Section 11AB, it is evident that there is
no discretion regarding the rate of interest. Language of
Section 11AB(1) is clear. The interest has to be at the rate
not below 10% and not exceeding 36% p.a. The actual
rate of interest applicable from time to time by fluctuations
between 10% to 36% is as determined by the Central
Government by notification in the Official Gazette from
time to time. There would be discretion, if at all the same
is incorporated in such notification in the gazette by which
rates of interest chargeable u/s. 11AB are declared.

The second aspect would be whether there is any
discretion not to charge the interest u/s. 11AB at all and
we are afraid, language of Section 11AB is unambiguous.
The person, who is liable to pay duty short levied/short
paid/non-levied/unpaid etc., is liable to pay interest at the
rate as may be determined by the Central Government
from time to time. This is evident from the opening part of
sub-section (1) of Section 11, which runs thus :

“Where any duty of excise has not been levied or paid or
has been short levied or short paid or erroneously
refunded, the person, who is liable to pay duty as
determined under sub-section (2) or has paid the duty
under sub-section (2B) of Section 11A, shall in addition to
the duty be liable to pay interest at such rate ……..”

The terminal part in the quotation above, which is couched
with the words “shall” and “be liable” clearly indicates that 38 ST/88532/2014 there is no option. As discussed earlier, this is a civil
liability of the assessee, who has retained the amount of
public exchequer with himself and which ought to have
gone in the pockets of the Central Government much
earlier. Upon reading Section 11AB together with Sections
11A and 11AA, we are of firm view that interest on the
duty evaded is payable and the same is compulsory and
even though the evasion of duty is not mala fide or
intentional.”

Similar views have been expressed in the following
decisions:

a) Kanhai Ram Thakedar [2005 (185) ELT 3 (SC)] b) TCP Limited [2006 (1) STR 134 (T-Ahd)] c) Pepsi Cola Marketing Co [2007 (8) STR 246 (T-Ahd)] d) Ballarpur Industries Limited [2007 (5) STR 197 (T-
Mum)] Thus we uphold the demand of interest made under
Section 75 of the Finance Act, 1994.

5.12 It is now settled position in law that penalty under
section 78 can be imposed only if the ingredients specified
in the said section are present. The ingredients specified
for invoking the Section 78 are identical to those specified
for invoking the extended period of limitation as provided
by Section 73 ibid. Since in respect of show cause notice,
we hold that demand could have been made by invoking
the extended period of limitation as provided by Section
73, we uphold the penalties imposed under Section 78 of
The Finance Act, 1994. Hon’ble Supreme Court has in case
of Rajasthan Spinning and Weaving Mills [2009 (238) ELT
3 (SC)] held as follows:

“23. The decision in Dharamendra Textile must,
therefore, be understood to mean that though the
application of Section 11AC would depend upon the
existence or otherwise of the conditions expressly stated in 39 ST/88532/2014 the section, once the section is applicable in a case the
concerned authority would have no discretion in
quantifying the amount and penalty must be imposed
equal to the duty determined under sub-section (2) of
Section 11A. That is what Dharamendra Textile decides.”

5.13 Penalties under Section 75A, 76 and 77 of Finance
Act, 1994 are in nature of civil penalties and are imposed
in cases where the person who by his act of omission or
commission has failed to fulfill the obligations cast on him
under the statue. Hon’ble Supreme Court has in case of
Gujarat Travancore Agency [1989 (42) ELT 350 (SC)] held
as follows:

“4. Learned Counsel for the assessee has addressed an
exhaustive argument before us on the question whether a
penalty imposed under Section 271(1)(a) of the Act
involves the element of mens rea and in support of his
submission that it does he has placed before us several
cases decided by this Court and the High Courts in order to
demonstrate that the proceedings by way of penalty under
Section 271(1)(a) of the Act are quasi criminal in nature
and that, therefore, the element of mens rea is a
mandatory requirement before a penalty can be imposed
under Section 271(1)(a). We are relieved of the necessity
of referring to all those decisions. Indeed, many of them
were considered by the High Court and are referred to in
the judgment under appeal. It is sufficient for us to refer to
Section 271(1)(a), which provides that a penalty may be
imposed if the Income Tax Officer is satisfied that any
person has without reasonable cause failed to furnish the
return of total income, and to Section 276C which provides
that if a person wilfully fails to furnish in due time the
return of income required under Section 139(1), he shall
be punishable with rigorous imprisonment for a term which
may extend to one year or with fine. It is clear that in the
former case what it intended is a civil obligation while in 40 ST/88532/2014 the latter what is imposed is a criminal sentence. There
can be no dispute that having regard to the provisions of
Section 276C, which speaks of wilful failure on the part of
the defaulter and taking into consideration the nature of
the penalty, which is punitive, no sentence can be imposed
under that provision unless the element of mensrea is
established. In most cases of criminal liability, the
intention of the Legislature is that the penalty should serve
as a deterrent. The creation of an offence by Statute
proceeds on the assumption that society suffers injury by
and the act or omission of the defaulter and that a
deterrent must be imposed to discourage the repetition of
the offence. In the case of a proceeding under Section
271(1)(a), however, it seems that the intention of the
legislature is to emphasise the fact of loss of Revenue and
to provide a remedy for such loss, although no doubt an
element of coercion is present in the penalty. In this
connection the terms in which the penalty falls to be
measured is significant. Unless there is something in the
language of the statute indicating the need to establish the
element of mens rea it is generally sufficient to prove that
a default in complying with the statute has occurred. In
our opinion, there is nothing in Section 271(1)(a) which
requires that mens rea must be proved before penalty can
be levied under that provision. We are supported by the
statement in Corpus Juris Secundum Volume 85, page
580, Paragraph 1023 :

“A penalty imposed for a tax delinquency is a civil
obligation, remedial and coercive in its nature, and is far
different from the penalty for a crime or a fine or forfeiture
provided as punishment for the violation of criminal or
penal laws.”

5. Accordingly, we hold that the element of mensrea was
not required to be proved in the proceedings taken by the
Income Tax Officer under Section 271(1)(a) of the 41 ST/88532/2014 Income-tax Act against the assessee for the assessment
years 1965-66 and 1966-67.”

In Chairman, SEBI v. Shriram Mutual Fund [2006-TI0L-72-
SC-SEBI] the Hon’ble Apex Court held that mensrea is not
an essential element for imposing penalty for breach of
civil obligations.

‘A penalty imposed for a tax delinquency is a civil
obligation, remedial and coercive in its nature, and is far
different from the penalty for a crime or a fine or forfeiture
provided as punishment for the violation of criminal or
penal laws.’ 5.11 Penalty under Section 76 of the Act is imposed
for failure to pay Service Tax by the due date. Kerala High
Court has in case of Krishna Poduval {2006 (1) STR 185
(Ker)] held follows:

“11. The penalty imposable under S. 76 is for failure to
pay service tax by the person liable to pay the same in
accordance with the provisions of S. 68 and the Rules
made thereunder, whereas S. 78 relates to penalty for
suppression of the value of taxable service. Of course
these two offences may arise in the course of the same
transaction, or from the same act of the person concerned.
But we are of opinion that the incidents of imposition of
penalty are distinct and separate and even if the offences
are committed in the course of same transaction or arises
out of the same act, the penalty is imposable for
ingredients of both the offences. There can be a situation
where even without suppressing value of taxable service,
the person liable to pay service tax fails to pay. Therefore,
penalty can certainly be imposed on erring persons under
both the above Sections, especially since the ingredients of
the two offences are distinct and separate. Perhaps
invoking powers under S. 80 of the Finance Act, the
appropriate authority could have decided not to impose
penalty on the assessee if the assessee proved that there 42 ST/88532/2014 was reasonable cause for the said failure in respect of one
or both of the offences. However, no circumstances are
either pleaded or proved for invocation of the said Section
also. In any event we are not satisfied that an assessee
who is guilty of suppression deserves such sympathy. As
such, we are of opinion that the learned Single Judge was
not correct in directing the 1st appellant to modify the
demand withdrawing penalty under S. 76. Therefore, the
judgment of the learned Single Judge, to the extent it
directs the first appellant to modify Ext. P1 by withdrawing
penalty levied under S. 76, is liable to be set aside and we
do so. The cumulative result of the above findings would
be that the Writ Petitions are liable to be dismissed and we
do so. However, we do not make any order as to costs.”

Same view was again expressed by Kerala High Court in
case of Lawson Travel and Tours (I)(P) Ltd [2015 (37) ELT
183 (Ker)] as follows:

“5. What we notice is, the liability to pay Service Tax is in
accordance with the Finance Act, 1994, as the taxable
services involved in the matter was for the period from
April, 2000 to March, 2004. The decision of this High Court
referred above in Krishna Poduval’s case (supra) was also
prior to Finance Act, 2008, which made a remarkable
distinction between Sections 76 and 78 of Service Tax Act.
As the period in question relates prior to Finance Act,
2008, the assessing authority and later the Tribunal were
justified in placing reliance on Krishna Poduval’s case
(supra) by the High Court of Kerala.

6. We find no good reason to opine that both Sections 76
and 78 are not applicable to the case of the appellant. On
the other hand, we find, at the relevant point of time prior
to Finance Act, 2008, penalty could be imposed under both
the provisions and it is for appellant/assessee to convince
authorities concerned by evidence that they are not liable
to pay Service Tax and that there is justification in the 43 ST/88532/2014 defence raised by them regarding refund of the amounts.
Accordingly, the appeal is dismissed.”

Tribunal has in case of Checkmate Industries Services
[2016 (44) STR 290 (T-Mum)]] held as follows:

“5.4With regard to penalties imposed on the appellant,
penalty under Section 76 is imposed for default in payment
of tax and, no mensrea is required to be proved for
imposing such penalty. For mere default and delay in
payment of tax, the liability to penalty arises. The Hon’ble
High Court of Kerala in the case of Asst. Commissioner of
Central Excise v. Krishna Poduval – 2006 (1) S.T.R. 185
(Ker.) has held that penalty under Section 76 of the
Finance Act, 1994 can be imposed for mere default/delay
in payment of Service Tax in addition to the penalty under
Section 78 and these penalties are mutually exclusive and
even if offences are committed in the course of same
transaction or arise out of same act, penalty is imposable
for ingredients of both offences.”
6.1 In view of the discussions as above we do not find
any merits in the appeal filed by the appellants and
dismiss the same.
(Order pronounced in the open court on 28.08.2019) (S.K. Mohanty) Member (Judicial) (Sanjiv Srivastava) Member (Technical) tvu

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