Levy of Service tax held valid, HC

Facts in Brief:

1. The appellant came in appeal against order-in-appeal dated 29-3-2004 which held that M/s. ICI India Ltd. had acted as a clearing and forwarding agent of the appellant and service tax paid by the appellant was as a person who engaged M/s. ICI (India) Ltd. as their clearing and forwarding agent and such payment was legal and correct for which no refund of tax so paid arose. While doing so, the impugned order upheld order of Adjudication dated 10-6-2003 which rejected refund claim of Rs. 64,94,422/- of this Appellant.

HC held as under,

2. In the facts of the present case it is clear that the appellants are neither clearing any goods nor forwarding any goods. Products of the principal are supplied to the appellant on consignment basis and the appellant sells the products to the customers. Such an activity would not come within the service provided to a client by clearing and forwarding agent in relation to clearing and forwarding operation. Merely because the appellant had once got registered as a clearing and forwarding agent for the purpose of Service Tax under a misunderstanding of the correct legal position they cannot be compelled to continue such registration if they under law are not liable. In the light of the above, we set aside the order impugned and allow the appeal.

3. Larger Bench of the Tribunal in the case of Larsen & Toubro Ltd. v. Commr. of C.E., Chennai 2006 (3) S.T.R. 321 (Tri.- LB) held that service connected with clearing and forwarding operation shall only bring a service into net of tax. The Tribunal in para 9.1 of the decision held as under:

From the above definition of "clearing and forwarding agent", it is borne out that the service should be connected with clearing and forwarding operations. The 'clearing and forwarding' operations would be various activities having bearing on clearance of goods which would involve documentary processes and arrangements for transfer of goods to their destination, which process may also involve clearance at subsequent stages during forwarding operations. The procurer of orders on commission basis renders services, which are not connected with such clearing and forwarding operations which have bearing on the movement of goods.

4. In para 9.3 of the order, the Tribunal has also discussed the various types of activities whether shall come within the fold of clearing and forwarding agent. It was finally held in para 11 that merely procuring or booking orders for the principal by a agent on payment of commission basis would not amount to providing of services as clearing and forwarding agent within the meaning of 65 (25) of Finance Act, 1994.

5. On the basis of the agreement between the appellant and the ICI India Ltd., and that was relied by both sides, it may be held that there was a relation between the parties as principal and agent following definition of agent given by Section 182 of Indian Contract Act, 1872 which reads as under:

"Agent" and "principal" defined - An "agent" is a person employed to do any act for another or to represent another in dealing with third person. The person for whom such act is done, or who is so represented, is called the "principal.

6. It may also be stated that so far as validation of the action taken on the law declared invalid was subject matter in the case of Prism Cement Ltd. v. Commr, of Central Excise, Raipur before the Delhi Bench of the Tribunal and by Order Nos. 729-31/2005-S.T. dated 4-7-2005 reported in 2006 (2) S.T.R. 145 (Tri.-Del.). The Tribunal held that during pendency of refund claim if a revalidation Act validates an invalid law, action taken under the Validation Act is unassilable. In para 3 of the order, the Tribunal held as under:

7. The appellant filed a refund claim of service tax paid in relation to the goods transport operators and clearing and forwarding agents in pursuance to the decision of the Hon'ble Supreme Court in the case of Laghu Udyog Bharti v. Union of India reported at. During the pendency of the refund claim, the provisions of the law were revalidated retrospectively by Section 117 of Finance Act, 2000.

8. In view of the revalidation Act, the levy of service tax, during the relevant period, is a valid levy. The Commissioner (Appeals) followed the decision of the Tribunal in the case of Hindalco Industries Ltd. and Anr. v. C.C.E. reported in 2003 (58) R.L.T. 578. In view of the above decisions, we find no infirmity in the impugned order, the appeals are dismissed. 

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