TMI Blog2019 (8) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeds 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 there are no 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 - demand of service tax upheld. Extended period of limitation - HELD THAT:- Tribunal has in case of Telera Logistics Pvt Ltd [2013 (12) TMI 1021 - CESTAT MUMBAI] 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. Thus, the appeal filed should fail both on merits and limitation. Demand of Interest - HELD THAT:- Since the demand of tax has been upheld the demand for interest will follow - It is now settled law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. I impose penalty of ₹ 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 ₹ 1000/- under Sec 77 of the Act. I impose penalty of ₹ 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 ₹ 14,86,779/- (Rupees Fourteen lakhs eighty six thousand seven hundred and seventy nine only) leviable on the consideration/ commission/ remuneration amounting to ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipals 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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:- Kulcip Medicines [2009 (14) STR 608 (P H)] {2012 (25) STR J127 (SC)] Shreenath Roadways [2018 (16) GSTL 239 (Raj)] Novacare Drug Specialities Pvt Ltd [2014 (34) STR 247 (T-Mum)] Narottam Company [2014 (33) STR 472 (TDel)] 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding 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, conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 PA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 No Activity Clause of Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 regarde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 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 Princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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 payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irements 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee if the assessee proved that there 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 dec ..... 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