C&F Agent – Clearing Agent – Commission Agent – Confusion Agent? Back to Square One with Karnataka High Court's latest judgement
IS a person acting as a consignment agent on Commission basis covered under the taxable service of C&F Agent? If you think the issue is no more res integra as they say, you are mistaken.
In MAHAVIR GENERICS Vs CCE, BANGALORE - 2004-TIOL-344-CESTAT- DEL the CESTAT Bench headed by the President Justice Usha (who wrote the order for the Bench) held - appellant was not acting as a clearing and forwarding agent. Unless its service can be treated as one to a client by a clearing and forwarding agent in relation to clearing and forwarding operations in any manner, the service cannot be taxed even if the consignment agent is brought under the definition of clearing and forwarding agent.
This was approved by the Punjab & Haryana High Court which noted that the Mahavir case has attained finality as the Revenue has not appealed against the order. But this was factually not correct – the Mahavir case was appealed against and pending in the Karnataka High Court while the Counsel appearing in the High Court was not aware of this fact.
The Karnataka High Court recently disposed of this appeal and a copy of the order was available only yesterday and we bring you the judgement today.
A brief History:
1. Prabhat Zarda - - Dated 19-2-2002. The Tribunal held that procuring orders and passing them on to the principal for execution in lieu of commission is within scope of services of the agent even if goods are not directly dealt by them.
2. LARSEN & TOUBRO LTD. LB - dated June 22, 2006. The Larger Bench of the Tribunal overruled the above Prabhat Zarda case and held, “ Clearing and forwarding activities do not flow directly or indirectly from mere procurement of orders - Activity of procuring orders treated separately by Parliament under Business Auxiliary Service and independent of clearing and forwarding operations - Decision in Prabhat Zarda case overruled .”
3. UNITED PLASTOMERS - - Date of decision: 20.06.2005; The Punjab and Haryana High Court upheld the above LB decision and observed, “ We have also been informed by Sh. Sanjiv Kaushik, Advocate counsel for the appellant that in view of Board's clarification and the various judicial pronouncements, the order of Larger Bench of the Tribunal Delhi in the case of Larsen & Toubro Ltd has been accepted by the revenue”.
4. MEDPRO PHARMA PVT. LTD LB - - - Date of decision: June 23, 2006: This was more of a musical decision than a tax decision as the Hon'ble Member who wrote the decision was a music commentator and he observed, “Isolated activity of freight forwarding is also covered under ‘C & F Operations' and is taxable - Freight forwarders known as clearing agent, shipping agent, etc. - C & F Operations cannot be dissected into ‘clearing' and ‘forwarding' - Both fall under common category and any service provided in that category will attract service tax - Question answered in favour of Revenue - Sections 65(23) [now Section 65(25)] and 65(105)(j) of Finance Act, 1994. 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 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!
5. KULCIP MEDICINES (P) LTD. - – Dated : February 24, 2009 over ruled the above decision as the High Court was not able to understand any orchestra in the activities of a C&F Agent! The High Court observed, “Moreover we are not able to persuade ourselves to accept the view taken by the Larger Bench of the Tribunal in the case of Medpro Pharma Pvt. Ltd which has been fascinated by musical notes of symphony”. In this case the view taken by the Tribunal in Mahavir case has been approved.
The Anti Climax:
All the above cases have been referred and relied upon in several cases and we had two judgements of course of the same High Court against the Revenue. During all this time not many knew that the matter was still pending in the Karnataka High Court.
And the Karnataka High Court in its recent judgement has almost upheld the orchestra and music in the MEDPRO PHARMA case. The High Court observed, “ 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. ”
Now what happens? We have an order from P&H High Court approving the decision of the CESTAT in the Mahavir case and we have an order from the Karnataka High Court setting aside the Mahavir decision. So Mahavir decision does not exist, but then what happens to the P&H High Court decision? Does it become per incuriam ? Or is it applicable in Punjab and Haryana and Mahavir decision of Karnataka High Court applicable in Karnataka? And for the rest of the country, Commissioners and tribunals are free to choose any decision? Strange are the ways of litigation!
We bring you this landmark decision of the Karnataka High Court today, yet another first from TIOL. – Please see Breaking News