When would C & F agents be liable under Service Tax #indianlaws

In order to qualify as a C&F Agent, a person is to be engaged in providing any service connected with ‘clearing and forwarding operations’. 

Assessees in the instant appeals were providing certain services as Agents under the contracts signed with their respective Principals. The issue that arose for determination was as to whether such services provided by them would label them as Clearing & Forwarding Agents (‘C&F Agents’) and thus making them liable to service tax in accordance with the Finance Act, 1994 (‘Act’). 

Appellant – Assessee under the agency agreement was required to undertake following activities on behalf of the principal:
(i) following up the allotment of coal rakes by the Railways;

(ii) expediting and supervising the loading and labeling of rail wagons;

(iii) drawing the samples of coal loaded on the wagons;

(iv) complying with the formalities relating to payments for freight to the Railways; and

(v) dispatching of rail receipts to Principal.

It was observed that 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. 

Normally a C&F Agent undertakes the following activities:

(i)    receiving the goods from the factories or premises of the principal or his agents;
(ii)    warehousing these goods; 
(iii)    receiving despatch orders from the principal;
(iv)    arranging despatch of goods as per the directions of the principal by engaging transport on his own or through the authorized transporters of the principal;
(v)    maintaining records of the receipt and despatch of goods and the stock available at the warehouse; and
(vi)    preparing invoices on behalf of the principal.

In order to qualify as a C&F Agent, such a person is to be engaged in providing any service connected with ‘clearing and forwarding operations’. Once it is found that such a person is providing the services which are connected with the clearing and forwarding operations, then whether such services are provided directly or indirectly would be of no significance and such a person would be covered by the definition. As clear from the plain meaning of the aforesaid expression, it would cover those activities which pertain to clearing of the goods and thereafter forwarding those goods to a particular destination, at the instance and on the directions of the principal.

In the context of present appeals, it would essentially include getting the coal cleared as an agent on behalf of the principal from the supplier of the coal (which would mean collieries in the present case) and thereafter dispatching/ forwarding the said coal to different destinations as per the instructions of the principal. In the process, it may include warehousing of the goods so cleared, receiving dispatch orders from the principal, arranging dispatch of the goods as per the instructions of the principal by engaging transport on his own or through the transporters of the principal, maintaining records of the receipt and dispatch of the goods and the stock available on the warehouses and preparing invoices on behalf of the principal.

On the facts of the present case, it was held that none of the aforesaid activities were performed by the Appellant-Assessee. There was no role of the appellant in getting the coal cleared from the collieries/supplier of the coal. Movement of the coal was under the contract of sale between the coal company and principal. Even the coal was loaded on to the railway wagons by the coal company. The goods were not under any legal detention from which they need to be freed by the Appellant. Even the destination of the goods was known to the coal company and the railway rakes were placed by the coal company for the said destinations. The destination was the factories of the principal itself, where the coal was to be delivered by the coal company as per pre-determined/agreed covenants between them.

There was no occasion for Principal to instruct the appellant to dispatch/forward the goods to a particular destination already fixed as per the contract between the coal company and the Principal. The appellant was not even undertaking any loading operation. The primary job of the appellant, as per the contract between was of supervising and liaisoning with the coal company as well as the Railways to see that the material required by Principal was loaded as per the schedule. 

The services rendered by the appellant thus held to be not qualifying as C&F Agent within the meaning of Section 65(25) of the Act.

[M/s. Coal Handlers Private Limited vs. CCE, Kolkata – I]
(SC – 05.05.2015 – Civil Appeal No. 7215 of 2004)