c&f agents works

CLEARING AND FORWARDING AGENT'S SERVICES Clearing and forwarding agent's services were brought under the Service Tax net by the Finance Act, 1997, w.e.f. 16-7-1997 vide Notification No. 26/97, dated 11-7-1997. The service shall be taxed, if provided by a clearing and forwarding agent to clients. Initially, the burden of collecting or payment of service tax was on the person who engages a clearing and forwarding agent and by whom remuneration or commission is paid to the said agent. That means, the burden of payment of service tax was on the user of such services. The Supreme Court in the Laghu Udyog Bharti case held the levy of service tax on the user of service is illegal and unsustainable in law. In view of the said judgment, method of payment of service tax by an alternate person other than the person providing the taxable services in respect of clearing and forwarding agent was done away with w.e.f. 1-9-1999 and the 'clearing and forwarding agent' himself was made liable to pay service tax. The Finance Act, 2000 had made retrospective amendment to overcome the implication of Laghu Udyog Bharti case and in continuance of the earlier amendment, again retrospective amendment has been made by the Finance Act, 2003, w.e.f. 14-5-2003, which have been discussed at the end of this Chapter. Rate of Service Tax: The rate of service tax is specified in section 66 of the Act. The Finance (No. 2) Act, 2004 has substituted the charging section 66, and the rate of service tax is enhanced from 8% to 10% ad valorem. The increase in tax rate has come into force from the date of enactment of the Finance (No. 2) Act, 2004 i.e. 10-9-2004. Further, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has also levied an education cess @ 2 % of the service tax. The cess paid on inputs services shall be available as credit for payment of cess on output services. For further discussion in this regard, refer to Chapter -'Payment of Service Tax'. Clearing and forwarding agent's service

The clearing and forwarding agents are engaged/ appointed by manufacturer of goods (both excisable and non-excisable goods), producer and distributors of goods and shall also include such agents appointed for agricultural and mineral goods. Normally, there is a contract between the principal and clearing and forwarding agent detailing the terms and conditions and also indicating the commission or remuneration to which the clearing and forwarding agent is entitled. Generally, a C & F Agent receives goods from the factories or premises of the Principal or his agents and stores these goods, despatches 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 carries out all activities in respect of goods right from stage of their clearances from the premises of the principal to its storage and delivery to the customers.

The definition of clearing and forwarding agent has been given under clause (25) of section 65. It provides that:

"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".

Therefore, a service will fall under the clearing and forwarding agent service, if it

includes � a person; � engaged in providing any service connected with the clearing and forwarding

operations; and � includes a consignment agent.

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(1) Meaning of 'person'

The term 'person' has not been defined in the context of service tax. But, the term 'person' has been defined as "person shall include any company or association or body of individual, whether incorporated or not" [Clause (42) of section 3 of General Clauses Act, 1897].

Therefore, even though, in general, person is understood as only natural person (i.e. human being) but in the context of service tax, it includes both natural and artificial and juristic person also. Thus, partnership firm, company, corporation, societies, government enterprises, Hindu undivided family (HUF), etc. will also fall under the definition of person. Therefore, a clearing and forwarding agent may be artificial or juristic person or may be a natural person.

(2) 'consignment agent'

The term 'consignment' means 'the act of consigning: the things consigned: a set of things consigned together' (reference the Chambers English Dictionary). A 'consignment agent' is also included in the definition of 'clearing and forwarding agent' but it has not been defined in the context of service tax. Therefore, it should be understood in its commonly understood meaning and scope. In common commercial practice, the principal send the goods to the consignment agent known as consignee for the purpose of sale and distribution. The consignee is entitled for agreed commission/ remuneration for his services. The Government in para 2.1.2 of the Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure I in Chapter on 'business auxiliary services') has clarified that nature of service provided by a consignment agent is different than that provided by a commission agent. A consignment agent's job is to receive the goods from the principal and despatch them on the directions of the principal, whereas a commission agent's job is to cause sale/purchase on behalf of another person. It is clarified that exemption to commission agent from the whole of service tax under Notification No. 13/2003, dated 20-6-2003 (appended as Annexure 11 in Chapter on 'business auxiliary services') is not available to consignment agent, which remain taxable under the category of 'clearing and forwarding services'.

(3) 'clearing and forwarding operations'

A clearing and forwarding agent normally undertakes the following activities: (a) Receiving the goods from the factories or premises of the principal or

his agents; (b) Warehousing these goods; (c) Receiving despatch orders from the principal; (d) Arranging despatch 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 despatch of goods and the stock available at the warehouse;

(f) Preparing invoices on behalf of the principal.

Therefore, aforesaid activities fall under the scope of clearing and forwarding operations.

The use of expression 'any' and 'indirectly' in the said definition of clearing and forwarding agent is indicative of the fact that the scope of the services to be provided by clearing and forwarding agent is quite wide. He is not only the



person who is actually dealing with the goods which has to be termed as clearing and forwarding agent. Even if the services are indirect, but the same are connected with the clearing and forwarding operation in any manner of the other persons, he would be covered by the definition of clearing and forwarding agent. In the instant case a person was procuring orders from the dealer and passing on the same to the principal from whom he was receiving the commission in lieu of services so provided, it was held that the said services are definitely connected with the clearing and forwarding operations and it was not necessary that the said agent must deal with the goods directly. [Prabliat Zarda Factory (India) Limited v CCE, Patna 2002 (145) ELT 222 (Tribunal Kolkata). It appears that aforesaid decision of the Tribunal is not in consonance of the other judgment of the Supreme Court about the interpretation of the taxing statute. The Supreme Court has held that meaning of a word is to be judged by its accompanying words [Rohit Pulp and Paper Mills Li7nited v Collector of Central Excise 1990 (47) ELT 491 (SQ. In the instant case, the Tribunal has arrived on the conclusion that where even commission is earned for procuring the order without the goods being stored, received or dealt with, it will amount to clearing and forwarding operation. The said judgment is also contrary to the Circular No. 37B, Order No. 2/1/2002-ST, dated 24-4-2002 (appended as Annexure 11) and discussed elsewhere, in which it was clarified that agencies providing service of storage facility and charging rent for storage of liquid cargo in tanks cannot be considered to be in the nature of 'clearing and forwarding' services. With introduction of new taxable service viz. business auxiliary service, the service of commission agent was also included in this category of taxable service but that has been exempted from service tax and after the Government clarification in this regard as discussed earlier in this Chapter, therefore, it is now clear that merely service of commission agent will not be covered in the category of 'clearing and forwarding services', therefore, aforesaid Tribunal judgment will not be relevant.

(4) Functions of C & F agent and Consignment agent

Whereas a C & F agent's functions are to perform all the functions of 'clearing and forwarding operations (as discussed earlier) but a consignment agent does not necessarily undertake all the above activities. A consignment agent receives the goods from the principal and stores them on behalf of the principal and in case sale is made by the principal directly then dispatches the goods to the customers on the direction of the principal. But, normally consignment agent undertakes to sell the goods on behalf of the principal and even realizes the payments from the customers and acts as del-credere agent and also takes his separate registration under Sales Tax and Central Excise in his own name. Therefore, -only those consignment agents are covered under C & F agent services who perform the functions in relation to 'clearing and forwarding operations', in other words receive the goods from the principal and dispatch them on the direction of the principal - reference Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure I on the Chapter 'business auxiliary services'). But, consignment agent undertakes the activities to sell the goods of the principal, hence searches the buyer a ' t his own and dispatches the goods stored by him on behalf of principal at his own discretion (not at the direction 'of the principal), raises bills/challan, keeps records for stock and sale made by him, realizes the payment from the-customers and remits to the principal and acts as del-credere agent. There is no doubt to say that where consignment agent's function is to sell the goods on behalf of principal and realize the payment from the customers and remit to the principal, such functions cannot be regarded as service I n relation to 'clearing and forwarding operation', hence no service tax is applicable on sale of goods by consignment agent under the category of 'clearing and forwarding service'.



As per the decision of Customs, Excise and Service Tax Appellate Tribunal, [Mahavir Generics v CCE, Bangalore 2004 (170) ELT 781 under the service-tax, tax liability is attached to a taxable service, therefore, even if consignment agent is brought - und ' er the definition of clearing and forwarding agent, unless consignment agent is providing a taxable service he cannot be brought under the net of service tax. In the said case (relate0to an agreement dated 1-1-1997 with M/s Cipla Limited), CESTAT held that 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.

Taxable service

The definition of taxable service provided by a clearing and forwarding agent has been given under sub-clause (j) of clause (105) of section 65. That is:

any service provided "to a client, by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner". (1) Whether facilities of giving storage tan ks on rent are taxable services?

The Director of Service Tax, Mumbai in Circular F. No. V/DGST/21(9)/ C&F/2/99/10683, dated 6-6-2000 (appended as Annexure 1) has clarified that where a company owns storage tanks in different parts of India for storing liquid/ chemicals and rents out to customers, these tanks are connected with pipelines, valves, pumps, etc. for the purpose of loading/ unloading the cargo, the activity shall be taxable service as C&F agent.

The Board in its Circular No. 37-13, Order No. 2/1/2002-ST, dated 24-4-2002 (appended as Annexure 11) has clarified that where certain agencies are providing service of storage facility and charging rent for storage of liquid cargo in tanks, services rendered by such agencies cannot be considered to be in the nature of 'clearing and forwarding' services as these agencies are providing only storage facilities and charge rent for that and no other services are provided. Whereas, C & F agents carry out all activities in respect of goods right from stage of their clearances from the premises of the principal to its storage and delivery to the customers. In view of the aforesaid Circular, the Tribunal disposed of the case Gujarat State Fertilizers & Chemicals Limited v CCE&C, Rajkot 2002 (148) ELT 1122 (Tribunal-Mumbai) holding that providing storage facilities for liquid and charging rent for the same cannot be considered as 'clearing and forwarding' services.

The reader may note that, now, storage and warehousing services for goods including liquids and gases has been brought under the service tax net separately w.e.f. 16-8-2002, for detailed discussion refer to Chapter' Storage and Warehousing Services' of this book.

(2) Whether ICDs/CFS dealing with import/export cargo a s C&F agents are

covered under taxable service?

No, in a point raised before the Government - whether the service tax is leviable on ICDs/CFS dealing with import/export of cargo as C&F agents, the



Government in its Circular No. 39/2/2002, dated 20-2-2002 (appended as Annexure III) has clarified that ICDs/CFS cannot be considered as C&F agents on the following grounds:

(i) There is no agreement or contract between Service Provider

(ICD/CFS) and Service Receiver (importer/ exporter); (ii) ICDs/CFS are functioning under authority of Government of India and

not for any principal or owner (importer/ exporter).

Thus, service tax is not leviable on ICDs/CFS dealing with import/export of cargo as C&F agents.

Liable to pay service tax

Service tax is liable to be paid, in relation to clearing and forwarding operations, by a clearing and forwarding agent, which has already been defined at the outset of this Chapter.

(1) Whether 'Food Grain Commission Agents' w ould be liable to pay tax?

in a point raised before the Government - Whether Food Grain Commission Agents (sometimes referred as 'Adhat Vyaparies' or 'Adhatiyas') are liable to pay service tax under the category of Clearing and Forwarding Agents (C&F Agents), the Government in its Circular No. 48/10/2002-ST [F. No. 159/5/2002-CX4], dated 13-9-2002 (appended as Annexure IX) has clarified that where agents actually purchase the grain outright from the farmer and after carrying out processing, sold to retailers, in this case, he does not function as an agent of the farmer. He is therefore not a C&F Agent and not liable to pay tax. As per aforesaid clarification, where such Agents sell the grain on the terms dictated by the farmer but collects Commission from the buyer of the food grain not from the farmer, in such case, he cannot be regarded as C&F Agent of tile farmer, hence not liable to pay tax on such commission, because he is not charging commission from the principal (i.e. farmer). It is also clarified that where such Agents illegally charge the commission from the farmer, it cannot be basis for considering them C&F Agent of the farmer. However, where such Agents legally charge the commission from the farmers, he shall be considered as C&F Agent for the farmer and accordingly shall be liable to pay tax oil such commission as C&F Agent. The Government in its Circular No. 73/3/2004-ST, dated 5th January, 2004 (appended as Annexure X) has clarified that the clarification issued under Circular No. 48/10/2002-ST, dated 13-9-2002 is not with reference to any State or class of Adhatiya, in fact reference to Rajasthan and section 75 of the Rajasthan Agricultural Marketing Products Act, 1954 is only to explain the situation. The reader may note that by the Finance Act, 2063, w.e.f. 1-7-2003, 'Business Auxiliary Services' have been brought under the service tax net, which includes 'services as a commission agent', the activities of grain agent is covered under the 'commission agent' service, which have been discussed in detail in the 'Business Auxiliary Services'.

(2) Whether coal merchants liable to pay ser vice tax?

In a point raised before the Government whether Coal merchants are liable to tax as clearing and forwarding (C & F) agents, whereas the Coal merchants primarily act as buyer's agents and carry out such jobs/assignment as asked for by the respective consumers/ buyers, the C.B.E. & C. in its letter F. No. 159/1/ 2003-CX.4, dated 10-12-2003 (appended as Annexure XI) has clarified that "functions of Coal Merchants are fully covered and accordingly their services are liable to Service Tax under the category of Clearing and Forwarding Agents. Also in this case it is immaterial as to whether they are



working as agents of buyers or sellers, in terms of definition of Clearing and Forwarding Agents as referred."

(3) Legislative history - the person liable to pay service tax

The levy of service tax on 'clearing and forwarding agent' in relation to clearing and forwarding operation was initially imposed by the Finance Act, 1997 w.e.f. 16-7-1997.

As per sub-clause (xii), clause (d) of sub-rule (1) of rule 2 of Service Tax Rules, 1994, the person responsible for collecting the service tax was:

" in relation to services provided by a clearing and forwarding agent, every person who engages a clearing and forwarding agent and by whom remuneration (by Whatever name called) is paid for such services to the said agent".

The levy of service tax, in this category of service, was, not on the person rendering the service, but the person who engages a 'clearing and forwarding agent' and by whom remuneration or commission is paid for such services to the said agent. In other words, burden of payment of service tax was transferred to the user of such services instead of the person who renders such services. The point was also clarified in the Circular F. No. B. 43/7/97-TRU, dated 11-7-1997 (appended as Annexure IV).

The levy of service tax by the user of services, in respect of the services provided by 'clearing and forwarding agent' was continued, however, sub-clause (xii) that provided the levy of services by the user of such services was substituted with new sub-clause (iii) by the Service Tax (Amendment) Rules, 1998 w.e.f. 16-10-1998.

The levy of service tax on goods transport operator's services and 'clearing and forwarding agent's services' was quashed by the Supreme Court in the case of Laghu Udilog Bharti & Ann v Union of India & Others 112 ELT 365 (SC): 1999 (84) ECR 53 (SC), on the ground that the levy of service tax is not on the person rendering the service, but on the person to whom or for whom, the service was rendered was clearly, illegal and unsustainable in law. The Supreme Court, however, did not hold that the levy of service tax was illegal on the aforesaid services, the court only struck down those provisions in which- the burden of tax was shifted from service provider to the user of service.

The Honourable Supreme Court held that, sub-clause (xii) of clause. (d) of sub-rule (1) of rule 2 of Service Tax Rules, 1994, in so far as it makes person, other than the clearing and forwarding agent (i.e. user of the services), responsible for collecting and payment of service tax, are ultra vires to the Finance Act, 1994 itself and illegal hence, order for the refund of the service tax to the assessee concerned. To provide the information/ guidelines for the convenience of the assessees concerned for getting the refunds in such case Madurai Commissionerate issued a Trade Notice No. 93/99, dated 10-9-1999 (appended as Annexure V).

In view of the aforesaid judgment of the Supreme Court. (Laghu Udyog Bharti case) such substituted sub-clause (iii) was omitted w.e.f. 1-9-1999 by the Service Tax (Second Amendment) Rules, 1999, w.e.f. 1-9-19991. Thus, method of payment of service tax by an alternate person other than the person providing the taxable services in respect of 'clearing and forwarding agent' was done away and w.e.f. 1-9-1999 the 'clearing and forwarding agent' himself was made liable to pay service tax. The point was also clarified in the



Circular No. MF (DR) TRU F. No. 341/11/98, dated 23-8-1999 (appended as Annexure VI). Consequently, w.e.f. 1-9-1999 provision relating to registration, furnishing of return and assessment as in existence will apply to C&F agent vide Trade Notice No. 85/99, dated 27-8-1999 issued by Madurai Commissionerate (appended as Annexure VII).

Clearing and forwarding agent services are liable t o be charged to tax

Clearing and forwarding agent services are liable to be charged to service tax when provided to

� a client or' any person'; � in any manner or 'directly or indirectly'; � in relation to clearing and forwarding operations.

(1) Who is client?

Services are liable to be charged to tax only when it is provided to a 'client'. The word 'client' as per the dictionary meaning means "a person who employs a lawyer or professional adviser; a customer" (reference the Chambers English Dictionary) or "a person using the services of a professional person; customer" (reference the Oxford Mini Dictionary).

Therefore, the 'client' is necessarily an external person who hires or uses the services of another person for consideration. Service tax will attract only if services are rendered to a client, not to the other department within the same concern. In other words, services must be provided to the separate entity or external person. When services are provided to the charitable institution for which no fee is charged it is not a client. Therefore, there is no question of service tax unless services are provided to a client on payment basis.

(2) Meaning of 'in any manner' or 'directly or indirectly'

Services are subject to tax when provided 'in any manner'. The words 'in ,any manner' also signify 'directly or indirectly'. In the present context, the expression 'in any manner' or 'directly or indirectly' are analogous terms. Sometimes, it may be possible that service provider may not alone be able to execute the work and take the help of other person or concern by employing them on sub-contract basis for the execution of work. In other words, services need not be rendered personally by the clearing and forwarding agent itself, they can render the service of clearing and forwarding agent by employing the services of other persons and concerns. In this case, even if service provider gets the part of the service done by employing the services of other person or concern, it will be treated that services are provided by the original service provider and tax would be charged on the entire services.

The value of taxable services for charging tax

The value of, taxable services in relation to clearing and forwarding operations provided by a clearing and forwarding agent to a client shall be the gross amount charged from the clients for such services. [Section 67]. In case of clearing and forwarding operation, there is contract for the appointment of such agent and the client who appoints such agent pays remuneration/ commission as per the agreement. Therefore, in the case of this service, to clarify the concept of value of taxable service, it has been provided in the rules that:

Value of taxable service in relation to clearing and forwarding' operation, "shall be deemed to be the gross amount of remuneration or commission (by whatever name called) paid to such agent by the client engaging such agent " [sub-rule (8) of Rule 6].



Explanation I has also been added to section 67, which provides that, for the removal of doubt, in respect of only certain specific services, it is declared that certain amount shall be the part of value of taxable services and certain amount shall not be the part of the value of taxable services, but nothing has been specified in respect of clearing and forwarding agent's services. Further, it was held in EY. Mathai & Co. v CCE, Cochin (2003) 157 ELT 101 (Tribunal-Banglore) that where C & F agent has entered into separate contract for services rendered as C&F agents and that in respect of transportation charges and separate bills are being raised then in such a case service tax would be leviable only on remuneration for services provided as C&F agents and not on transportation charges. In this case, assessee was functioning as C & F agent for M/s Tata Tea Limited and M/s Consolidated Coffee Limited under a contract and separate contract was entered into for transportation also. Separate bill is being raised in respect of administration charges, telephone, stationery, postage and courier, month wise and assessee was charging service tax on such bills. In this case, issue to be decided is whether the transportation charges will form part of the value of taxable service for the purpose of service tax on C & F agents. In this case it was held that assessee is entitled for refund of service tax paid on transportation charges, however matter is remanded to the adjudicating authority to decide the applicability of provisions of unjust enrichment in the refund claim.

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.

Therefore, in case of clearing and forwarding agent's services, the value of taxable services shall be the gross amount of remuneration or commission paid to such agent by the principal engaging such agent. In other words, 'gross amount' here indicate that no deduction shall be allowed in respect of any expenditure incurred by the C&F agent in rendering such services. The Government in its Circular F. No. B 43/1/97 - TRU, dated 6-6-1997 (refer to Custom House Agent 'CHA' services) has clarified, "payments made by CHA on behalf of the client, such as statutory levies (cess, customs duties, port dues, etc.) and various other reimbursable expenses incurred are not to be included for computing the service tax". Therefore, the same principle can be followed in case of this service also, thus, where the C&F agent on behalf of principal, pay statutory levies like octroi, tax, cess, etc. and reflected in the bill raised to the client shall not be the part of the value of the taxable services. However, in this respect, the assessee may require to provide documentary evidence to substantiate his claim.

Exempted Services

The Government has granted exemption from the whole of Service Tax in respect of all taxable services, for services provided to United Nations or an International Organisation. Similarly, the exemption, subject to certain conditions, has also been granted for taxable service provided to a developer or units of Special Economic Zone (SEZ). The Government, w.e.f. 20 November, 2003 has restored the exemption, as an interim measure, from the whole of service tax when payment is received in convertible foreign exchange for the taxable services rendered in India provided it was not repatriated from or sent outside India, such exemption was earlier withdrawn w.e.f. 1-3-2003. The reader may note that detailed discussion about



aforesaid exemptions along with relevant notifications have been given in the 'Exemption from whole of Service Tax - Some Cases'.

Retrospective amendments

A. [Amendment made by the Finance Act, 2000 and shall be deemed to have had effect between 16-7-1997 to 1-8-1998]

The Finance Act, 2000 had made retrospective amendments in the Finance Act, 1994 and re-imposed the service tax with retrospective effect (for the period from 16-7-1997 to 1-8-1998) on the 'goods transport operator's services' and 'clearing and forwarding agent's services' to overcome the implication and to rectify the defect pointed out by the Supreme Court judgment in the case of LagInt Udyog Bliarti & Ann v Union of India & Others 112 ELT 365 (SC): 1999 (84) ECR 53 (SC).

Section 116 of the Finance Act, 2000 sought to give retrospective effect from 16th July, 1997 to 1st August, 1998 to specified provisions of sections 65, 66 and 67 of the Finance Act, 1994 relating to the levy and collection of Service Tax on the services rendered by 'goods transport operators' and 'clearing and forwarding agents' from the users of such services.

Section 117 of the Finance Act, 2000 sought to give retrospective effect from 16th July, 1997 to sub-clauses (xii) and (xvii) of clause (d) of sub-rule (1) of rule 2, of the Service Tax Rules, 1994, so as to validate the levy and collection of service tax on services rendered by goods transport operators and clearing and forwarding agents from the users of such services. The section also seeks to deny refund of service tax to the users of such services consequent to judicial pronouncement (Laghu Udyog Bharti case) and for recovery of refunds already granted consequent thereto within 30 days from the date when the Finance Act, 2000 receives the assent of the President. In the event of non-payment of service tax so refunded by an assessee, the interest @ 24% p.a. would be charged after the said period of 30 days.

Amended provisions of Chapter V of Finance Act, 1994 [effective between 16-7-1997

to 1-8-1998]

Sub-section (6) of Section 65 - "assessee" means a person liable for collecting the service tax and includes

(i) his agent; or (ii) in relation to services provided by a clearing and forwarding agent, every

person who engages a clearing and forwarding agent and by whom remuneration or commission (by whatever name called) is paid for such services to the said agent; or

(iii) in relation to services provided by a goods transport operator, every person who pays or is 'liable to pay the freight either himself or through his agent for the transportation of goods by road in a goods carriage.

Sub-section (18A) of section 65 - "goods carriage" has the meaning assigned to it in clause (14) of section 2 of the Motor Vehicles Act, 1988.

Sub-section (18B) of section 65 - "goods transport operator" means any commercial concern engaged in the transportation of goods but does not include a courier agency.

Clause (Ma) of sub-section (48) of section 65 - to a customer, by a goods transport operator in relation to carriage of goods by road in a goods carriage.

Sub-section (3) of section 66 - On and from the 16th day of July, 1997, there shall be



levied a tax at the rate of five per cent of the value of taxable services referred to in clause (ma), sub-section (48) of section 65 and collected in such manner as may be prescribed.

Clause (ka) of section 67 - in relation to service provided by goods transport operator to a customer, shall be the gross amount charged by such operator for services in relation to carrying goods by road in a goods carriage and includes the freight charges but does not include any insurance charges.

Extract of section 117 of the Finance Act, 2000

"Validation of certain action taken under Service Tax Rules. Notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, sub-clauses (xii) and (xvii) of clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994 as they stood immediately before the commencement of the Service Tax (Amendment) Rules, 1998 shall be deemed to be valid and to have always been valid as if the said sub-clause has been in force at all material times and accordingly:

(i) 'any action taken or anything done or purported to have been taken or done

at any time during, the period commencing on and from the 16th day of July, 1997 and ending with the day, the Finance Act, 2000 receives the assent of the President shall-be deemed to be valid and always to have been valid for all purposes, as validly and effectively taken or done;

(ii) any service tax refunded in pursuance of any judgment, decree or order of

any court striking down sub-clauses (xii) and (xvii) of clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994 be pre the date on which the Finance Act, 2000 receives the assent of the President shall be recoverable within a period of thirty days from the date on which the Finance Act, 2000 receives the assent of the President and in the event of non-payment of such service tax refunded within this period, in addition to the amount of service tax recoverable, interest at the rate of twenty-four, percent per annum shall be payable, from the date immediately after the expiry of the said period of thirty days till the date of payment.

Explanation. -For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if this section had not come into force."

Amended rules of Service Tax Rules, 1994 [effective between 16-7-1997 to 1-8-1998]

Sub-clause (xii) of clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994

"in relation to services provided by a clearing and forwarding agent, every person who engages a clearing and forwarding agent and by whom remuneration or commission (by whatever name called) is paid for such services to the said agent".

Sub-clause (xvii) of clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994

"in relation to services provided by a goods transport operator, every person who pays or is liable to pay the freight either himself or through his agent for the transportation of goods by road in a goods carriage".

Implication of retrospective amendment of 2000 and Supreme Court ruling in the Laghu Udyog Bharati case on 'clearing and forwardin g agent's services'

As discussed above, when the levy of service tax on clearing and forwarding agent was imposed w.e.f 16-7-1997 the burden of collecting or payment of service tax was



on person who engaged a clearing and forwarding agent. Thus, method of payment of service tax by an alternate person other than the person providing the taxable services in respect of 'clearing and forwarding agent' was done away and w.e.f. 1-9-1999 the 'clearing and forwarding agent' himself was made liable to pay service tax.

As mentioned above, the levy of service tax on 'clearing and forwarding agent's services' was not exempted but w.e.f. 1-9-1999 'clearing and forwarding agent' himself, has been made liable to pay the service tax. But service tax on such service was illegal for the period between 16-7-1997 to 31-8-1999 due to Supreme Court ruling in the Laghu Udyog l3harti case, whereas to overcome the implication and to cure such defect pointed out by the Supreme Court in the said case, retrospective amendment has been made (as discussed above), but that is for the period from 16-7-1997 to 1-8-1998 only. Therefore, even after the retrospective amendment, the levy of service tax on the services rendered by the 'clearing and forwarding agent' shall be illegal, for the period between 2-81998 to 31-8-1999 as the practice of payment of service tax by an alternate person other than the person providing taxable services was done away in respect of 'clearing and forwarding agent' only w.e.f. 1-9-1999. If any person has claimed any refund for the period between 16-7-1997 to 1-8-1998, due to Supreme Court ruling in the Laghu Udhyog Bharti case that is required to be deposited with the Government due to the aforesaid retrospective amendment. Such amount shall be deposited within the 30 days from the date, when aforesaid amendments got the President's assent, after said period, interest @ 24% per annum shall be charged. To clarify the position for recovery of the refund due to aforesaid amendment, Cochin Commissionerate has issued a Trade Notice No. 70/2000, dated 31-5-2000 (appended as Annexure VIII).

It was held that where any action initiated earlier, which was dropped due to Laghu Udyog case, revision order under section 117 of the Finance Act, 2000 validating the action taken earlier did not amount to initiation of fresh assessment but was only revival of the show cause notice issued earlier, hence held to be valid [Apollo Tyres Limited v Commissioner of Central Excise, Vadodara 2002 (146) ELT 91 (Tribunal-Delhi)]. Similar views were held in the case of Rewa Gases Private Limited v Commissioner of Central Excise, Raipur 2002 (143) ELT 375 (Tribunal -Delhi).

In the case of Indian Transport Service v CCE, Jamshedpur (2003) 156 ELT 994 (Tri.-Kolkata), while referring to the case of similar matter decided by Division Bench of Delhi in the case of Rewa Gases Private Limited v CCE, Raipur (2002) 143 ELT 375 (Tribunal-Delhi), held that recovery of service tax under section 117 of the Finance Act, 2000, which is refunded to the user of goods transport operators/C&F agents service in pursuance of any judgment, decree or order of court within 30 days from date of enforcement of said Act and interest @ 24% p.a. payable for delay thereafter is very strict and no relief is available even in cases of financial constraints of assessee.

Further it was held that recovery of the amount of service tax after the retrospective amendment in the year 2000 was correct and Deputy Commissioner was competent to issue show cause notice under section 11A of the Central Excise Act, 1944 for recovery of service tax; notice after retrospective effect of the legislative provisions did not amount to review of the earlier order made and it was also held that the provision of Section 117 of the Finance Act 2000 will apply only where service tax has already been refunded and where the amount is still with the department when the notice was issued for denying the actual payment of the same to the appellants, the recovery of the service tax cannot be said to be hit by the provisions of section 117. [Mark Auto Industries Ltd. v CCE, New Delhi (2003) 161 ELT 473 (Tri.-Del)].

B. [Amendment made by the Finance Act, 2003 and shall have effect and be

deemed always to have had effect between 16-7-1997 to 16-10-1998]

The Government had made the retrospective amendment by the Finance Act, 2000



for this category of taxable services, which was effective for the period between 16-7-1997 to 1-8-1998. The retrospective amendment has again been made by the Finance Act, 2003, which is in continuance of the earlier amendment, this amendment shall be effective for the period between 16-7-1997 ta 16-10-1098. In fact the levy of service tax in the hands of recipient of taxable service was effective for the period between 16-7-1997 to 31-8-1999 and w.e.f. 1-9-1999 it was made applicable that service provider shall pay the service tax in this category of taxable service also. It could not be understood why again the period from 17-10-1998 to 31-8-1999 is left out from the retrospective amendment, whereas earlier the period between 2-8-1998 to 31-8-1999 was not covered in the retrospective amendment made in 2000. Therefore, even after the second retrospective amendment, the levy of Service Tax on this category of services shall be illegal for the period between 17-10-1998 to 31-8-1999 as the practice of payment of service tax by an alternate person other than the person providing taxable services was done away in respect of 'clearing and forwarding agent' only w.e.f. 1-9-1999.

Relevant Extract of section 158 of the Finance Act, 2003 for Modification of Act 32 of 1994.

Section 158: During the period commencing on and from the 16th day of July, 1997 and ending with the 16th day of October, 1998, the provisions of Chapter V of the Finance Act, as modified by section 116 of the Finance Act, 2000 (10 of 2000), shall have effect and be deemed always to have had effect subject to the following further modifications, namely:

(a) In section 68, in sub-section (1), the following proviso shall be inserted at the

end and shall be deemed to have been inserted on and from the 16th day of July, 1997, namely: "Provided that

(i) in relation to services provided by a clearing and forwarding agent, every

person who engages a clearing and forwarding agent and by whom remuneration or commission (by whatever name called) is paid for such services to the said agent for the period commencing on and from the 16th day of July, 1997 and ending with the 16th day of October, 1998; or

(ii) ……… shall be deemed always to have been a person liable to pay service tax, for such service provided to him, to the credit of the Central Government”

(b) after section 71, the following section shall be inserted and shall be deemed

to have been inserted on and from the 16th day of July, 1997, namely:

“71A. Filing of return by certain customers . -Notwithstanding anything contained in the provisions of sections 69 and 70, the provisions thereof shall not apply to a person referred to in the proviso to sub-section (1) of section 68 for the filing of return in respect of service tax for the respective period and service specified therein and such Person shall furnish return to the Central Excise office 'Within Sly, months from the day on which the Finance Bill, 2003 receives the assent of the President in the prescribed manner on the basis of the self assessment of the service tax and the provisions of section 71 shall apply accordingly.";

(c) in section 94, in sub-section (2) after clause (c), the following clause shall be

inserted and shall be deemed to have been inserted on and from the 16th day of July, 1997, namely: "(cc) the manner of furnishing return under section 71A;".

Implication of Retrospective amendment of 2003:



Validation of service tax collection on Clearing and Forwarding Services. Section 68 has been amended retrospectively and a new section 71A has been inserted in Finance Act, 1994 for the period beginning from 16th day of July, 1997 and ending with 16th day of October, 1998 to validate the collection of service tax from the service receiver in case of services provided by clearing and forwarding agents. It may be recalled that certain amendments were made in sections 65 and 66 -vide Finance Act, 2000. The amendments of 2003 are in continuation to the earlier amendments. Consequent to these amendments, the assessee (i.e. service receiver of C & F services) will file fresh return within six months from w.e.f. 14-5-2003 i.e. the date of enactment of the Finance Bill (Refer to section 71A as given above and inserted by the Finance Act, 2003) in the prescribed manner. The return shall be filed on the basis of the self assessment of the service tax and the provisions of section 71 shall apply accordingly.

In consequence of aforesaid amendment, w.e.f. 14-5-2003, the Service Tax Rules, 1994 have been amended (vide Notification No. 4/2003, dated 14-5-2003), so as to provide the facility of filing the refund as mentioned in Section 71 A. As per the amended Rules, a new Rule 7A has been inserted, which provides that return shall be furnished for the period 16-7-1997 to 16-10-1998 within six months from 13-5-2003, in 'Form ST-36 (given in Division IV, in the Chapter Service Tax Rules, 1994), in triplicate along with copy of 'Form TR-6'. In case, assessee fails to file return for the aforesaid period, the interest and penal consequence as provided in the Act shall follow. N.B. The readers may note that provisions, procedures and other related discussion related to registration, payment of service tax, filing of return, interest and penalty, assessment procedure, appeal, refund of tax, etc., which are same, as application in respect of other taxable services.

Annexure I

Service Tax - Clearing and Forwarding Agents - Cert ain clarification

[Directorate of Service Tax, Mumbai, F. No. V/DGST/ 21(9)/C&F/2/99/10683, dated 6-6-

2000] The office of the Commissioner of Central Excise, Service Tax Cell, Chennai-Commissionerate, has sought for a clarification, on the applicability of Service 'Tax, for the services rendered by a company/ assessee which are as' follows: "The company/ assessee owns storage tanks made of mild steel in different parts of India. These tanks are used for storing liquids/ chemicals for which customers pay rents based on the tanks capacity. In addition there are pipelines, valves, pumps, etc., connected with these tanks for the purpose of loading the cargo from the ship and unloading the same to the road tankers. The facilities of storage tanks are offered by the company/ assessee for the use of customers for varying periods and monthly rents are collected for the same. The company/ assessee gives pumps, pipelines and storage tanks on monthly rental basis". The matter has been considered by this Directorate, and I have been directed to clarify that the activities of M/s. IMC Ltd., Chennai, would fall within the definition of Clearing and Forwarding Agents, under section 65(12) of the Finance Act, 1994. You are requested to conduct a survey to ascertain if any such company/ establishment are in your Commissionerate and take action for registration of the same. Results of action taken may be intimated to this office.



Annexure II

Providing service of storage facility and charging rent for storage of liquid cargo in tanks - Whether liable t o service

tax as C & F Agents - Regarding

[C.B.E. & C. Circular No. 37B Order No. 2/1/2002-ST , dated 24-4-2002] In exercise of the powers conferred under section 37B of the Central Excise Act, 1994 (as made applicable to Service Tax by section 83 of the Finance Act, 1994), the Central Board of Excise & Customs considers it necessary, for the purposes of uniformity in connection with classification of services, to issue the following instructions. 2. Doubts have been raised as to whether service of storage facility and charging rent

for storage of liquid cargo in tanks, provided by certain agencies, can be considered as a service provided by 'clearing and forwarding agents' or not.

3. This matter was raised by four such agencies before the Mumbai High Court in Writ

Petition Nos. 170/2002, 171/2002, 2962/2001 & 2994/2001. The petitions were disposed of by Hon'ble Court with directions to the Central Board of Excise & Customs to pass appropriate speaking clarification and/or, orders after hearing the petitioners.

4. The agencies were accordingly heard in the matter on 19th March, 2002 and on 3rd April. 5. Views of DGST and concerned Commissioners of Central Excise have also been obtained. 6. It is observed that the above agencies are engaged in the activity of providing

storage (tanks) facility for liquid cargo which has been imported or is intended for export. They charge rent for storage of liquid cargo deposited with them.

7. It is observed that, as per section 65 of Finance Act, 1994. 'Clearing & 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 persons and includes a consignment agent". Further, 'taxable service' with respect to C & F Agents means, any service provided to a client by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner.

8. The issue is whether the activity/ service of providing storage facility and charging

rent, for storage of liquid cargo in tanks, can fall under the category of 'Clearing and Forwarding' operations as defined under section 65 of Finance Act, 1994.

9. The main point raised by the agencies is that they are not at all rendering any

clearing and forwarding services and hence they do not come under the category of clearing and forwarding agents. They simply issue Invoices/Bills to their customers towards storage charges only and for no other charges.

10. 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, despatches 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 agent receives 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 carries out all activities in respect of goods right from stage of their clearances from the premises of the principal to its



storage and delivery to the customers. 11. However, in the cases under consideration, the agencies are providing only storage

facility for liquid cargo which has been imported or is intended for export. They charge rent for storage of liquid cargo deposited with them. They are not connected with the vessel bringing the goods and are not concerned with customs formalities. They issue invoices to customers towards storage charges and for no other charges. These agencies are not receiving any commission from the principal but only rental for storage facility, whereas a C&F agent's remuneration is in the form of commission. The transactions between the parties are not transactions between principal and an agent but between principal and principal. These agencies are neither receiving any despatch orders from the owners of the goods, nor are they arranging for the despatch of goods as per their directions by engineering transport, as is done normally by C&F agents. They are also not carrying out any service directly or indirectly in connection with clearing and forwarding operations. Therefore, services rendered by such agencies, in relation to storage of cargo, cannot be considered to be in the nature of 'clearing and forwarding' and such agencies cannot be considered as "clearing and forwarding agents".

12. However, under the Finance Bill, 2002, "storage and warehousing services for goods

including liquids and gases" is proposed to be made liable to service tax. Section 65(87) of the proposed amended Finance Act, 1994, defines "storage and warehousing" to include storage and warehousing services for goods including liquids and gases but does not include any service provided for storage of agricultural produce or any services provided by cold storage. Therefore, as and when these provisions of the Finance Bill come into effect the above types of cases shall be liable to service tax under the head "storage and warehousing".

Annexure III

Service Tax - Clearing and Forwarding Agents - Clarification regarding

[C.B.E. & C.S.T. Circular No. 39/2/2002 [F. No. 137 /2/2002-CX-4], dated 20-2-2002]

It has been brought to the notice of the Board, that certain doubts have emerged, whether, Service Tax is leviable on ICDs/CFS dealing with import/ export cargo as "C&F agents". In this regard, the matter is clarified as under. 2. As defined under section 65(16) of the Finance Act, 1994 "C&F agent" means any

person who is engaged in providing any service, either directly or indirectly, connected with the clearing & forwarding operations in any manner to any other person and includes a consignment agent. As per clause (j) to section 85(72), taxable service means, any service provided to a client by a clearing and forwarding agent in relation to clearing and forwarding operations in any manner.

3. Normally C&F agents do the job of clearing and forwarding. In a typical situation

clearing & forwarding agents are appointed in outstation location by manufacturers or wholesale distributors so that they may clear the goods, store them and then forward the goods according to the instructions of the principal owner. Thus the person concerned is an agent and an agent is an authorised representative of a named principal owner.

4. There is a contract between the principal (owner) and C&F agent detailing the terms

and conditions and also indicating the commission or remuneration to which the C&F agent is entitled. Therefore, ICDs/CFS can not be considered as C&F agents on the following grounds:

(i) There is no agreement or contract between Service Provider (ICD/CFS) and



Service Receiver (importer/ exporter). (ii) ICDs/CFS are functioning under authority of Government of India and not for

any principal or owner (Importer/ exporter). 5. It is also clarified that, so far as domestic handling of cargo by the container Depots

is concerned, (like CONCOR), their case may be examined separately. If they do not meet the parameters mentioned in Board's letter F. No. B/43/7/97-TRU, dated 11-7-1997, they will also not be considered as C & F Agents.

Annexure IV

Service tax on clearing and forwarding agents

[C.B.E. & C. Circular F. No. B. 43/7/97-TRU, dated 11-7-1997] I am directed to invite your intention to section 88 of the Finance Act, 1997 which, inter alia provides for levy of service tax on the services rendered by clearing and forwarding agents and rent-a-cab scheme operators. It has been decided to bring the above services under the service tax net with effect from 16th July, 1997. Notification Nos. 26/97-ST and 27/97-ST, both, dated the 11th July, 1997 have been issued in this regard. 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 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 clearing and forwarding agent is entitled. A clearing and forwarding agent normally undertakes the following activities - '*'

(a) Receiving the goods from the factories or premises of the principal or his

agents; (b) Warehousing these goods; (c) Receiving despatch orders from the principal; (d) Arranging despatch 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 despatch 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 paving the service tax to the exchequer. Commissioners of Central Excise may therefore take necessary action accordingly and also make this position clear by issue of suitable trade notice.



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 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 be 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-ST 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.

Annexure V

Clearing and Forwarding Agents and Goods Transport Operators - Supreme Court Judgment in WP No. 53/98 in

case of M/s. Laghu Udyog Bharati v UOI

[Commissioner of Central Excise, Madurai, Trade Not ice No. 93/99, dated 10-9-1999, as corrected later]

Further to this office Trade Notice No. 85/99 (4/Service Tax/99), dated 27-81999, the following information/ guidelines are issued for the convenience of the assessees concerned and the general Trade as well in respect of the above said two services. (i) The levy of Service Tax on Goods Transport Operators and Clearing and Forwarding

Agents was initially imposed on the Service providers, i.e. Goods Transport Operator and Clearing and Forwarding Agents, in the Budget 1997. However, the said levy was transferred to user, after introduction of sub-rule (xii) under Notification No. 27/97, dated 16-71997 for Clearing and Forwarding Agents and sub-rule (xvii) of rule 2(d) of Service Tax Rules under Notification No. 42/97, dated 5-11-1997 in respect of Goods Transport Operators. [Notification Nos. 27/97 and 42/97 were communicated vide this office Trade Notice No. 87/97 (10/Service Tax/97), dated 14-7-1997 and Trade Notice No. 144/97 (18/Service Tax/97), dated 11-11-1997 respectively]. The effect of these two notifications making the receivers of Service as being liable to pay the tax has been set at nought by the Hon'ble Supreme Court who have held that the levy of tax from the receiver was illegal. Hence the refund.

(ii) The provisions of section 11B of the Central Excise Act, 1944 will regulate all the

refund claims arising in relation to the Service Tax matters. Therefore, all the assessees or the persons who intend to file the refund claim in view of the captioned judgment of the Hon'ble Supreme Court are required to file a regular refund claim in



Prescribed Form "R". Such refund claims should be filed within 6 months from the date of judgment of Supreme Court which is 27th July, 1999 which would be the relevant date for the purpose.

(iii) All such refund claims, if filed within time, are required to be finalised within 12 weeks

from the date of filing and the amount duly worked out and verified should be effectively refunded to the claimant or the consumer welfare fund, as the case may be, within such 12 weeks.

(iv) The Government of India under Notification No. 49/98, dated 2-6-1998 had

exempted the levy of Service Tax on Goods Transport Operators, among other enumerated services. Therefore, the refund claims shall not arise in respect of the services received with effect from 2-6-1998, so far as, Goods Transport Operators are concerned.

(v) However, since the said exemption notification does not encompass the services

provided by the Clearing and Forwarding Agents, the users of this service have been paying Service Tax, till date. In view of the above judgment of Hon'ble Supreme Court, refund claims may be filed by those who had availed themselves of Clearing and Forwarding Services.

(vi) The Hon'ble Supreme Court has not, in any manner, held that the applicability of the

Service Tax on the services provided by the Clearing and Forwarding Agents and Goods Transport Operators to be illegal. The Court has only struck down those provisions in the Service Tax Rules, 1994 which had shifted in 1997 the burden of levy and collection of tax from the Service Provider to Service Receiver.

In case of any difficulty or for any clarification you are requested to contact the jurisdictional Superintendent of Central Excise or the Deputy/ Assistant Commissioner of Cental Excise in charge of Central Excise Divisions or the Service Tax Unit of this office or the undersigned.

Annexure VI

Clearing and Forwarding Agents

[Circular MF (DR) TRU F. No. 341/11/98-TRU, dated 2 3-8-1999] I am directed to invite your attention to Section 68(2) of the Finance Act, 1994 which, inter alia provides for payment of service tax by a person other than the person providing taxable service. You may be aware that in respect of services rendered by clearing and forwarding agent, the service tax was made payable by the person engaging such agent vide sub-clause (iii) of clause (d) to section (sic) 2(l) of Service Tax Rules, 1994. 2. You may also be aware that in the case of Laglut Udyog Bharati & Ann v Union of

India and Ors. in Writ Petition No. 53 of 1998, the Hon'ble Supreme Court had passed an order holding that the sub-rules (xvii) and (xii) of Rule 2(l)(d), in so far as it makes person other than the clearing and forwarding agent or the person other than the goods transport operator as being responsible for collecting service tax are ultra vires to the Finance Act, 1994 itself. It may be noted that the sub-rule (xvii) was omitted as the levy on the service rendered by goods transport operator was removed from the scope of levy of service tax in 1998 budget. The sub-rule (xii) relating to services provided by clearing and forwarding agent, is continued as sub-rule (iii) of Service Tax Rules, 1994 (in the amended form) vide Notification No. 54/98-ST, dated 7.10.1998, which came into effect from 16.10.1998.

3. It has been decided now, to do away with the above method of payment of service

tax by an alternate person other than the person providing the taxable service in respect of clearing and forwarding agents. In other words, the clearing and



forwarding agents will henceforth pay the service tax in respect of taxable services rendered by them. Accordingly Notification No. 7/99-ST, dated 23rd August, 1999 has been issued in this regard. This will come into force with effect from 1st September, 1999.

4. It may be noted that the value of taxable service rendered by clearing and forwarding

agent continue to remain as the gross amount of remuneration or commission (by whatever name called) paid to such agent by the principal or the client engaging such agent as provided under sub-rule (8) to Rule. 6 of the Service Tax Rules, 1994.

5. The provisions relating to registration, furnishing of returns and assessment as in

existence will continue to apply on the clearing and forwarding agents who will now be liable to pay the service tax as per section 68(l). The Commissioners should issue suitable trade notices for information and guidance of the trade. The trade notices may include the procedure to be followed for registration, maintenance of documents, filing of returns and manner in which the service tax is to be paid. The trade notice should provide complete information and guidance to the assessees and they should be self contained in all respects. The field officers are also requested to kindly provide all assistance and guidance to the assessees in explaining the provisions of service tax and in clarifying their doubts. All possible steps may kindly be taken by the Commissioners to facilitate smooth implementation of the levy of service tax on the clearing and forwarding agents.

Annexure VII

Clearing and Forwarding Agents

[Madurai-2 Commissionerate's T.N. No. 85/99 (4/Serv ice Tax/99), dated 27-8-1999] Attention of the Trade is invited to Notification No. 7/99-SERVICE TAX, dated 23rd August, 1999. By virtue of the said notification sub-clause (iii) in clause (d) in sub-rule (1) in Rule 2 in the Service Tax Rules, 1994 is omitted and as a result the method of payment of Service Tax in respect of taxable services provided by Clearing and Forwarding Agents has been changed. The Clearing and Forwarding Agents shall henceforth pay the Service Tax in respect of taxable services rendered by them instead of the person who engages such agent. This change will come into force from the 1st of September, 1999. 2. The provisions relating to Registration, Furnishing of Returns and Assessment as in

existence will apply on the Clearing & Forwarding Agents who shall now be liable to pay the Service Tax as per Section 68(l) with effect from 1-9-1999.

3. The value of taxable service rendered by clearing and forwarding agents continue to

remain as the gross amount of remuneration or commission (by whatever name called) paid to such agent by the principal or the client engaging such agent as provided under sub-rule (8) to Rule 6 of the Service Tax Rules, 1994.

4. For the convenience of the prospective assessees to be registered as 'CLEARING

AND FORWARDING AGENTS" some of the salient features of the provisions of Service Tax Law are furnished below:

REGISTRATION: In terms of Rule 4 of Service Tax Rules, 1994, every person liable for paying the Service Tax shall make an application to the concerned Central Excise Officer in Form ST-1 for registration within the period of thirty days from the date on which the Service Tax is levied. If an assessee is providing a taxable service from more than one premises or offices and has a centralised billing system in respect of such services rendered to clients from such premises or offices at any one premises or office, he may opt for registering only the premises or office from where such centralised billing is done. If an assessee is providing taxable service from more than one premises or office and does not have any centralised billing system, he shall make separate application for registration in respect of each such premises or office



to the concerned Central Excise Officer.

The assessees will apply for Registration in Form ST-1. An acknowledgement will be provided on the duplicate copy of the ST-1 by the Superintendent of Central Excise in whose jurisdiction the assessees operate. The Registration Certificate will be granted in Form ST-2 within seven days from the date of receipt of application for Registration.

MAINTENANCE OF RECORDS: As per Rule 5 of the Service Tax Rules, 1994, the records (including computerised data) as maintained by an assessee in accordance with the various laws in force from time to time is acceptable and every assessee shall furnish to the Central Excise Officer at the time of filing his return for the first time a list of all accounts maintained by the assessee in relation to service tax including memoranda received from his branch office.

PAYMENT OF TAX: In terms of Rule 6, ibid, the service tax on the value of taxable services received during any calendar month shall be paid to the credit of the Central Government by the 25th of the month immediately following the said calendar month. Provided where the assessee is an individual or proprietary firm or partnership firm, the service tax on the value of taxable services received during any quarter shall be paid to the credit of the Central Government by the 25th of the month immediately following the said quarter.

RETURN: In terms of Rule 7, ibid, every assessee shall submit a half yearly return in Form ST-3 or ST-3A as the case may be, along with a copy of the Form TR-6, in triplicate for the months covered in the half yearly return, by the 25th of the month following the particular half year. Chapter V of Finance Act, 1994 and Service Tax Rules, 1994 as amended has already been communicated vide this office Trade Notice No. 102/ 98(11 /SERVICE TAX/98), dated 16-10-1998.

In case of any difficulty the assessees are requested to contact the jurisdictional Superintendent of Central Excise, or the Deputy/ Assistant Commissioner of Central Excise in charge of divisions or the Service Tax Unit of this office.

Annexure VIII

Recovery of Refunds Granted

[CCE&C, Cochin-1, Trade Notice No. 70/2000, dated 3 1-5-2000] 1. Attention of the Trade is invited to this Office Trade Notice No. 24/2000, dated 1-3-

2000, communicating Finance Bill, 2000-2001. 2. It is, informed that the Finance Bill, 2000 has received the Presidential assent and

has become the Finance (No. 10) Act, 2000. Consequent on the enactment, clause 112 of the Finance Bill, 2000, relating to Service Tax has become section 116 of the Finance Act, 2000. There is however, a change that the retrospective effect in respect of the service tax applicable to services rendered by goods transport operators and clearing and forwarding agents would be effective from 16th July, 1997 to 16th October, 1998.

3. As a result of this enactment any service tax refunded in pursuance of any judgment,

decree or order of any court striking down sub-clauses (xii) and (xvii) of clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994 before the date on which the Finance Act, 2000 received the assent of the President, shall be recoverable within the period of thirty days from the date on which the Finance Act, 2000 received the assent of the President and in the event of nonpayment of such service tax refunded within this period, in addition to the amount of service tax recoverable, interest at the rate of 24 per cent per annum shall be payable from the date immediately after the



expiry of the said period of thirty days till the date of payment. 4. The trade and its associations are requested to bring to the notice of the constituent

members, the contents of this trade notice.

Annexure IX

Levy of Service Tax on Food Grain Commission Agents under the category of 'Clearing and Forwarding Agen ts'

Circular No. 48/10/2002-ST [F. No. 159/5/2002-CX-4] , dated 13-9-2002

I am directed to say that doubts have been raised as to whether food grain Commission Agents would be liable to pay Service Tax or not under the category of Clearing and Forwarding Agents (C&F Agents). In some States such agents are also referred to as Adhat Vyaparies or as Adhatiyas. 2. In some cases it has been reported that a foodgrain agent purchases the grains

outright from farmers in auctions. After purchasing the foodgrains he carries out certain physical processing such as sieving, winding (clearing) and blending, etc. The grains are then graded according to the quality and sold to retailers against orders.

3. The matter has been examined in the Board. As per the definition of Clearing and

Forwarding Agents under section 65 of the Finance Act, 1994, and as brought out in Board's letter F. No. B.43/7/97-TRU, dated 11-7-1997, there must exist a relationship of a principal and an agent. In this case since the grain agent actually purchases the goods from the farmer he does not function as an agent of the farmer. He is therefore not a C&F Agent.

4. In other types of cases, particularly relating to Rajasthan, it has been reported that

the Grain Agents collect grain from the farmers and sell it to a buyer on terms and conditions dictated by the farmer. The agent collects a Commission (presently 2%) from the buyer of the foodgrain and not from the farmer. As per section 75 of the Rajasthan Agricultural Marketing Products Act, 1954 the agents or adhatiyas are barred from charging any commission from the farmers.

5. Since in such cases no commission is payable by the farmer to the adhatiyas it

cannot be said that the adhatiya is a C&F Agent of the farmer. As per Board's leter dated 11-7-1997 a C&F Agent collects his commission from his principal and in the absence of such a feature he cannot be called a C&F agent of the principal (In some cases it has been reported that the adhatiyas illegally take a cut from the amount payable to the farmer though they are barred from doing so. This cannot be a basis for considering them to be C&F Agents of the farmers. In fact such cases should be reported to the State Governments for appropriate action).

6. However, in respect of cases where the grain agents legally receive commission

from the farmers and satisfy the other conditions mentioned in Board's letter dated 11-7-1997, they would be considered as Clearing and Forwarding agents and be liable to pay service tax on their commission.

Annexure X

Levy of Service Tax under category of Clearing & Forwarding Agents in respect of Adhatiyas

Circular No. 73/3/2004 ST [F.No.159/3/2003 -CX.4], dated 5 -1-2004



I am directed to say that under section 65 of Finance Act, 1944 (sic 1994) and as brought out by Board's letter no. F.B.43/7/97-TRU, dated 11-7-1997 there must exist a relationship of principal and an agent for bringing grain agent in the ambit of C & F agent of the farmer and in CBEC Circular No. 48/10/2002ST, dated 13-9-2002, it has been clarified that Adhatiya's (Food grain agents) activity do not fall under the scope of Clearing and Forwarding Agents services and hence would not be liable for Service Tax under this category. The circular issued is a general circular and is not with reference to any state or class of Adhatiyas. Even though a bunch of representations received from various trade associations in Maharashtra specifically have misinterpreted the circular to apply only to the state of Rajasthan. In fact reference to Rajasthan and section 75 of the Rajasthan Agricultural Marketing Products Act, 1954 is only to explain the situation. 2. Incidentally the activity of grain agent is covered under the 'Commission Agent'

falling under the purview of 'Business Auxiliary Services', which has come into force from 1st July, 2003. Commission Agents as per the definition are covered under the Notification No 13/2003-ST, dated 20th June, 2003 and are exempt from Service Tax.

Annexure XI

Coal merchants liable to tax as clearing and forwar ding (C&F) agents

C.B.E. & C. Letter F. No. 159/1/2003-CX.4, dated 10 -12-2003

Your kind attention is invited towards your representation received by the Board on above cited subject, inquiring as to whether the services of Coal Merchants would be covered under the category of Clearing and Forwarding Agents for applicability of Service Tax? Also it has been informed vide above representation that the Coal Merchants primarily act as buyer's agents and carry out such jobs/ assignments as asked for by the respective consumers/buyers. The issue has been examined by the Board and in this regard I am directed to say that on the basis of mode of functioning of Coal Merchants, it has been observed that in terms of definition of Clearing and Forwarding Agents under the. section 65(25) of Finance Act, 1994 (as amended), functions of Coal Merchants are fully covered and accordingly their services are liable to Service Tax under the category of Clearing and Forwarding Agents. Also in this case it is immaterial as to whether they are working as agents of buyers or sellers, in terms of definition of Clearing and Forwarding Agents as referred.



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