Supreme Court on section 65 of Finance Act, 1994

FACTS The assessee entered into an agreement with Gas Authority of India Ltd. (GAIL) titled ’Consignment Stockistship Agreement’. The revenue demanded service tax from the assessee in the category of clearing and forwarding agent’s service. On appeal, the assessee contended that it was merely procuring orders on behalf of its principal and its activities were not extended to the job of a clearing and forwarding agent. However, the Commissioner (Appeals) confirmed the demand against the assessee on ground that under section 65(25) a ‘Clearing and Forwarding agent’ includes a consignment agent. The Tribunal upheld the order of the Commissioner (Appeals). On further appeal, the High Court held that the assessee was required by its agency terms to lift the goods for delivery and arrange for distributing them to the buyers, by making necessary transit arrangements and, therefore, the activities of lifting, receiving, stocking and delivering the goods to the buyers, made a clear chain of activities, involving clearing and forwarding operations, and, hence, the demand against the assessee was justified. On appeal to the Supreme Court: HELD There cannot be any doubt whatsoever that a document has to be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof. Neither the nomenclature of the document nor any particular activity undertaken by the parties to the contract would be decisive. [Para 8] For the purpose of ascertaining as to whether the assessee in effect and substance was a clearing and forwarding agent or it was merely accepting orders for and on behalf of GAIL, the same must be ascertained from the terms of the agreement itself. [Para 11] The agreement in question was titled as ‘Consignment Stockistship Agreement’. The assessee had various jobs to perform thereunder. It did not arrange for any transport. It, however, provided for godowns. It got the insurance company to conduct a survey. It had to furnish dates as regards stock in its custody. It had to furnish guarantee to recover full value of the stocks which it held for the company or sell on behalf of the company or for such a sum as would be determined by the company in its discretion. The company, however, had to indicate the recommended list prices for the sale of the product whereto the assessee was entitled to at octroi duty, terminal tax, sales tax or other local taxes or levies in force in the local area and recover the same from its customers and maintain proper accounts for the same. Clauses 13 and 14 of the said agreement empowered to sell the goods as also to issue Form ‘F’ to the Company. It was also responsible for collection of tax. [Para 17] What was necessary for determining the question relating to assessee’s liability to pay service tax was as to whether the purported job of the assessee as a clearing and forwarding agent was incidental to its main activity, namely, getting orders from the clients and selling the products to various customers of the company or not. [Para 18] The period in question was from 1-9-1999 to 31-7-2002. The notice to show cause had referred only to paragraph 20.1 and 20.3 of the agreement. Its activities were said to be sale and/or getting booking orders for the product. [Para 19] Whether in the aforementioned situation, the assessee had incurred any liability to pay service tax or not had not been determined. Its principal activities, as indicated hereinbefore, had not been determined. [Para 20] It was true that the assessee had not appeared before the assessing authority or the appellate authority. However, keeping this in view, the interest of justice would be subserved if the matter was remitted to the assessing authority with liberty to the parties to adduce such evidence as may be found necessary for determining the issue(s). The assessee, however, shall not take any adjournment, before the assessing authority and shall render all cooperation with it in the matter of determination of the question. [Para 21] In the result, the impugned orders, including the order of penalty, were to be set aside and the appeal was to be allowed to the said extent. [Para 22]