Service Tax : Clearing and Forwarding Agent’s

By the Finance Act, 1994 (hereinafter referred to as the ‘Act’) sub-section (25) was inserted in Section 65, which defines C&F Agent as under:

“(25) “clearing and forwarding agent” means any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent;”

The taxable service as provided in Section 65(48)(j) of the Act in relation to service of C&F Agent means ‘any service provided to a client, by a clearing and forwarding agent in relation to clearing and forwarding operations in any manner’.

As per definition of clearing and forwarding agent, he is a person who is engaged for providing any service, either directly or indirectly connected with clearing and forwarding operations in any manner to any other person and includes a commission agent.

The use of the 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, but even if the services are indirect and if the same are connected with the clearing and forwarding operations in any manner of the other persons, he would be covered within the scope of the said definition.

The service should be connected with clearing and forwarding operations. 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.

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.

It would be relevant to point out the definition of ‘forwarding agent’, as known in legal parlance, from Black’s Law Dictionary (Seventh Edition), which is as under:

“forwarding agent.

1. A person or company whose business is to receive and ship goods for others – Also termed freight-forwarder.

2. A freightforwarder who assembles less-than-carload shipments ‘small shipments’ into carload shipments, thus taking advantage of lower freight rates.”

The Penguin Business Dictionary defines this expression in the following words:

“Forwarding agent.

A GENERAL AGENT who specializes in moving goods from a factory or port of entry to their proper destination. Such an agent normally owns the transport necessary for this work and often arranges FREIGHT and customs formalities for his principal.”

In Fourth Edition of Halsbury’s Laws of England (Volume 5), the characteristics of ‘forwarding agents’ are narrated in the following manner:

# “442. Characteristics of forwarding agents.

A forwarding agent is one who carries on the business of arranging for the carriage of gods for other people. It must be clearly understood that a forwarding agent is not, in general, a carrier: he does not obtain possession of the goods: and he does not undertake the delivery of them at the other end.

All that he does is to act as agent for the owner of the goods to make arrangements with the people who do carry, such as shipowners, road hauliers, railway authorities and air carriers, and to make arrangements, so far as they are necessary, for the intermediate steps between the ship and the rail, the customs or anything else. Although there is a clear distinction between a forwarding agent and a carrier, the same person may carry on both activities at once, and contract sometimes as one and sometimes as the other.

The fact that a person describes himself as a forwarding agent is not conclusive: and it is a question of fact to be decided according to the circumstances of each case whether a person normally carrying on business as a forwarding agent contracts solely as agent so as to establish a direct contractual link between his customer and a carrier (or possibly with several carriers, each undertaking a different part of the transit), or whether he contracts as principal to carry the goods, the customer appreciating that he will perform the contract vicariously through the employment of sub-contractors.

The nature of the carriage, the language used by the parties in describing the role of the person concerned, and any course of dealing between the parties will be relevant factors.

Persons properly described as shipping and forwarding agents frequently act as carriers themselves with respect to part of the carriage, for example, by performing collection and delivery services between the customers’ premises, their own depots, and warehouses, docks and carriers’ depots. In such cases they would have the rights and duties of carriers with respect to such carriage as they undertake personally, but the rights and duties of forwarding agents with respect to the remainder of the transit.

# 443. Rights and liabilities of forwarding agents.

The rights and liabilities of a forwarding agent are governed by the general principles of the law of agency: and so he is entitled to be indemnified against all expenses incurred on behalf of his principal and to be paid his proper charges for his services. He is liable for failure to make proper arrangements for the carriage and for ancillary matters which he has undertaken, such as customs clearance.

He is not liable for the failings of persons with whom he makes contracts on behalf of his principal, unless he know of those failings and ought to have taken action either to remedy them or at least to inform his principal so that damage might be avoided or mitigated: thus he is under no duty to supervise the actions of carriers whom he reasonably and properly expects to perform their normal obligations competently.

In ordinary transactions a forwarding agent is not liable for failing to insure the goods, in the absence of instructions from his customer to do so: but he may, in certain circumstances, be liable for not consulting his customer and advising him as to the proper transport and insurance arrangements which should be made for valuable goods.

A forwarding agent is not normally personally liable to pay the charges of carriers whom he engages to carry the gods on behalf of his principal; but there is a custom of the London freight market that forwarding agents incur personal liability to shipowners for the payment of freight or of dead freight for booked space left unfilled.

A forwarding agent who tenders dangerous goods to carriers without warning them of their nature or of the precautions which should be taken in their carriage is personally liable to the carriers for any resulting damage through breach of the implied warranty that the goods are fit for carriage.”

From the reading of the definition contained in the aforesaid provision, together with its dictionary meanings contained in Legal and Commercial dictionaries, it becomes apparent that in order to qualify as a C&F Agent, such a person is to be found to be engaged in providing any service connected with ‘clearing and forwarding operations’.

Of course, 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.

Therefore, we have to see as to what would constitute clearing and forwarding operations. As is 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.

# M/s. Coal Handlers Private Limited Vs. Commissioner of Central Excise Range Kolkata – I, (2015) 42 SCD 658

The services rendered by Agents under the contracts signed with their respective Principals would not qualify as Clearing & Forwarding Agents (C&F Agent) within the meaning of Section 65(25) of the Finance Act, 1994 as amended from time to time for make them liable to service tax.

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