Logistics Firm Liable for Service Tax as ‘Clearing and Forwarding Agent’: Calcutta High Court

The Calcutta High Court has held that a logistics and services firm providing end-to-end handling of goods for large steel companies was liable to pay service tax as a “Clearing and Forwarding (C&F) Agent” under the Finance Act, 1994, while simultaneously quashing tax demands raised on certain ancillary activities such as bending, bundling, and stock verification of goods. The Bench of Justice Rajasekhar Mantha and Justice Ajay Kumar Gupta has upheld the levy of service tax on transportation expenses incurred by the appellant, rejecting the plea that such expenses were reimbursable and hence excludable from the taxable value. It held that transportation was an integral part of clearing and forwarding services and formed part of the gross consideration received. The appeal arose from service tax proceedings initiated against the appellant firm for services rendered to Tata Iron and Steel Company (TISCO) and Tata Ryerson Limited (TRL) during the period September 1999 to March 2004. The Revenue alleged that the firm had acted as a Clearing and Forwarding agent but failed to register and discharge service tax liabilities for several years. Following a search and seizure operation at the firm’s premises in April 2002, the appellant obtained service tax registration and made partial payments towards past dues. A detailed show cause notice issued in September 2004 proposed recovery of service tax exceeding ₹90 lakh under various heads, including clearing and forwarding services, transportation expenses, bending and bundling operations, and stock verification activities. The department raised a preliminary objection, contending that the appeal ought to have been filed before the Supreme Court under Section 35L of the Central Excise Act. Rejecting this argument, the High Court clarified that the dispute did not relate to the rate of duty or valuation, but involved substantial questions of law regarding classification of services and limitation. The Court held that such issues squarely fell within the High Court’s jurisdiction under Section 35G. On merits, the Court upheld the findings of the adjudicating authority and the Tribunal that the appellant was indeed providing clearing and forwarding services. The Bench relied heavily on the contractual obligations undertaken by the firm, which included receiving and unloading goods, transporting and storing materials, forwarding goods to customers on behalf of the principal companies, and bearing transportation costs. Referring to the Supreme Court’s decision in Coal Handlers (P) Ltd. v. CCE, the Court reiterated that a C&F agent need not perform customs clearance alone, but any activity connected with clearing and forwarding operations would attract service tax. The firm’s conduct—particularly voluntary registration after search proceedings and payment of substantial tax amounts towards earlier periods—was held to be a clear admission of tax liability. The Bench drew a clear distinction between core clearing and forwarding services and other activities undertaken by the firm. It held that bending and bundling of steel products, which altered the nature and character of goods, could not be treated as incidental to clearing and forwarding services. Stock verification services, involving assessment of quality and quantity of goods, went beyond mere preservation or storage obligations of a C&F agent. Accordingly, service tax demands raised on these two activities were set aside, though the Revenue was granted liberty to tax them under appropriate heads, if permissible under law. The Court upheld the invocation of the extended five-year period under Section 73 of the Finance Act, noting deliberate suppression of facts by the appellant. The Bench observed that the firm neither registered nor paid service tax until after search proceedings and had failed to disclose taxable activities voluntarily. The Court further held that partial payments made in January 2004 amounted to an acknowledgment of liability, thereby reviving the cause of action for recovery. Relying on recent Supreme Court jurisprudence, it ruled that the amended provisions of Section 73, as applicable on the date of the show cause notice, would govern the proceedings. While the High Court sustained major portions of the service tax demand relating to clearing and forwarding services along with interest, it struck down tax demands on bending, bundling, and stock verification services under the C&F category. The appeal was thus partly allowed, providing significant clarity on the scope of taxable services under the pre-GST service tax regime. Case Details Case Title: Naresh Kumar & Co. Versus Commissioner, Service Tax Case No.: CEXA 49 of 2009 Date: 04/02/2026 Counsel For Petitioner: Dr. J.K. Mittal Counsel For Respondent: U.S. Bhattacharyya, Adv. Click Here To Read Order Read More: No GST On Separately Invoiced Diesel, Petrol Charges in Fleet Operations: AAR

Logistics Firm Liable for Service Tax as ‘Clearing and Forwarding Agent’: Calcutta High Court

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