NEW DELHI, DEC 11, 2012: APPELLANTS are the ship brokers and carry on following activities :-

(1) Acting as intermediary between a vessel owner and a vessel charterer and thus helping the ship owner to find fixture for his idle vessel and a charterer to find a vessel of the type required and at the place required at lowest possible price;

(2) Helping in negotiation and to assist the ship owner and charterer in concluding the fixture;

(3) Compiling the terms of negotiations; obtaining charterer's and owner's approval and drafting and finalising the legal agreement between ship owner and charterer, known as charter party ;

(4) Following up ship's movements, cargo movements and cargo position and communicate to the respective parties, ensuring that all the needful legal and procedural notices to the port and other authorities are given and precautions necessary for the trade are followed and complied within due time;

(5) Following up the freight payment etc.;

(6) Assisting both the parties in compliance of charterer party terms and full and final settlement of all dues and claims and to prevent expensive disputes;

(7) If the vessel is involved in arbitration or litigation, assisting the parties.

The period of dispute in these appeals is from October 2003 to September 2009 and the main point of dispute is the classification of the service. While according to the Department, the appellant's activity is akin to that of a Commission agent and is taxable as "Business Auxiliary Service" under Section 65 (105) ( zzb ) read with Section 65 (19) (vii) of the Finance Act, 1994, according to the appellants, they being essentially a broker, cannot be treated as 'Commission agent' and hence their service is neither taxable under Section 65 (105) ( zzb ) nor under any other clause of Section 65 (105).

The main point to be decided in these cases is as to whether the activity of the appellants is covered by the definition of 'Business Auxiliary Service' as given in Section 65 (19) of the Act.

The Tribunal observed,

It will be seen that the definition of 'Commission Agent' was introduced in Section 65 (19) of the Finance Act, 1994 w.e.f . 16/5/05. During period prior to 16/5/05, while this term had not been defined in Section 65 (19), the same had been defined in exemption Notification No. 13/03-ST dated 20/6/03 exempting the service provided by a commission agent from the service tax leviable thereon. The definition of 'Commission agent' as given in this notification was as - "Commission agent' means a person who causes sale or purchase of goods, on behalf of another person for a consideration which is based on the quantum of such sale or purchase"

The words, 'on behalf of' in the statute connote an agency when one person acts on behalf of the other. The former acts as the agent of the latter. No doubt, ordinarily, an agency is the relationship of principal and agent in terms of a contract express or implied while an agency may also be created by a statute. The broker by the nature of the role played by him is different from a commission agent. The distinction between a broker and a commission agent is that a commission agent, having control over the goods sells them to others. Though he may act for a disclosed principal at either end, he negotiates the sale with the purchaser on his own behalf. The broker does not sell the goods on his own behalf, but merely brings the vendor and the vendee together and settles the price.

The general rule of law, as to commissions, undoubtedly is, that the whole service or duty must be performed, before the right to any commissions attaches, either ordinary or extraordinary; for an agent must complete the thing required of him, before he is entitled to charge for it. In the case of brokers employed to sell real estate, it is well settled that they are entitled to their commission when they have found a purchaser, even though the negotiations are conducted and concluded by the principal himself and also where there is a failure to complete the sale in consequence of a defect in title and no fault on the part of brokers.

The appellant's activity as ship broker is sought to be classified as Business Auxiliary Service only on the basis that their activity is akin to the activity of "commission agents".

However on going through the definition of 'commission agent' as given in Section 65(19) during period w.e.f . 16/5/05 and as given in exemption Notification No. 13/03-ST dated 20/6/03 for the period prior to 16/5/05, it is found that in these definitions, the emphasis is on the 'commission agent' acting 'on behalf of another person. Thus, a 'commission agent' acts on behalf of a principal and sells or buys the goods or provides or receives the services on behalf of his principal for some commission, The commission agent as agent of the principal can also deal with the goods or services, collect payment for sale price of goods or services sold or provide guarantee for the payment or undertake any activity relating to such sale or purchase of such goods or service. But all this activity must be as an agent acting on behalf of principal.

A ship broker , as the name itself suggests, is essentially a broker. Ship brokers are specialist intermediaries for negotiations between ship owner and charterers who use the ship to transport some cargo or between the buyers and sellers of the ship. A ship broker brings together a ship owner who wants employment/fixture for his ship located at a particular Port and ship charterer who requires a particular type of ship at or around a particular Port to transport some cargo. They help in negotiating the terms of the charter and finalisation of charter-party agreement and also assist both the parties in compliance of the charter - party terms and full and final settlement of all the dues and claims. The ship broker also acts as an intermediary for bringing together a ship owner who wants to sell his ship and the prospective buyer and assisting in sale of the ship. For providing these services, the ship brokers have to maintain database of ship owners, the class of ships owned by them and their location. It is not the case of the Department that the appellants have agreements with shipping companies etc. for representing them in negotiations. The essential ingredient of a 'Commission agents' service is acting on behalf of a principal which is missing is the case of the appellants. From the nature of their activity, it is clear that brokers are purely intermediaries who do not act on behalf of either ship owner or the charterer and, therefore, they cannot be said to be commission agents.

HELD: the appellants while acting as ship brokers cannot be called commission agents of the ship owner or ship charterer and thus are not covered by the definition of 'Business Auxiliary Service.

Assessee's Appeal allowed; Revenue appeal Dismissed

(See 2012-TIOL-1824-CESTAT-DEL)