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BRIEF FACTS OF THE CASE :Based upon an intelligence, office premises of M/s. Jasvant B. Shah, Custom
House Agent, located at 4th Floor, Visharad Complex, Behind Old High Court,
Navrangpura, Ahmedabad was searched on 26/08/2008 and certain documents
were withdrawn under Panchnama dated 26.8.2008. During the course of search,
Shri Samir J. Shah, Partner of M/s Jaswant B. Shah, informed the officers that apart
from above said firm, other business activities of Private Limited Company in the
name & style of M/s Star Freight Pvt. Ltd. and M/s Seagull Maritime Agencies Pvt.
Ltd., (hereinafter referred to as “the said service provider”) are also being operated
from the same premises. He also informed that shares of both these Private Limited
companies are held by the same persons who are Partners in M/s Jaswant B. Shah.
Shri Samir J. Shah further explained that M/s Seagull Maritime Agencies Pvt. Ltd.
(here-in-after referred to as the said service provider) are an International Freight
Forwarders working on Commission/brokerage basis and is registered with the
Service Tax Department bearing Registration No. AACCS0037LST001 under the
category of “Business Auxiliary Service” & “Business Support Service”.
2.
In response to the department’s letters dt.24.8.2009 and 29.9.2009, the said
service provider explained, the nature of activities (ledger head-wise), and category
of service alongwith other details. While replying to this office letter dated
28.10.2009 regarding not considering activities viz. AD Charges, DAD charges,
Chocking charges, Detention charges for payment of service tax they vide their
letter dated 25.11.2009 submitted that “where the services are covered under the
category of taxable services, the service tax is charged and paid thereon under
respective category. In case of amounts like AD Charges, DAD charges, Choking
charges etc., which are not covered under taxable services, they had not recovered
service tax as the amount received was not taxable.” The said service provider had
not furnished the copies of invoices along with their above letter even though, they
were asked for to furnish the same. On being reminded by this office vide letters
dated 19.03.2010, 05.04.2010 and Summon dated 13.04.2010 to produce the
photocopies of the invoices representing all services/activities for the year 2005-06
to 2008-09 (at least one invoice of each activities in a month), the said service
provider furnished few copies of invoices under their letter dated 20.04.2010 and
stated that the operations in this company have been stopped from the year 200910.
3.
Preliminary scrutiny of the documents withdrawn under the above said
panchnama revealed that:I. They are registered with the service tax department under the category of
Business Auxiliary Service & Business Support Service bearing Service Tax
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registration No. AACCS0037LST001 and are filing the ST-3 Returns under the
category of Business Auxiliary Service and Business Support Service.
II. They are operating from Ahmedabad, Baroda and Nagpur
III. The credit balances (i.e. excess of credits over debits) of all the ledgers
representing service charges/income, have been carried forward to the Profit
and Loss account under the Head “Income” in the Balance Sheets of the
respective financial year.
IV. The said service provider have chosen few of the service charges from their
total income Heads (as detailed in the Schedule attached to the Financial
Accounts of the respective year) and started to make the payment of service
tax at appropriate rates after classifying some of them in Business Auxiliary
Service and others in Business Support Service. On being asked about the
reasons for doing so, they stated in their letter dated 16-10-2009 & 25-112009 that
 “Where the services are covered under the category of taxable service,
service tax is charged and paid thereon under respective categories. In
case
like
AD
CHARGES,
DAD
CHARGES,
CHOKING
CHARGES,
DETENTION CHARGES etc. which are not covered under any category
of taxable service, they did not recover the service tax as the amount
received was not taxable.”
 “they are freight forwarders and in course of their business, they buy
various freight related services and then sell the same to their
customers and hence precisely they do not know whether it can be
termed as reimbursement or not”
V (a)
They have considered “Air way Bill fees, Surrender Charges, Via Charges
for payment of service tax under the category of Business Auxiliary
Service during the year 2006-07 and 2008-09 in their Ahmedabad
branch whereas in the financial year 2005-06, these charges have not
been taken into account for the payment of service tax in the same
branch.
(b) They have not considered any service charge(s) for the payment of
service tax for their Branches at Baroda, and Nagpur whereas they have
paid service tax on such service charges pertaining to Ahmedabad
Branch during 2005-06 to 2007-08 respectively.
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VI. On comparing the receipts shown at credit side of the Ledger Abstracts
pertaining to the service charges with the Taxable value/Billed value of those
service charges which have been considered for the payment of service tax
under the category of Business Auxiliary Service & Business Support Service
in their Service Tax Returns filed for the period from October’2005 to 200809, it was noticed that in most of the cases, the value representing receipts
in credit side reflected in the Ledgers was higher than that of the value
reflected in the respective ST-3 Returns.
VII. They had not considered various charges or Income Account Heads (in their
words) for discharging service tax liability for all their Branches viz.
Ahmedabad, Baroda, Nagpur. On being asked as to whether such services
provided by them were stand alone services or otherwise, they stated that
they have not recovered service tax on those charges which are not covered
under category of taxable service and the elements of profit of such charges
have been carried forward to the Profit & Loss Account in their Balance
Sheets prepared for respective years.
4.
Vide this office letter (e-mail) dated 30.06.2010, they were further asked to
produce the detail/documents viz. (i) Reconciliation of Billed amount as per ST-3
Returns; (ii) Balance Sheets for the financial years 2008-09; & (iii) Ledgers.
5.
On the basis of the documents/records viz. Balance Sheets, ledgers & ST-3
Returns, the following Annexures were prepared:
(i)
Details of those service charges which have not been considered for
the payment of service tax upon which they were already discharging
the service tax liability in a particular year for their particular branch
during 2005-06 to 2008-09;
(ii)
Detailed calculation of the amount of undervaluation during the year
2005-06 to 2008-09 calculated on the basis of the value shown in
ledgers as well as in ST-3 Returns and
(iii)
List of those activities/ledger heads which have not been considered
for payment of service tax by the service provider and have been
proposed to be classified under the category of Business Auxiliary
Service & Business Support Service by the investigation.
6.
Thereafter, on the written request made by the said service provider vide
letter dated 19.10.2010, this office had vide letter dated 19.10.2010 itself provided
the Annexures prepared as mentioned in para supra. Vide this office letter dated
21.10.2010, the Director of the company was asked to furnish the reply to this
office letter dated 19.10.2010 and to remain present in the office to give evidence
in the matter. The said service provider vide their letter dated 09.11.2010 furnished
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their reply with respect to the enclosed Annexures sent to them vide this office
letter dated 19.10.2010. They stated that :(i)
As per their bonafide belief there was no short payment of service tax as
pointed out by this investigation since the service tax was not paid only in respect
of amounts which were not taxable at respective period of time;
(ii)
Service tax charged differently in different years could be due to prevailing
conditions in the field about the exact classification of services or taxability of an
activity;
(iii)
Even if service tax was wrongly paid on non-taxable service during a period,
it could not be a basis to ask for the service tax on such activity for the past period
solely on the grounds that the same was paid at a time even under mistaken belief
and correct basis of asking could be only the taxability of service under a particular
head of taxable service.
7.
Regarding ledger heads proposed to be classified under “Business Auxiliary
Service” & “Business Support Service”, they stated that these heads are the heads
for buying and selling activities and there is no service tax on buying and selling
activities e.g. They buy space in a ship and sell to their customers & for such
activity, there is no service tax liability as they provide no service. As per their
bonafide belief none of the activities fall under any of the taxable category of
service. They wanted to know the service categories of these activities from the
department.
8.
Statement of Shri Samir J. Shah, Director of the said service providing
company was recorded on 02.12.2010, under Section 14 of the Central Excise Act,
1944, read with Section 83 of the Finance Act, 1994, in question answer format,
which is reproduced below :
“Qus.1
Please give the address of your registered office and its
branches; if any, situated elsewhere in India?
Ans.
The registered address of the office of the Company till 31-03-2009
was Mumbai- 103, Paras, Prathna Samaj Road, Vile Parle
(East), Mumbai-400057, the operational branches in addition were Ahmedabad,
Baroda and Nagpur. I am not aware if it has been changed thereafter.
Qus.2.
When Your Company came into existence and what type of
operations/services is being undertaken by your Company?
Ans.
The Company was incorporated in 1998. We operated as International
Freight Forwarders, Multimodal Transport Operators. In International Freight
Forwarding, the Company undertook movement of cargoes both in bound and ex
bound for air and sea movement being responsible for all/ most intermediary
formalities. As multimodal transport operators, we were issued necessary licence
for MTO Operations by DG-Shipping, India.
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Qus.3
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Under what category your company is registered with the
service tax department? Give branch wise details (if any).
Ans.
M/s. Seagull Maritime Agencies Pvt. Ltd., is registered with the service
tax Commissionerate - Ahmedabad under the category of Business Auxiliary
Service (Date of Registration Certificate is 08-09-2005) and Business Support
Service (Date of Registration Certificate is 25-07-2006). The same registration
covered our Ahmedabad, Baroda and Nagpur Branches.
Qus.4
Your Company is registered under the category of Business
Auxiliary Service and Business Support Service with the Service Tax
Department
and
accordingly
discharging
service
tax
liability
by
classifying some of the services under the above said two categories.
On what basis your company has treated some of the
activities
e.g. Air Way Bill Fees, Surrender Charges, Via Charges, Certificate of
Origin Charges, Destuffing Charges and Door Delivery Charges being
taxable service and on what basis these services have been classified
under BAS and BSS.
Ans.
We are members of the various Trade Associations and they issue
advisories to us as members and we would have followed the same with regard
to the service tax.
Qus.5
To which category of business class you are providing services?
Please provide names and addresses along with the contact numbers of
some of your regular clients.
Ans.
We work for exporters, importers, CHAs and other Forwarders. I will
separately provide you the names, addresses and contact nos of our major
clients.
Qus.6
Your Company is registered with the S. Tax department,
Mumbai under the category of BAS only. Pls. explain what types of
activities are being covered by you under this category in Mumbai.
Ans. I am unable to answer this question without checking with our Mumbai
office. I can revert on this in 4/5 days time.
Qus.7
Schedule of income attached to the Balance Sheet shows your
income in Baroda & Nagpur also. Whether your company is separately
registered with the service tax department at Nagpur & Baroda? If not
then what about the services/activities rendered by you at these two
places regarding Service Tax payment?
Ans.
We are not separately registered for service tax at Baroda and Nagpur.
We followed centralized billing for Ahmedabad, Baroda and Nagpur. All service
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tax charging and payment to department were done at Ahmedabad only.
Activities offered at all cities remained more or less the same.
Qus.8
Whether your company enters into any written agreement
before providing the services to your customers?
Ans.
Most of the time, all quotations are given orally and followed by raising
bills which are settled in full. This is taken by us as agreed. In a few cases, email correspondences, precedes, handling of the shipment. For regular clients,
handling happens basis either of the above on repeated basis.
Qus.9
Whether all the service charges/activities on which you have
booked profit as reflected in your financial statements have been vis-àvis considered for service tax purpose.
Ans.
No, we have considered only those services which can be construed as
service under the notified services for service tax purposes.
Qus.10 Here are the sheets showing various service charges recovered
by your company during 2005-06 to 2008-09 which have not been
considered for service tax purposes. What does these activities/service
charges stand for? Please describe.
Ans.
I am unable to answer this question without checking. I can revert on
this in 4/5 days time.
Qus.11 Where do you provide services to your clients?
Ans.
We
are
operational
at
Ahmedabad,
Baroda
and
Nagpur.
The
shipments handled would have originated or terminated at various places –
factory, warehouse, ports/airports both international and within India.
Qus.12 Whether the services provided by your company which have
not been considered under BAS and BSS, are standalone services or
related to any other service.
Ans. We provide multiple services. On consignment to consignment basis it is
decided how many services need to be provided to complete the same. Number
of services provided per consignment can be seen from the invoices raised for
the same.
Qus.13 Here are the year wise sheets i.e. from 2005-06 to 2008-09,
prepared separately for the category of BAS & BSS showing the
comparison of Billed amount between ST-3 Returns and Ledgers
concerned. Sheets show that the Billed amount considered for payment
of service tax in ST-3 Returns filed has been taken less. The year wise
difference is shown below-
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YEAR
DIFFERENCE
2005-06
12,05,779
2006-07
16,16,614
2007-08
27,465
2008-09
5,25,684
TOTAL
33,75,542
Please state the reasons of this undervaluation.
Ans. I can immediately only state that service tax under B. A. S. has been
charged by us effective January, 2006 as advised to us by the trade associations
and our Chartered Accountant. Furthermore, we also follow a system of raising
bills immediately on completion of job to our clients. The amounts against the
same are paid to our vendors by crediting the same services’ ledger accounts.
These could be the reasons for the differences in values. I can have the
statements verified and revert in 4/5 days time.
Qus.14
Here are the year wise sheets i.e. from 2005-06 to 2008-
09 showing the details of service charges which have not been
considered for payment of service tax though considered in Ahmedabad
for discharging the tax liability. Please go through the same and state
the reasons for not paying the service tax on the service charges upon
which your company is already discharging the service tax liability.
Ans.
I am unable to answer this question without checking. I can revert on
this in 4/5 days time.
Qus.15
In para III of your letter dated 09th November, 2010
addressed to this office, you have stated regarding the ledger heads
proposed to be classified by this office under taxable services, that
these heads are the heads for buying and selling activity and there is no
service tax on buying and selling activity. An example has been quoted
by you that you buy space in ship and sell to your customers and for
such activities there is no service tax liability as you have not provided
any service. Please furnish the documentary evidences which prove
your bonafide purchase of such activities and sell of the same. Further,
please also state whether the space purchased by you in a ship is for
which time period and whether such space is earmarked in your name.
If yes, whether the same space can be used by others if you fail to
utilize the same.
Does not it mean that the space is allotted to you for
specific purpose and for specific period only and title of such purchase
is not being changed ?
Ans. All such bookings are done with cargo in hand. There can be a case of
payment of dead freight for unutilized space. To the best of my information, we
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have not had a case when we had to pay dead freight. In case booked space is
not utilized, carrier is free to allot the same space to someone else without
referring to us.”
9.
Shri Samir J. Shah, during his statement had not replied to the question no.
6, 10, 13 & 14 and requested for a time of 4-5 days to submit the reply. On
16.12.2010 Shri Shah, had submitted the part reply to the questions. While
replying to question No. 6 it is mentioned in the letter that there company is also
registered with service tax Mumbai, under the category of “Business Auxiliary
Service” and are paying service tax on various activities like Airline charges, Bill of
Lading charges, CAF Charges, CC Charges, CHA Charges, Cleaning charges,
Delivery Order Charges, Documentation Charges, DO Fees, Fumigation Charges,
Handling at Dronagiri, Handling charges, IGM Charges, Manifest charges, Surrender
charges and THC charges.
10.
It is surprising to note that the said service provider had not considered so
many activities for discharging their service tax liability in their Ahmedabad branch,
whereas they are paying service tax on the same in their Mumbai branch eg. CC
Charges, Documentation charges, Fumigation charges, IGM Charges.
11.
While replying to question No. 10 they have provided the nature of activities
head-wise which is reproduced below:
Sr
No.
Account Head/Service
Charges
1
Air Freight Margin
2
BAF FEES
3
C C CHARGES
4
CONTAINER CLEANING
CHARGES
Container Detention
Charges
6
7
8
9
10
Custom Clearance Charges
Endorsement Fees
FUEL & SECURITY charges
IGM CHARGES
11
INCENTIVE CHARGES
12
Miscellaneous Charges
13
14
OCEAN FREIGHT
PICK UP CHARGES
Nature of Activity
Difference Between Air Freight charged to
Client and Payment made to Air Line.
Difference is a buy-sell difference
Part of Ocean Freight ( Bunker Adjustment
Factor - related to the Fuel
charges),Payable to Steamer Company.
Part of ocean freight. On Freight collect
shipment, these are charged as a part of
ocean freight
For cleaning the empty container/repairing
Penalty from shipping line for not returning
empty container to shipping line within
specific time frame
Charges for Custom Clearance.
Forwarder charges for giving no objection/
delivery order
Part of Freight charges
Charges being charged for filling manifest
Import shipment
Profit Share from overseas agent for
handling of lcl shipment
Miscellaneous expenses, etc. incurred
charged
Ocean freight
Transportation charges for picking cargo
from factory/shipper site
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15
AIR FREIGHT
ETCS Charges
16
17
GSP Charges
18
HAZARDOUS CHARGES
NFTS Charges
19
PCS charges
20
Transference copy charges
21
22
23
TRANSPORTATION
CHARGES
Unloading Charges
War surcharge charges
24
25
26
27
28
WAREHOUSE CHARGES
30
31
WARFRAGE CHARGES
Agency charges
Concor charges
Factory stuffing permission
charges
Hazardous documentation
charges
HAZARDOUS SURCHARGES
32
INSURANCE CHARGES
33
ISPS security CHARGES
34
LCL charges
Marketing & Supervision
charges
Storage charges
29
35
36
Page 9 of 60
Air freight
Part of ocean freight. Emergency terminal
congestion surcharges. Additional
surcharges from shipping line for shipment
to Lagos-Nigeria.
GSP - stands for Generalized Scheme of
Preferences. Certain consignments which
move internationally require to be
accompanied by a Certificate of Origin or
GSP issued by a Govt Agency. This enables
importer at other end receive some
concessions from his Govt. This document
is issued by Agencies like - Export
Inspection Agency; Texprocil etc. They
have a preprinted stationary on which all
details are to be typed. The same is to be
submitted to them along with Bill of Lading
copy (Bill of Lading is issued after shipment
has left the country). Said Agency would
collect its fees and releases the document.
Surcharge for hazardous /dangerous goods
Part of Ocean freight. Nigerian freight tax
surcharge – additional surcharge from
shipping line for shipment to LagosNigeria.
Part of ocean freight. Port Congestion
surcharges – surcharges being charged by
shipping line due to congestion at port.
Documentation collections from custodian/
customs required by exporter for excise
formalities, post export.
movement of cargo/container by truck
Charges for unloading of cargoes from
container
Part of ocean freight. Surcharge if there is
any war/changes of war in importing/
exporting/ transshipment country.
Destination charges for ex work
shipment/door delivery shipment. Mainly
charges for handling and storage of cargo
in CFS / Warehouse
One type of port demurrage
Charges for custom clearance.
Custodian charges
For taking permission from custom for
stuffing the container at factory.
Part of ocean freight. Documentation
charges for hazardous goods.
Part of ocean freight. Surcharge for
hazardous /dangerous goods
Container goes to factory for stuffing or de
stuffing it is shipper/consignee/booking
party responsibilities if any damage to
container and to safe guard same
insurance been taken
International port facilities security
charges – port dues
Additional charges for LCL shipment.
As stated
Ground rent charges for cargo/container
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37
38
Switch Bill of lading charges
Choking charges
Co-ordination charges
39
40
41
Custom Transit declaration
charges
DAD charges
Delivery order charges
(Dest)
42
Delivery order (Destination)
43
Destination delivery charges
(Dest)
44
45
46
Documentation charges
(Dest)
FUMIGATION CHARGES
Handling charges (dest)
47
48
Handling charges
(destination)
IT Doc charges
49
Lashing charges
50
LOLO Charges
51
52
53
54
55
STRIPPING CHARGES
Stuffing charges
Trucking charges
Warehouse charges (Dest)
Delivery order charges
56
Damage charges
57
58
12.
Exigency charges
Page 10 of 60
for the storage at CFS yard.
Steamer company documentation charges
for specific activity.
Packing used inside container so that cargo
doesnot move and remain intact.
Being a special equipment for coordination
with shipping line/ CFS/ Port etc. being
charged.
Destination charges (foreign Country) for
ex-work shipment/ door delivery shipment.
Destination charges (foreign Country) for
ex-work shipment/ door delivery shipment.
Destination charges (foreign Country) for
ex-work shipment/ door delivery shipment
for issuance of delivery order
Destination charges (foreign Country) for
ex-work shipment/ door delivery shipment
for issuance of delivery order
Destination charges (foreign Country) for
ex-work shipment/ door delivery shipment
for issuance of delivery order
Destination charges (foreign Country) for
ex-work shipment/ door delivery shipment
for issuance of delivery order
Charges for the fumigation of container /
cargo - chemical treatment for bacteria
free etc
Destination charges (foreign Country) for
ex-work shipment/ door delivery shipment
for issuance of delivery order
Destination charges (foreign Country) for
ex-work shipment/ door delivery shipment
for issuance of delivery order
Destination charges (foreign Country) for
ex-work shipment/ door delivery shipment
for issuance of delivery order
Same as S.No. 38. Charged as a part of
ocean freight
Destination charges (foreign Country) for
ex-work shipment/ door delivery shipment
for issuance of delivery order
Destination charges for ex work
shipment/door delivery shipment
To stuff the cargo inside the container
Trucking charges
Same as s.No. 42
Documentation charges for import
container
If any damage to container at
stuffing/destuffing/ at factory etc. repair
charges paid to shipping line.
Additional charges collected for import
shipment.
They have mentioned that none of the above charges fall under either
“Business Auxiliary Service” or “Business Support Service” based on the following
facts and considering the nature of charges given above.
1. Any of the above charges are not for promotion or marketing of or
sale of goods produced or provided by or belonging to the client,
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2. None of above charges is for promotion or marketing of service
provided by the client.
3. They also do not provide any customer care service on behalf of
the client in any of the above listed activities as is evident from the
nature stated above.
4. They do not procure any goods or service which are inputs for the
client.
5. In any of the above stated activities, they do not carry out any
production or processing of goods for or on behalf of the client.
6. They are not providing any service on behalf of the client.
7. None of the above stated activity is a service incidental or auxiliary
to those specified in 1 to 6 above.
8. Brokerage is received by them as certain percentage of freight
amount
from
shipping
line
for
bookings
made
for
cargo
space/container. They further added that till 15-06-2005, they
were not covered under the definition of ‘commission agent’ as
given under Notification No. 13/2003-ST, dated 20-06-2003,
moreover they are also not covered under the ambit of commission
agent as defined in section 65(19) itself which means a person who
acts on behalf of another person and causes sale or purchase of
goods, or provision or receipt of services, for consideration. While
they book cargo space or container, they do not act on behalf of
any other person but they deal on principal to principal basis and
hence the brokerage does not come within the purview of definition
of ‘commission agent’ and hence the same should not be taxable
under the category of business auxiliary service.
9. None of the above charges are for evaluation of prospective
customers, telemarketing, processing of purchase orders and
fulfillment services, information and tracking of delivery schedules,
managing
distribution
and
logistics,
customer
relationship
management services, accounting and processing of transactions,
operational assistance for marketing, formulation of customer
service and pricing policies, infrastructural support services and
other transaction processing. Hence these charges are also not
taxable under the category of business support service that has
been made taxable w.e.f. 01-05-2006.
10. They don’t provide and service on behalf of any other person. They
are a licensed multi modal transport operator and work as such.
13.
In support of their above claim they have also taken shelter of CBEC circular
No. 334/4/2006-TRU dated 28.02.2006 and reiterated that in their case no service
was provided on behalf of others. Further, the services were not procured on behalf
of the clients and there was no third party in any of the above stated activities.
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14.
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While replying to question no. 14 they have furnished again the nature of
activities/charges, ledger head-wise upon which they have paid service tax in
Ahmedabad and not paid at other branches. The list is given below:
Sr
No.
Ledger Head
1
Air way bill fees
2
Surrender Charges
3
Via Charges
4
Amendment Charges
5
Bill of Lading Charges
6
ACD Charges
7
Brokerage charges
8
Certificate of Origin Charges
9
Coloading Charges
10
DEPB Charges
11
Destuffing Charges
12
Door Delivery Charges
13
Inland Haulage Charges
14
Repo Charges
15
THC
16
EDI Registration Charges
15.
Nature of Activity
Charged on Airline Document for
Preparation charges of Documentation
original documents surrender to shipping
line locally
If containers reaches at port affected cut
off and special request made to load the
container on current vessel
collected for any document amendment to
be done in documents issued/ filed
Documentation charges for preparing of
bill of lading
Advance Cargo declaration charges for
filing ACD in US custom for any cargo
moving from India to USA . It is been paid
either to Shipping line or Forwarder being
used for booking
Commission for shipping line
Charges for issuing certificate from
Chamber of Commerce.
cargo hand over to other consolidator for
loading
Post export completion of endorsement on
custom documents for DGFT purpose.
Container destuffing charges charged by
steamer company.
destination charges (foreign country) for
ex work shipment/door delivery shipment
transportation charges by rail or road for
movement to any inland destination from
port
Transportation charges for moving empty
container by road / rail from port / empty
yard to ICD
Terminal Handling charges for container
handling at port
Charges for registration of client with
Customs
They further reiterated that none of the above charges also fall under either
“Business Auxiliary Service” or “Business Support Service” based on the facts and
considering the nature of charges given above for the reasons as stated in para
supra while replying to question No. 10.
16.
The said service provider vide their letter dated 27.12.2010 have furnished
the reply of remaining questions, question No. 5 and 13 which were asked while
recording the statement of the Director on 02.12.2010. In reply to question No. 5
they have provided the name, address and phone no. of some of their regular
clients namely (i) Hind Prakash International, Ahmedabad; (ii) Jainson Insulation
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 13 of 60
Pvt. Ltd., Ahmedabad; (iii) Maheshraj Chemicals Pvt. Ltd., Ahmedabad; (iv) Modi
Impex, Ahmedabad; (v) Sonya Ceramics (Export Division), Ahmedabad; & (vi)
Ushanti Colorchem Pvt. Ltd., Ahmedabad.
17.
While replying to question No. 13 regarding the short payment under the
category of “Business Auxiliary Service” & “Business Support Service” arisen out of
the difference between the value shown in ST-3 returns and in their ledgers
concerned, the calculation sheet of which were provided to them on their request,
they have furnished their calculation. They have brought down the difference
considerably by mentioning the following:(i) it was mainly on account of non inclusion of income earned in May, 2006
under the head Inland Haulage charges, THC and Repo charges in the
taxable value shown in the ST-3 returns filed. Later on to buy the peace of
mind, the service tax was paid on the aforesaid charges
under “Business
Support Service” on the income earned from June’ 2006 onwards. They have
submitted their detailed statement showing month-wise calculation for each
service alongwith Journal vouchers/entries and have tried to justify their
claim that there was no short payment of service tax.
(ii) because of the rectification entries passed by way of Journal voucher for
reduction of credit balance which had credited twice.
18.
Before looking into the matter of taxability it is necessary to see again as to
what they are and what type of activities they are doing and whether such activities
are covered under the ambit of “service” or otherwise. M/s Seagull Maritime
Agencies Pvt. Ltd., Ahmedabad, have claimed that they are freight forwarders and
Multi Modal Transport Operators. The meaning/definition of freight forwarders is
given below:
18.1. The definition of “Freight Forwarder” as defined in GIA – Trading Dictionary
of Foreign/International Trade Terms: F to emphasize upon the interconnected
nature of “forwarding” and “clearing”
“Freight Forwarder.... Freight forwarders handle many of the
formalities involved in importing such shipments.
A forwarder will also advise on suitable packing for the particular
journey or commodity. He can prepare the various documents required
for the different countries, giving advice on those, which the exporter
must by law prepare himself. Freight forwarders are often called
clearing agents or act as a clearing agent when dealing in imports.”
In view of above definition, “Freight Forwarders” evidently end up performing
the functions of a clearing agents or act as “Clearing Agents”, and hence a
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 14 of 60
forwarding agent cannot extricate himself from being branded as a clearing agent,
due to the inter-connection or inter-dependency that exists between these two
activities.
Website Publication called “Trade point Tanzania – Dar e Salaam” which
acknowledges that “professional forwarders (popularly known as “Clearing Agents”)
are to process documentation and other procedures for clearing goods”. Further,
IIATA an International Association of “Freight Forwarders” situated in Switzerland
have also adopted an official description of “Freight Forwarding and Logistics
Services”, which can be tailored to meet the flexible application of the services
provided:
“Freight forwarding and Logistic Services means services of any relating to
the carriage (performed by single mode of multimodal transport means),
consolidation, storage, handling, packing or distribution of the Goods as well
as ancillary and advisory services in connection herewith, including but not
limited to customs and fiscal matters, declaring the Goods for official
purposes, procuring insurance of the Goods and collecting or procuring
payment or documents relating to the Goods. Freight forwarding services
also include logistical services with modern information and communication
technology in connection with the carriage, handling or storage of the Goods,
and de facto total supply chain management. These services can be tailored
to meet the application of the services provided.”
18.2.
Further, the `Freight Forwarding Service’ basically relate to handling of
documents for import/export of goods by Air or Sea. These services are provided
based on the Import/Export permission granted by the Ground Handling Service at
the Airport/Sea Port Custom Authority. These activities are carried out at the Air
Cargo Complex or Sea Port Area which is a Customs Area, by an authorised agency.
For providing the Freight Forwarding Service the Freight Forwarder recover various
charges such as CCX Fee, Currency adjustment factor, Air Land Handling Fees,
Delivery Order Fees, Custom processing and related charges etc from the
Consignee / Service Recipient. Unless the Freight Forwarding Activities are
completed the Custom Clearance activities cannot commence. The customers either
arrange for Custom clearances through their Custom House Agent or ask the freight
forwarder to arrange/perform such functions. In this instant case M/s Seagull
Maritime Agencies Pvt. Ltd., Ahmedabad, identifying themselves as International
Freight Forwarders, Multi Modal Transport Operators and IATA cargo agents, have
performed number of activities (as listed in para supra to the SCN alongwith their
nature and also listed in Annexure ‘A’ attached to the statement dated 31.03.2011
of Shri Samir J. Shah, Director of the company) which are necessary for the
completion of export/import activities.
OIO NO.60/STC-AHD/ADC(AS)/2012-13
19.
1994.
Page 15 of 60
The word and expression “Service” has not been defined in the Finance Act
However
The
CESTAT,
PRINCIPAL
BENCH,
NEW
DELHI
in
case
of
COMMISSIONER OF CENTRAL EXCISE, RAIPUR versus BSBK PVT.LTD. [2010(253)
E.L.T. 522 (Tri.-LB)] has defined the word and expression “service” as under:
“The term ‘service’ means service of any description made available to
potential user and includes provision of facilities – Service may mean any
benefit or any act resulting in promoting or serving interest of recipient Service may be contractual, professional, public, domestic, legal or statutory.”
The definition of “Service” as available in Business Dictionary is as under:Service means:1. Valuable action, deed, or effort performed to satisfy a need or to fulfill a
demand.
2. Aspect of maintenance.
20.
The definition of service given above clearly speaks that the activity of
provision of facilities is also called service to any one. Such term has varieties of
meaning, it may mean any benefit or any act resulting in promoting or serving
interest of recipient. It may be contractual, professional, public, domestic, legal,
and statutory etc. In the instant case the said service provider had performed the
activities for their customers for the consideration i.e. they had charged their
customers for each and every activity which they had provided. Hence, all such
activities performed by the said service provider are squarely covered under the
definition of service.
21.
They had charged from their customers for filing Import General Manifest, for
arranging transport for picking cargo from factory/ shipment site, getting container
cleaned,
EDI
Registration
charges,
unloading,
fumigating
the
container,
preparing/obtaining various documents viz. Bill of Lading, Amendments to be done,
handling the cargo, Customs clearance for processing of the shipment, Hazardous
charges, Pick up charges, LCL charges, Concor charges, DAD Charges etc. The said
service provider had arranged the space in Airways as well as in Shipping Lines and
paid Ocean Freight, Air Freight and have also got Air Commission, Brokerage
charges and Marketing & Supervision charges etc. from concerned Agencies.
22.
Scrutiny of the invoices revealed that they were engaged in providing a chain
of services to various exporters/importers as well as to Custom House Agents etc.
These invoices have been issued for handling an export shipment for which Air
Freight charges, Ocean Freight, BAF Fees, ACD Charges, Bill of Lading Charges,
Stuffing charges, Certificate of Origin charges, Lashing charges, Port THC, Coordination charges etc. have been recovered by them. They have issued these
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 16 of 60
invoices job-wise and export consignment-wise by putting a note in this regard, eg.
“Invoice No. 10/LE/AHD/12 dated 17.04.2007 issued to M/s J.B.Shah, Ahmedabad,
contains the following note “being amount debited for CBM 1.000 CBM of A/c Tilak
Polypack Pvt. Ltd. for POD – New Jersey of Job No. – 10/LE/AHD/USNYC/09 for S/B
No:- 1258564 dated 07/04/07 & Cont No. TTNU-24406520/20’ .” Shri Samir J.
Shah, Director of the said service providing company, in his statement dated
02.12.2010, recorded during the investigation has accepted that they work for
exporters,
importers,
CHAs
and
other
forwarders
and
are
operational
at
Ahmedabad, Baroda, Gandhidham and Nagpur. The shipments handled would have
originated or terminated at various places viz. factory, warehouse, ports/airports
both international and within India. Shri Samir J. Shah, further accepted that they
are providing multiple services on consignment to consignment basis and the
number
of
services
to
be
provided
depends
upon
the
requirement
of
exporter/importer.
23.
From the above facts and investigation conducted it appeared that the said
service provider while performing the various activities as mentioned in para supra,
had supported the business of exporters, importers, CHAs etc. on principal to
principal basis and had also earned commission or brokerage for booking space in
aircrafts and shipping lines for their customers. It thus appeared, that the aforesaid
service rendered by the said service provider falls under the category of “Business
Auxiliary Service” as defined in section 65(19) of the Finance Act, 1994 as well as
under the category of “support services of business or commerce” as defined in
section 65(104c) of the Finance Act, 1994, which are taxable under the respective
sub-sections of Section 65 of Finance Act, 1994.
24.
The number of services provided by the said service provider, the details of
which have been shown alongwith their nature in above paras indicated that they
had provided various types of services viz. “Business Auxiliary Service”, “Business
Support Service”, “Transport Service”, somewhere “Port Services”, “Cargo Handling
Service”, “Warehousing Service” etc. but in composite manner to support the
business or commerce of their customers viz. Importer/exporter/CHAs etc. Looking
to the circumstances it appeared there was a need to classify these services
appropriately by keeping in view the provisions regarding classification of taxable
services
25.
Section 65 A of finance act 1994 provides the manner for the classification of
taxable services. The relevant statutory provisions are reproduced below:(1)
For the purposes of this Chapter, the classification of taxable services
shall be determined according to the terms of the sub-clauses of clause
(105) of section 65.
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(2)
Page 17 of 60
When for any reason, a taxable service is, prima facie, classifiable under
two or more sub-clauses of clause (105) of section 65, the classification
shall be effected as followed.
(a)
The sub-clause which provides the most specific description shall be
preferred to sub-clauses providing a more general description.
(b)
Composite service consisting of a combination of different services
which cannot be classified in the manner specified in clause (a) shall
be classified as if they consist of a service which gives them their
essential character, in so far as this criterion is applicable.
(c)
When a service cannot be classified in the manner specified in clause
(a) or clause (b), it shall be classified under the sub-clause which
occurs first among the sub-clauses which equally merit consideration.
26.
On perusal of the definition of “support services of business or commerce”, it
appeared that the expression “services provided in relation to business or commerce”
is all encompassing and includes every service provided in relation to business or
commerce. Furthermore, the said definition is an inclusive definition and covers
various services. Therefore, for exclusion it is necessary to show the exact nature of
service provided. As mentioned in the foregoing paras that the said service provider
had provided their services to the exporters, importers, manufacturers and CHAs on
principal to principal basis which comprised of so many chain of standalone services.
They have managed these services and had provided the same to support the
business or commerce of their clients.
27.
On the basis of the above facts and discussions, it appeared that the services
provided are appeared to be classifiable most appropriately in the manner as
mentioned in proviso 2 (b) of section 65 A of Finance Act 1994 under the category
of “Business Support Services” (BSS) and “Business Auxiliary Services” (BAS) as
these services gives essential characters of the said taxable service.
28.
On the basis of the above, the activities alongwith the nature of services
provided by the said service provider company have been categorized most
appropriately in two taxable services viz. “Business Support Services” and
“Business Auxiliary Services” in Annexure ‘B’ attached to the Show Cause Notice.
29.
On scrutiny of ledger abstracts provided by the said service provider, it was
noticed that in most of the cases they had received higher amount reflected at
credit side then that of the expenditure shown in debit side of the respective
ledgers from their customers and they had carried forward the closing balances
(excess of credit on debit side) to their financial accounts under the Head “income”.
OIO NO.60/STC-AHD/ADC(AS)/2012-13
30.
Page 18 of 60
On being asked regarding the reasons, the said service provider in their
written reply dated 16.10.2009, had stated that they are freight forwarders and in
the course of their business they buy various freight related services and then sell
the same to their customers of which income detail had been shown in the balance
sheet of the respective years.
31.
Scrutiny of the documents lifted under the panchnama dated 26.08.2008 and
other documents called for during the investigation revealed that they have
undervalued their taxable services the details in this regard have been elaborated
in the SCN.
32.
Scrutiny of the financial accounts and documents provided revealed that the
said service provider had not fulfilled all the conditions of “pure agent” as
mentioned in Rule 5(2) and proviso thereto of the Service Tax (Determination of
Valuation) Rules, 2005 for the reasons given below :
(i)
they had acted on principal to principal basis while providing the services to
their customers as they had purchased the activities and then sold the
same to their customers latter. In these circumstances it appeared that all
the bills raised by their vendors must had been in the name of M/s Seagull
Maritime Agencies Pvt. Ltd., Ahmedabad. Hence they had not procured
goods or services for their customers;
(ii)
they were required to receive only the actual amount incurred to procure
goods or services while acting as pure agent whereas they had collected
excess money from their customers as reflected in their financial accounts;
(iii) every service provider who acts as a pure agent is required to mention the
amount received/charged as pure agent in their ST-3 returns. In the instant
case ST-3 Returns filed during 2005-06 to 2008-09, revealed that no
amount had been received/charged in the capacity of pure agent by the
said service provider because of the fact that they had not acted as a pure
agent and had thus not received/charged any amount as pure agent from
their customers.
33.
It is further noticed that they have even recovered more money on those
taxable activities/services which appeared to be in the nature of reimbursable
expenses. Some of such charges are Transportation/Trucking charges, Ocean
Freight, Insurance Charges, Air Freight Charges, Concor Charges, Fuel & Security
Charges, CC Charges, BAF Fees etc.
34.
From the facts mentioned here-in-above it appeared that the said service
provider had split its consideration in to taxable and non taxable portion, e.g. they
have categorized “Ocean freight” recovered from the client as nontaxable portion
by showing it as a sale of service and during the period from April’2006 to
March’2009,
they
had
recovered
the
amount
of
Rs.
1,68,06,595/-
[Rs.
1,70,37,363/- (gross) – Rs. 2,30,768/- (representing journal entries)] under the
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 19 of 60
head “Ocean Freight” and have showed expenses worth Rs. 1,48,91,891/- under
the said head and hence have recovered an excess amount of Rs. 19,14,704/under the head of “Ocean Freight”. Whereas, it appeared that ”Ocean Freight” is
part of the composite activity which has been undertaken to accomplish
export/import for a particular client. Thus, it appeared that the said service provider
has vivisected the composite activity in to various activities resulting in to artificial
fragmentation of value with an intention to evade the payment of service tax.
35.
Investigation has not considered the debit side of the ledgers because it is
clearly mentioned under Rule 5(1) of provision of Service Tax (Determination of
Value) Rule, 2006, that all expenditure or costs shall be treated as consideration for
the taxable service provided or to be provided and shall be included in the value for
the purpose of charging service tax on the said service.
36.
The valuation of all the taxable services as classified in Annexure ‘B’ to this
Show Cause Notice has been done by keeping in view the clarification given under
Explanation 2 below Rule 5(2) of Service Tax (Determination of Value) Rule, 2006,
by taking the total amount of consideration of taxable services consisting of all
components of the taxable services i.e. the total amount received from the clients.
The service-wise and year-wise valuation is accordingly shown in Annexure ‘C’ to
the Show Cause Notice.
37.
Proviso 2 to Sub Rule 1 of Rule 6 of the Service Tax Rules, 1994 states that
the payment of service tax shall be at the time of receipt of payment toward the
value of services. In view of this the billed amount and received amount shown in
respective ST-3 Returns filed by the said service provider, have been compared
with the financial records viz. profit and loss and Balance Sheet of the respective
financial year and it appeared that the said service provider had received almost all
the billed amount of the taxable services as the amount outstanding with sundry
debtors and bad debts are negligible in all the years. Hence the calculation of
service tax liability has been done on the billed amount as per their financial
records.
38.
From the facts and discussions mentioned here-in-above, it appeared that all
the activities performed by the said service provider during 2005-06 to 2008-09
were very well covered under the ambit of taxable services and they had
deliberately chosen some of the taxable activities from their total taxable activities,
which they were providing to their customers viz. Exporters/importers/ CHAs etc.
while supporting their business or commerce.
39.
They had suppressed the correct value from the department by not
considering the actual receipts as has been discussed above in relevant paras,
further they appeared to have not acted as pure agent and are required to consider
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 20 of 60
total receipts (i.e. receipts shown in credit side of their ledgers of taxable services)
even for such charges which appeared reimbursable in nature as discussed in
relevant paras in the SCN. ST-3 returns filed, during the period under question, by
them also supported the above facts as no receipts/charges paid as pure agent
appeared in the said Returns.
40.
Thus the correct taxable value on their taxable services as detailed in
Annexure
‘B’
to
the
Show
Cause
Notice
has
been
calculated
to
Rs.4,20,82,082/- (Rs. 13,67,828/- under the category of “Business Auxiliary
Service” plus Rs. 4,07,14,254/- under the category of “Business Support Service”),
for the period from 2005-06 (October’2005 to March’2006) to 2008-09, which has
been shown in Annexure ‘C’ to the Show Cause Notice, upon which the said service
provider were required to pay Service Tax of Rs.51,78,356/- (Rs.1,68,070/- under
the category of “Business Auxiliary Service” plus Rs.50,10,286/- under the category
of “Business Support Service”) the calculation of which has been shown in Annexure
‘D’ to the Show Cause Notice. However, the said service provider has already paid
service tax of Rs.21,53,424/- during F.Y. 2005-06 (October’2005 to March’2006)
to F.Y. 2008-09. Therefore, the differential service tax of Rs.30,24,932/- is the
service tax short paid by the said service provider which is required to be recovered
from them under the proviso to Section 73(1) of the Finance Act, 1994 along with
interest under Section 75 ibid.
41.
It further appeared from the details elaborated herein above that the said
service provider had contravened the provisions of:I. Section 67 & Section 68 of the Finance Act, 1994 read with Rule 6 of the
Service Tax Rules, 1994 in as-much-as they have failed to pay the service
tax amounting to Rs.30,24,932/- as mentioned
in para supra for the
period from 2005-06 (October’2005 to March’2006) to 2008 -09 to the credit
of the Government
as specified in Section 66 of the Finance Act, 1994 in
such manner and within such period as may be prescribed and have thereby
rendered themselves liable to penalty as provided under section 76 of
Finance Act, 1994.
II. Section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax
Rules, 1994 as that they have not obtained the service tax registration for
their branches located at Baroda & Nagpur.
III. Section 70 of the Finance Act, 1994 as amended read with Rule 7 of the
Service Tax Rules, 1994 in as much as they have failed to self – assess the
Service Tax on the taxable value received by them and to file ST-3 returns
for the said service provided during the period from Financial Year 2005-06
(October’2005 to March’2006) to 2008-09 and have thereby rendered
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 21 of 60
themselves liable to penalty as provided under section 77 of Finance Act,
1994.
42.
From the evidence, it appeared that the said service provider had not
correctly assessed their taxable value. They also failed to include the correct value
in ST-3 Returns for the taxable services rendered by them and by not paying the
service tax at appropriate time due on their taxable service rendered themselves
disregarding to the requirements of law and breach of trust deposed on them. Such
outright act of defiance of law appeared to had rendered them liable for stringent
penal action as per the provisions of Section 78 of Finance Act 1994 for suppression
or concealment of value of taxable service with intent to evade payment of service
tax.
43.
All the above acts of contravention on the part of the said service provider
appeared to had been committed by way of suppression of facts with an intent to
evade payment of service tax as discussed in the foregoing paras and therefore, the
said differential amount of service tax worth Rs.30,24,932/- not paid/short paid is
required to be demanded and recovered from them under the proviso to Section
73(1) of the Finance Act, 1994 by invoking extended period of five years for the
reasons stated herein foregoing paras. All these acts of contravention of the
provisions of Section 67, Section 68, Section 69 and Section 70 of the Finance Act,
1994 read with Rule 4, Rule 6 and Rule 7 of the Service Tax Rules, 1994 appeared
to be punishable under the provisions of Section 77 and Section 78 of the Finance
Act, 1994 as amended from time to time.
44.
In addition to the contravention, omission and commissions on the part of
the said service provider as stated in the foregoing paras, it appeared that, they
had suppressed the facts, nature and value of service provided by them viz.
Business Auxiliary Service and Business Support Service with an intent to evade the
payment of Service Tax rendering themselves liable for penalty under Section 78 of
the Finance Act, 1994.
45.
Every person liable to pay the service tax in accordance with the provisions
of Section 68 or Rules made there under, if fails to credit the tax or any part
thereof to the credit of central government within the prescribed period, shall pay
interest at the rate notified by the government time to time. Since the said service
provider have failed to pay the service tax, they are liable to pay the interest at the
prescribed rates recoverable from them under the provisions of Section 75 of the
Finance Act, 1994.
46.
Therefore, the said service provider were issued a show cause notice
F.No.STC-05/O&A/SCN/SMA/ADC/11-12 on 20.04.2011 asking them as to why :
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 22 of 60
I. The services rendered by them during the period 2005-06 (Oct. 2005’ to
March 2006’) to 2008-09 should not be classified afresh under the taxable
category of Business Auxiliary Service and Business Support Service as
defined under Section 65 (105) (zzb) & Section 65 (105) (zzzq) of the
Finance Act, 1994 respectively as detail in Annexure “B” to the SCN ;
II. Services rendered by them should not be considered as taxable services
under the category of Business Auxiliary Service and Business Support
Service as defined under Section 65 of the Finance Act 1994, as amended,
and the amount of taxable value of Rs.4,20,82,082/- received as
payment/recovered by them from their customers should not be considered
as taxable value and differential amount of Service Tax amounting to
Rs.30,24,932/- for the period from F.Y. 2005-06 (October’2005 to
March’2006) to F.Y. 2008-09 should not be demanded from them under
the proviso to section 73(1) of the Finance Act, 1994, invoking extended
period of five years as discussed hereinabove ;
III. Interest as applicable on the amount of service tax liability of
Rs.30,24,932/- should not be recovered from them for the delay in making
the payment, under Section 75 of the Finance Act, 1994 as amended;
IV. Penalty should not be imposed upon them under Section 76 of the Finance
Act, 1994 as amended for the failure to make the payment of service tax
within the prescribed time limit under the law;
V. Penalty should not be imposed upon them under Section 77 of the Finance
Act, 1994 as amended for the failure to take registration and to file
prescribed service tax returns for their branches located at Baroda and
Nagpur; and
VI. Penalty should not be imposed upon them under Section 78 of the Finance
Act, 1994 as amended for suppressing the value of taxable services provided
by them before the Department with intent to evade payment of service tax
amounting to Rs. 30,24,932/- for the period from 2005-06 (October’2005 to
March’2006) to 2008-09.
DEFENCE REPLY :47.
The said service provider has filed their defence reply on 03.08.2011 vide
their letter dated 25.07.2011 wherein they submitted that the proposal to demand
service tax for the period October 2005 to March 2009 is barred by limitation in
terms of proviso to Section 73(1) of the Finance Act 1994 as amended ; that in
terms of Section 73(1) of the Finance Act, 1994 as amended, a Show Cause Notice
can only be issued within a period of one year from the relevant date. However, in
terms of proviso to Section 73(1) of the Finance Act, 1994 as amended notice can
be served at any time within five years ; that since none of the above mentioned
ingredients required for invoking the extended period of 5 years are present in the
instant case ; that the entire facts were known to the department and therefore
there is no justification for invoking extended period of limitation on the ground of
suppression, fraud, collusion, wilful misstatement, contravention with intent to
evade payment of tax; that merely because the department officials verified the
data and are not in agreement with the legal position adopted by the assessee, the
same cannot be a reason for invoking extended period of limitation; that the
Supreme Court in the case of Jaiprakash Industries Ltd. Vs. Commissioner of
Central Excise (2002) 146 ELT 481 has held that bona fide doubt as to nonexcisability of goods, in such circumstances extended period of limitation is not
invokable as there is no evidence of any fraud, collusion, wilful misstatement or
suppression of fact available with Department. Mere failure or negligence in not
taking license or not paying duty not sufficient to invoke extended period ; that
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 23 of 60
they further rely on the case laws of Honorable Supreme Court in the case of
Padmini Products v. Collector of Central Excise reported in 1989 (43)ELT195 (S.C.),
Supreme Court in the case of M/s. Continental Foundation Joint Venture Vs. CCE
(2007) 216 ELT 177 , Hon’ble Supreme Court in the case of Pushpam
Pharmaceuticals Company Vs Collector of C. Ex. Bombay (1995) 78 ELT 401,
Supreme Court in the case of Collector of Central Excise Vs. Chemphar Drugs &
Liniments Ltd (2002) TIOL 266, Tribunal in the case of Catvision Products Ltd
(2006) 194 ELT 126, Supreme Court in the case of Nestle India Limited Vs. CCE
(2009) TIOL 26, High Court of Kerala in the case of Commissioner of Customs Vs.
Cochin Minerals & Rutiles Ltd. (2010) 259 ELT 182, Hon’ble Supreme Court in the
case of CCE Vs. Ballarpur Industries (2007) 8 SCC 89, Supreme Court in the case of
Collector of Central Excise Vs. H.M.M. Ltd. (1995) 76 ELT 497, Hon’ble Mumbai
Tribunal in the case of Sands Hotel Pvt. Ltd. Vs CST (2009) TIOL 441, Hon’ble
Tribunal in the case of Rolex Logistics Pvt Ltd Vs Commissioner of Service Tax
(2009) 13 STR 147.
47.1
They further submitted that it is evident from the facts that the
department had withdrawn their all records comprising of ledger accounts, profit
and loss account, balance sheet, ST-3 returns and other relevant papers vide
Panchnama dated 26-08-2008. It did not issue SCN within a period of acquiring
knowledge of their activities and hence relying on decision of Hon. Supreme Court
in case of Nizam Sugar Factory V. CCE [2008 (9) STR 314 (SC)], the demand is
time barred. Hon. Supreme court in this case observed as follows. “Allegation of
suppression of facts against the appellant cannot be sustained. When the first SCN
was issued all the relevant facts were in the knowledge of the authorities. Later on,
while issuing the second and third show cause notices the same/similar facts could
not be taken as suppression of facts on the part of the assessee as these facts were
already in the knowledge of the authorities; that they agree with the view taken in
the aforesaid judgments and respectfully following the same, hold that there was
no suppression of facts on the part of the assessee/appellant.” Sir, following the
ratio laid down in Nizam Sugar (supra), as all the relevant facts were in the
knowledge of the authorities, the same/similar facts could not be taken as
suppression as wrongly alleged in the SCN. In their case the SCN is issued after
about 33 months on 20-04-2011. This fact makes the SCN hopelessly time barred
as all the facts about their activities were reflected in their audited accounts and
there is no suppression or intention to evade payment of service tax on their part
when their activities were in the knowledge of department since the date of their
registration on 08-09-2005 and more particularly on 26-08-2008 when their
records were withdrawn.
47.2
They further submitted that they had paid due service tax in respect of
BAS and BSS where payable and accordingly to the trade practice as also based on
the advisories provided by Trade Association and their Chartered Accountants from
time to time. However, since the amount of freight and activities incidental to
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freight were not taxable in their hands, they did not charge or recover service tax
on this amount under a bona fide belief that the service tax is not payable thereon.
Further, their bona fide belief was based on trade practice followed by other players
in the market, advisory by trade associations, advise from their chartered
accountants and the facts of not charging of service tax on such activities by them
to their customers stand reflected in the invoices raised by them and all their
records which are perused by the department; that their bonafide belief was also
based on a series of decisions of different Tribunals holding that freight element
cannot be included for service tax and profit from other activities were not taxable.
Some of these decisions are Bax Global India Ltd. v. CST [2008 (9) STR 412 (Tri.Bang.)] and Gudwin Logistics v. CCE [2010 (18) STR 348 (Tri.-Ahmd.)]
47.3
They further submitted that Seagull is a limited company, their
accounts are audited by statutory auditors and the Balance Sheets and other
related documents are publicly available for verification under provisions of
Companies Act, 1956. Under the circumstances, it is not proper to allege
suppression on their part without even a whisper of evidence to this effect; that
they had filed their periodical ST-3 returns regularly since the date of registration
showing the value of taxable services therein and this also proves that there was no
suppression or intent to evade payment of service tax on their part; that the SCN
does not talk about the circumstances why it can invoke the provisions of extended
period of limitation except routinely alleging suppression with intent to evade
payment of service tax. It only depicts wrong attitude of routinely invoking the
extended period of limitation. They draw attention to CBEC Circular No. 5/92-CX.4,
dated 13-10-1992 – (1993) 63 ELT T7, wherein Board has taken note of such
attitude. Board has stated that such attitude only increased fruitless adjudication
with the gamut of appeals and reviews, inflation of outstanding figures and
harassment of assesses. Board has warned that such casualness in issuance of
show cause notices will be viewed seriously. It further clarifies that mere nondeclaration is not sufficient for invoking larger period, but a positive mis-declaration
is necessary, as per decision of Supreme Court in Padmini Products and Chemphar
Drugs.
47.4.
They further submitted that the dispute in the present case as regards
inclusion of value of freight and other incidental activities in the value of taxable
service under the category of BSS is a pure question of interpretation at a nascent
stage of imposition of a completely new levy viz. service tax on BSS w.e.f. 01-052006. This is also evident from the majority of decisions holding that amount
charged for freight and freight related activities are not taxable under different
services proposed by department in different cases. The fact that the department
had demanded service tax on freight and other incidental charges under different
heads also prove that even department is in dilemma as to the precise classification
of these activities. The following decisions and departmental clarifications support
their view that the question of interpretation is involved in the present issue.
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(i)
Bax Global India Ltd. v. CST [2008 (9) STR 412 (Tri.-Bang.)]
wherein department had sought to tax receipts for freight forwarding
activities like air that of freight, storage and warehousing, freight
revenue, cartage revenue, MSIL/JWG charges, Due carrier charges,
Liner charges, examination fees, DO fees, Bill of Lading fee, CFS
charges, ‘Charges Collect Fee’, ‘Currency Adjustment Fee’ (CAF) etc.
under customs house agent (CHA) service. Hon. Tribunal held that
these air exports, air imports, ocean exports, ocean imports, logistics
are not taxable under CHA service as the services are rendered by the
third party despite there being profit or loss on such activities. It
further held that even if any profit has been made in respect of those
activities they cannot be subjected to service tax.
(ii)
Gudwin Logistics v. CCE [2010 (18) STR 348 (Tri.-Ahmd.)]
wherein activities of ocean freight, getting goods fumigated, loading
and unloading, stuffing of containers, facilitation of clearance of cargo
etc. in port area were proposed to be taxed under Clearing and
Forwarding C&F) Service. Tribunal held that impugned activities are
not C&F services. Tribunal also noted that substantial portion of the
total amount collected by the appellants relates to ocean freight which
itself is not liable to Service tax at all. The decision of the Tribunal in
the case of DHL Lemuir Logistics Pvt. Ltd. relating to air freight is
applicable to the facts of this case also and therefore the decision of
the Commissioner that ocean freight also should be included for the
purpose of Service tax levy on the appellants prima-facie appears to
be wrong.
(iii)
DHL Lemuir Logistics (P) Ltd. v. CST [2010 (17) STR 266 (Tri.Bang.)] where department sought to tax activity of freight forwarding
under CHA service and Tribunal holding that all activities conducted
by the appellants cannot be categorized under one category and
charged to service tax and that activities relating to freight forwarding
cannot be brought under CHA. It held that freight charges collected for
transportation service by airlines, Charge Collect Fees, Break Bulk
Fees, profit share, unallocated income, Currency Adjustment Factor,
Air/Sea
freight
rebate,
commission/brokerage,
expenses
reimbursement explained etc can not be included in taxable value of
CHA service.
(iv)
Jet Airways (India) P. Ltd. v. CCE [2010 (17) STR 94 (Tri.Bang.)] where department sought to tax charges for transportation of
cargo from one place to another by the airways under cargo handling
service and Tribunal held that it would not amount to cargo handling
services.
(v)
Jet Airways (India) Ltd. v. CST [2008 (11) STR 645 (Tri.Ahmd.)] where department sought to tax charges for transport of
goods by aircraft by the airways under cargo handling service and
Tribunal held that it would not amount to cargo handling services.
(vi)
Lee & Muir Head Pvt. Ltd. v. CST [2009 (14) STR 348 (Tri.Bang.)] wherein department sought to tax on freight collection and
receipt of commission therefore, import console charge, charge
collected fee, delivery order fee etc. under CHA service and Tribunal
held that it can not be taxed under that service. Further department
had sought tax transportation under Cargo Handling service and
Tribunal held that mere transportation is not covered under cargo
handling service.
Kin-Ship Services (India) P. Ltd. v. CCE [2008 (10) STR 331
(Tri.-Bang.)] wherein stevedoring activity was sought to be taxed
under port service by the department and Tribunal held that it cannot
be taxed under port service. Further, department also sought to tax
(vii)
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transportation charges under CHA service Tribunal held that it cannot
be included in CHA service.
(viii)
47.5
CBEC letter F. No. 137/131/2004-Cx.4, dated 12-12-2007
clarified that delivery order charge and inland haulage charges
collected by shipping companies for conveyance of outwards surface
Indian Postal Mails to various foreign countries and handling of export
cargo or passenger baggage etc. is covered under ‘business support
service. Such clarification issued by the department shows that there
was a doubt on this issue though the service tax is imposed under BSS
since 01-05-2006 and hence the issue involves question of
interpretation.
It can be seen from only some of the decisions stated above that
department had sought to tax the activities of freight forwarding under varying
services like that of CHA, C & F agent, Cargo Handling, Port, etc. This proves that
even departmental officers are not at uniformity in concluding about the correct
classification. Apart from above decisions, there are series of other interim and final
orders on the issue of these charges which clearly prove that the question of
interpretation is involved.
47.6.
It must be appreciated that they are basically engaged in the activity
of freight forwarding, multi-modal transport etc. They wish to submit that they
have discharged service tax in accordance with the provisions of law ; that the
expenses such as AD charges, DAD charges, choking charges, detention charges
etc. reimbursed by the client and hence it cannot be considered as consideration for
the taxable service. Further, the Board has clarified that container detention
charges is not liable to service tax; that the difference between purchase price and
selling price of ship space is not liable to service tax.
47.7.
and
They further re-produced the definition of ‘Business Auxiliary Service’
Business Support Service. They further submitted that
a reading of the
definition of Business Auxiliary Service as well as Business Support Service make it
clear that the items which are separately recovered (as detailed in Para No.12)
cannot be called as consideration; that the show cause notice has proceeded with
the assumption that the “Business Support service” includes every service provided
in relation to business or commerce, which may or may not fall under any other
category. However, this can not be the intent of the law as had this been the case,
there was no need for any other category of taxable service. Therefore, it is
submitted that “Business Support Service” can not be treated as a residuary
category of taxable service. In other words, in case a service is covered under a
specific category and gets excluded from there because of some specified exclusion,
it can not be taxed under this category, nor a service not covered under any other
taxable category can be taxed hereunder; that
Section 65(19)(i) of the Finance
Act, 1994 as amended provides for promotion of marketing or sale of goods
produced or provided by or belonging to the client; that in the instant case, they
are not promoting or marketing any kind of goods produced or provided or belongs
to the client and therefore 65(19)(i) has no application; that
Section 65(19)(ii)
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provides for promotion or marketing of services provided by the client , that in the
instant case, they are not promoting any sort of service provided by any person;
that Section 65(19)(iii) provides for any customer care service provided on behalf
of the client; that in the present case, they are not providing any customer care
services on behalf of the client; that Section 65(19)(iv) provides for procurement of
goods or services, which are inputs for the client; that in the instant case, they are
not procuring any sort of goods or services, which are inputs for the client to attract
the provisions of Section 65(19)(iv); that Section 65(19)(v) provides for production
or processing of goods for or on behalf of the client; that they
are not either
producer or processor on behalf of the client. Further, in the instant case, there is
no goods involved, therefore, Section 65(19)(v) has no application; that Section
65(19)(vi) provides for provision of services on behalf of the client; that in the
instant case, they are not making any provision of services on behalf of the client in
order to attract Section 65(19)(vi).
47.8.
They further submitted that based on following submissions and facts
they stated that the fresh classification as suggested in the SCN is not correct in so
far as it relates to certain non-taxable activities as also the activities which are not
taxable under the categories of BSS as wrongly presumed in the SCN, that they are
registered with the department since 08-09-2005 under service tax registration
number AACCS0037LST001 and department has never raised any issue of
classification in the past; that their
Ledger abstracts, copies of audited balance
sheets and profit and loss account, ST-3 returns and other relevant details about
nature of their activities were provided to the department on 26-08-2008; that no
questions were raised for more than 11 months after the withdrawal of all these
records and getting all the relevant information about their activities during the visit
of their office on 26-08-2008 and it appears that the SCN is issued to them after a
gap of about 33 months hurriedly classifying certain activities under BSS without
still properly understanding the nature of activity which is mainly related to freight;
that vide their letter dated 16-12-2010 explained in detail nature of 58 activities
on which service tax was not payable by them as freight forwarders either under
BAS or BSS. The said submissions of their get reflected in Paragraphs 12 to 14 of
the SCN; that they had explained in detail how were not liable to pay service tax
either under BAS or BSS on any of these activities. However, the SCN proposes to
classify all these activities under BSS without giving any specific cogent reason for
coverage of each activity and by merely stating in Annexure ‘B’ of the SCN the
classification as BSS based on presumption. BSS is not a residuary service to cover
each and every service provided in relation to business or commerce but it includes
those services in relation to business or commerce which are specifically included in
the definition of ‘support services of business or commerce’ as given in section
65(104c) of the Act.
47.9.
That none of the charges of 58 activities stated in paragraph 12 of the
SCN are for evaluation of prospective customers, telemarketing, processing of
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purchase orders and fulfillment services, information and tracking of delivery
schedules, managing distribution and logistics, customer relationship management
services, accounting and processing of transactions, operational assistance for
marketing, formulation of customer service and pricing policies, infrastructural
support services and other transaction processing. Hence these charges are not
taxable under the category of business support service that has been made taxable
w.e.f. 01-05-2006 as wrongly presumed by the SCN. If the classification as
proposed by the SCN is to follow there is no need for specifying 119 different
taxable services under section 65(105) of the Act most of which are in relation to
business or commerce. The category of BSS proposes to cover within its ambit only
11 specified services if they are provided in relation to business or commerce. If the
service is not falling under any of the specific 11 activities, they cannot be covered
under the category of BSS. Even the SCN has not been able to point out any
specific activity out of those 11 activities covered within the scope of BSS, making
SCN bad in law ; that their activity of buying and selling does not attract service
tax. For example, buying the space in a ship and selling to their customer, there is
no service tax liability on their part as they do not provide any service. The shipping
line or the airline provide such service relating to freight and in terms of provisions
of Finance Act, 1994, a service provider is liable to pay service tax in terms of
provisions of section 68(1) of the Act. Further, for such service they are also not
made liable to pay service tax as recipient of service in terms of provisions of
section 68(2) of the Act; that they earn only a margin of profit on sale of such
space to their customers. It has been categorically held in the case of Bax Global
India Ltd. v. CST [2008 (9) STR 412 (Tri.-Bang.)] that freight collected towards air
freight for the customers and paid to airlines cannot be taxed under Custom House
agency activity. An order seeking to tax this activity was held to be without
application of mind by the adjudicating authority to the details of the various
activities undertaken by the appellants and how they relate to the amount collected
by them. It was also held therein that the profit or loss incurred in respect of
activities which are not related to CHA activity should not be the concern of the
department; that it further observed that in all these cases the services are
rendered by the third party and the appellants initially make payment for the
activities on behalf of the client and later collect the amount from the clients ; that
It was also held therein that charges like ‘charges collect fee’, ‘DO fee’ ‘Currency
Adjustment Fee’, ‘Cartage revenue’, etc. for services directly rendered and whose
nature is clearly explained by the appellant is not taxable even if any profit has
been made in respect of those activities; that the SCN, without categorically
pointing out why each activity will be classified under BAS or BSS, states in its
paragraph 33 in general apprehensive manner, that “it appears that the services
provided are appears to be classifiable most appropriately in the manner as
mentioned in proviso 2(b) of section 65A of Finance Act, 1994 under the category
of BSS and BAS as these services gives essential characters of the said taxable
service.” Such vague assertions and apprehensions without meticulously looking
OIO NO.60/STC-AHD/ADC(AS)/2012-13
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into the nature of each activity cannot decide the classification; that each of the
activities carried out by them need to be classified separately as taxable and not
taxable service and if they are taxable, it has to fall under any of the 119 taxable
services and the department has not discharged its onus to classify them with
reference to the nature of each activity and merely resorted to presumption of
classifying the same mostly under BSS which is a cruel attempt to demand service
tax on activities which are not taxable and which are not covered under BSS.
Specific description of their service is that of ocean freight and air freight purchased
from shipping line or airline and then sold to our customers. All other services are
incidental to freight and when the ocean freight or air freight service is such that is
not attracting any tax under any of the categories on the part of the freight
forwarders who are not actually providing this service, the said service cannot be
held to be taxable on the part of freight forwarders who only act as intermediary to
purchase space for its customers and because they do not actually provide the
service using their ship or aircraft. They rely on order of Commissioner of Central
Excise (Appeals), Chennai in the case of AVR Cargo Agency Pvt. Ltd. in Order in
Appeal No.85/2011 (MST) dated 27.05.2011.
47.10.
They further rely in the case of Pratap Sing and Sons Vs.CCE(2007)5
STR 289 has held that where the appellant purchases and resells the products of
several manufactures, the appellant on purchase of goods becomes the owner of
the goods. It is in the appellant’s own interest to promote the sales activities,
make advertisement, keep trained salesman. This cannot be considered as service
rendered to principals namely manufactures. If there was any special relationship
or additional consideration leading to charging of lower price to the appellant, at
the most it can become an issue relating to valuation of goods. The discount given
by the manufacturer cannot be taken as service charges.
47.11.
They further submitted that the air freight difference arises on
account of principal-principal relationship, where the member buys air cargo
space and sells air cargo space. The difference between the selling price and the
purchase price is nothing but profit or loss as the case may be and cannot be
considered as Business Auxiliary Services or Business Support Services. Thus,
going by the provisions of section 65A(2)(a), the specific description of nature of
activity of freight forwarder is to buy and sell space in ship or aircraft. This activity
of buying or selling the space is not taxable under any of the 119 categories of
taxable service even today. Hence their activity cannot be classified under BSS as
wrongly proposed in the SCN; that each activity of ocean freight or air freight and
incidental activities related thereto are independent and on stand alone basis
separate activities. However, even if it is presumed to be a composite activity, the
essential character of the service is that of freight service and accordingly, even in
terms of provisions of section 65A(2)(b) of the Act, the service has to be classified
as that of ocean freight or air freight service and for such service the service
provider is shipping line or the airline and freight forwarder is not actually
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providing this service. He only buys and sells the space in the ship or aircraft and
accordingly, even going by the provisions of section 65(2)(b), their activity can,
by no stretch of imagination, be said to be BSS. Further, even if incidental
activities like BAF lashing charges, PCS charges, BAF charges, Chocking charges,
ETCS charges, CONCOR charges etc. are considered as a part of composite
service of freight, all these charges are relating to freight and hence also the
classification of activity has to be that of freight as freight is the essential
character of service; that their activity of buying and selling space in ship or
airline i. e. relating to freight is not classifiable under the category of BSS.
47.12.
They further submitted that it is well settled that once there is a
specific entry for an item in the tax code, the same cannot be taken out of that
specific entry and taxed under any other entry. ‘Transport of goods by air’ is a
specific service taxable under section 65(105)(zzn) of the Act w. e. f. 10-09-2004
and it defines the taxable service as ‘any service provided or to be provided to any
person by an aircraft operator, in relation to transport of goods by aircraft. Thus,
when the activity of transport of goods by aircraft is specifically taxable, the same
cannot be taken out of that specific activity and taxed under other entry like BSS
which
the
SCN proposes. Similarly,
ocean freight
for transport of goods
internationally does not appear to be falling under any of the taxable services
today, though transport of goods by road, by rail by aircraft, by pipeline and
through inland water are separately specified as taxable services. Accordingly,
because activity of ocean freight is not taxable, it cannot be brought under any
general category discarding the specific activity of transportation of goods by ship.
They rely on the decision in case of CCE v. Dr. Lal Path Lab (P) Ltd. [2007 (8) STR
337 (P&H)] wherein Hon. High Court held that the expression ‘technical testing and
analysis’ does not include any testing or analysis service provided in relation to
human being or animals; the explanation goes to the extent of excluding from the
afore-mentioned definition, a testing or analysis for the purposes of determination
of the nature of diseased condition, identification of a disease, prevention of any
disease or disorder in human beings or animals and such being the statutory
provision, they do not entertain any doubt that merely because any incidental
service is rendered by the assessee-respondent like putting across or dropping of
the name of the principal company, it would become part of the definition of
‘Business Auxiliary Service’ within the meaning of Section 65 (19) (ii) of the Act and
the view taken by the Tribunal is unassailable and deserves to be upheld. On a
similar footing, when their principal activity is of buying and selling sea freight and
air freight any incidental activity like collection of BAF charges, insurance charges,
CONCOR charges, Fuel & Security charges etc. would not make their service falling
under BSS.
47.13.
They enclose as Annexure 1 a list of charges included in the SCN
proposing them to be taxable under BSS and state that none of these charges are
taxable and the value of these charges cannot be include in the value of taxable
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service as proposed in the SCN. It can be seen from the working given in Annexure
1 that once the service tax on this value of non taxable charges are excluded, there
remains no short payment of service tax as wrongly proposed in the SCN.
47.14.
They had given below the description of these charges, the nature of
activity for which the charges are received and reason why the same cannot form
part of taxable value.
Sr.
No.
1
Account Head/Service
Charges
Air Freight
2
BAF Charges
3
Chocking Charges
4
CONCOR Charges
Container Cleaning
Charges
5
Nature of Activity
Air freight
Part of Ocean Freight (Bunker Adjustment
Factor - related to the Fuel charges).
Packing used inside container so that cargo
does not move and remain intact.
Custodian charges
Cleaning of empty container.
6
Custom Clearance
Charges
Charges for Custom Clearance.
7
DAD Charges
Destination charges (foreign country) for ex
work shipment / door delivery shipment
8
Delivery Order Charges
(Dest)
9
Delivery Order Charges
10
Destination Delivery
Charges (Dest)
11
Destination Delivery
Charges
12
ETCS Charges
13
Fuel & Security Charges
14
Fumigation Charges
15
Hazardous charges
16
HAZ. Surcharge
17
Insurance
18
IT Doc Charges
19
Lashing charges
20
LOLO Charges
21
Miscellaneous Charges
22
NFTS Charges
Destination charges (foreign country) for ex
work shipment / door delivery shipment for
issuance of delivery order
Documentation charges for import container.
Destination charges (foreign country) for ex
work shipment / door delivery shipment for
issuance of delivery order
Destination charges (foreign country) for ex
work shipment / door delivery shipment for
issuance of delivery order
Part of Ocean Freight. Emergency Terminal
Congestion Surcharges - additional surcharges
from shipping line for Shipment to Lagos –
Nigeria
Part of Freight charges
Charges for the fumigation of container /
cargo - chemical treatment for bacteria free
etc
Part of Ocean Freight. Surcharge for
Hazardous/dangerous goods
Part of Ocean Freight. Surcharge for hazardous
/ dangerous goods
Insurance Premium for Container.
Destination charges (foreign country) for ex
work shipment/door delivery shipment for
issuance of delivery order
Packing used inside container so that cargo
does not move and remain intact.
Destination charges (foreign country) for ex
work shipment/door delivery shipment for
issuance of delivery order
Miscellaneous expenses, etc. incurred charged
Part of Ocean Freight. Nigerian Freight Tax
Surcharge - additional surcharges from
shipping line for Shipment to Lagos – Nigeria
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23
Ocean Freight
24
PCS Charges
25
Port THC
26
Storage charges
27
Stripping Fees
28
Stuffing Charges
Ocean freight
Part of Ocean Freight. Port Congestion
Surcharges - Surcharges being charged by
shipping line due to congestion at Port
Port Charges
Ground rent charges for cargo / container for
the storage at cfs / yard.
Destination charges (foreign country) for
destuffing container.
To stuff the cargo inside the container.
29
Transportation charges
Movement of cargo/container by truck
47.15.
They give below reasons why each of the above charges cannot be
classified under the category of BSS and how the same cannot form part of value of
taxable service.
Air freight: Aircraft operator is liable for tax on air freight in terms of provisions of
section 65(105)(zzn) under the category of Transportation of goods by air service.
Freight forwarder is not Aircraft Operator. In case of Gudwin Logistics v. CCE [2010
(18) STR 348 (Tri.-Ahmd.)] it is held that freight element cannot be included for
service tax.
Ocean Freight, BF Charges, ETCS Charges, Fuel & Security Charges,
Hazardous Charges, Hz. Surcharge, Miscellaneous Charges, NFTS Charges,
PCS charges: As explained above these are all the charges related to freight. It
has been held in the case of Gudwin Logistics v. CCE [2010 (18) STR 348 (Tri.Ahmd.)] and Bax Global India Ltd. v. CST [2008 (9) STR 412 (Tri.-Bang.)] that
freight element cannot be included for service tax.
Choking charges, Lashing Charges: As explained above, these are the charges
for packing inside container. The actual service provider in this case is some one
else who charges service tax to us, if respective service is taxable and since they
are not provider of this packing service, they are not liable for payment of service
tax even if they make profit/loss by charging something more/less for such activity
to their customer as held in the case of Bax Global India Ltd. v. CST [2008 (9) STR
412 (Tri.-Bang.)] and Baroda Electric Meters Ltd. v. Collector of Central Excise
[1997 (94) E.L.T. 13 (S.C.)].
Concor Charges: These are custodian charges and CONCOR charges due service
tax, if applicable in its bill for its service. They are not providing this service and
hence They do not charge any service tax. However, on this very service, due
service tax stands discharged by CONCOR and hence demanding service tax from
them would result into double demand of tax for the same service.
Container cleaning charge, Customs Clearance charges, DAD charges,
Delivery order charges (Dest), Delivery order charges, destination delivery
charges (dest), destination delivery charges, fumigation charges,
insurance, IT Doc charges, LOLO charges, Port THC, Storage charges,
stripping fees, stuffing charges, transportation charges: These are
independent and stand alone activities services and the actual service providers are
paying due service tax where payable. For example, for insurance premium,
insurance company pays due service tax; for port THC, the port service provider
pays due service tax; for fumigation charges, fumigating agency pays due service
tax. It is hazardous to brand insurance service or port service or fumigation service
as BSS and demand service tax from them. All these services need to be separately
classified going into the minute detail of nature of activity which is not done by the
investigating agency and hence demanding service tax under BSS on all the
services shows non application of mind. It is also not fair or legal to demand service
tax again from them in respect of services for which due service tax, if payable,
stands paid by the respective service provider. They only act as intermediary to get
these services for their customer. Demand of service tax on these very activities
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again from them would amount to double taxation. Further, it may be noted that
any of the above activities cannot be branded as BSS as it does not fall under any
of the specified 11 activities covered in BSS; that many of the above activities are
taxable services under some heads and the actual provider of service charges and
pays service tax while raising the bill. Only if the service is not taxable, the service
provider may not charge service tax. Since they are not the actual service provider
and these activities are not taxable on their part, they do not take any Cenvat
credit for such service tax paid by actual service provider for above stated
activities; that it is illegal and unfair to ask for the service tax again on the same
service from them as it amounts to double demand of tax on the same service.
They rely on decision in case of India Gateway Terminal (P) Ltd. v. CCE [2010 (20)
STR 338 (Tri.-Bang.)] holding that since the amount which has been received by
the appellant is an amount on which service tax liability has already been
discharged by M/s. CONCOR, the said amount cannot be held to be taxable under
the category of port services in the appellant’s hand. In CST v. Geeta Industries P.
Ltd. [2011 (22) STR 293 (Tri.-Del.)] also it was held that there cannot be double
taxation of same service.
47.16.
That the investigating authority has proposed classification of almost
all the activities under BSS without application of mind. This is evident from the fact
that ocean freight, air freight, insurance service, port service, fumigation service,
transportation service and the like which by no stretch of imagination, be classified
under BSS are all proposed to be classified under BSS. For example, even a layman
would say that insurance service falls under insurance service, port THC would fall
under port service, transportation service will fall under respective transportation
service and so on as these are separate taxable categories under section 65(105).
However, an attempt to brand all the activities under BSS based on presumption
and assumption shows clear non application of mind on the part of the investigating
agency; that a close look at Annexure 1 would show that total value of Rs.
2,45,74,803/- is not taxable in their hand as these are the amounts received for
various activities which are either not taxable, or where the due service tax stands
paid by the respective service provider, where payable. In any case, since these
services are provided by other parties and not by them, they are not liable for
payment of service tax on these activities even if they make any profit or loss on
sale of such services to their customers. The service tax on this value of Rs.
2,45,74,803/- as per rates applied in the SCN works out to Rs.30,25,328/-. The
differential service tax demand as per SCN is Rs.30,24,932/-. In view of the above,
after deducting the service tax of Rs.30,25,328/- as worked out on value of
Rs.2,45,74,803/- in Annexure 1, there is no short payment of service tax on their
part and on the contrary there appears a slight excess payment of Rs. 396 during
the period of October, 2005 to 2008-09.
47.17.
That they reiterate that all these 58 activities enumerated in
paragraph 12 of the SCN were provided by the third party and they initially paid the
amount to the third party on behalf of the clients and later collected the same from
their clients either by adding their margin of profit or without adding any margin. In
these cases, they do not render any service at all to the clients. The services are
rendered by the third parties. Therefore, they cannot be made liable to pay service
tax on these activities which do not relate to the services rendered by the freight
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 34 of 60
forwarders; that they had provided copies of different invoices as desired by the
department to prove that they did not charge service tax on certain freight and
freight related activities ; that they have enclosed copies of some of the invoices of
purchase of service where service tax stands paid by the service provider or where
service tax is not charged by the service provider possibly because of the service
being not taxable and their corresponding bills to prove that they did not charge
service tax on such activities in bills issued by them.
47.18.
They further submitted that the proposal to include expenses
reimbursed in the taxable value in terms of Section 67 of the Finance Act, 1994 as
amended read with Rule 5(1) of the Service Tax (Determination of Value) Rules,
2006 is bad in the eyes of law; that
Section 67 of the Finance Act, 1994 as
amended provides that service tax is leviable on the gross amount charged for the
services provided or to be provided. They submitted that a plain reading of Section
67 indicates that service tax is leviable on the gross amount charged for the
services provided or to be provided. In other words, only the amount received as a
consideration for the services provided or to be provided would form part of taxable
value for the purpose of service tax ; that the Tribunal, Chennai in the case of
Malabar Management Services Vs. Commissioner of Service Tax (2008) 9 STR 483
has observed that as per Section 67 only the service charges are subjected to
service tax and reimbursements are outside the purview of Section 67 and not
subjected to service tax ; that Section 67 of the Finance Act, 1994 as amended
provides for the levy of service tax on the gross amount charged for the services
rendered. In other words, only the consideration for the service provided or to be
provided would form part of taxable value for the purpose of service tax. In a case
where the provision of service is for a consideration, which is not ascertainable, the
amount for such service may be determined in the prescribed manner; that in this
case the service is rendered for a consideration, which is ascertainable, and
therefore the provision of Section 67(1)(i) is complied with. The provisions
contained in the Service Tax (Determination of Value) Rules, 2006 will apply only in
a situation where the value of taxable service is not ascertainable ; that once the
ingredients set out in the Section for the determination of value of taxable service is
satisfied, then there is no question from deviating from the said provision for the
purpose of valuation; that once the consideration for the service is ascertainable,
Section 67 will prevail over the Valuation Rules and therefore the value determined
as per Section 67 will be considered for the purpose of service tax . They rely on
the following case laws :Hon’ble Supreme Court in the case of CCE Vs Ashok ARC (2005) 179 ELT 513 has
held that a Rule cannot override or be contrary to a Section.
Laghu Udyog Bharathi Vs UOI (1999) 105 Taxmann 630 and Kunj Behari Lal Vs
State of HP – AIR 2000 SC 1069 has held that Rule cannot widen or restrict the
scope of the Main Act and Rules are made to carry out the provisions of the Act and
cannot be in conflict with the same.
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 35 of 60
Hon’ble Supreme Court in the case of Mafatlal Industries Ltd. Vs UOI (1997) 89 ELT
247 has clarified that Provisions of Section 11B in the Central Excise Act prevails
over Rule 233B of Rules.
Hon’ble Tribunal in the case of Minakshi Castings Inder Steels Pvt. Ltd. Vs CCE
(1999) 32 RLT 82 has held that whenever there is a conflict in between Section and
the Rule, the Section prevails over the rule. The same view was taken in the case of
Kishori Lal Sudesh Kumar Metals (P) Ltd. Vs CCE (1999) 111 ELT 708.
47.19.
They further submitted that
Para No.3 and 4 of the Show Cause
Notice alleges that they have not satisfied the conditions set out in Rule 5(2) of the
Service Tax (Determination of Value) Rules 2006 read with Circular No.119 /
13/2009 – ST dated 21.12.2009 and therefore the expenses reimbursed by the
client is includible in the taxable value; that
the entire allegation is without
appreciating the language used in Section 67 of the Finance Act 1994 as amended.
In terms of Section 67 the provisions of Valuation Rules would apply only if the
consideration is not ascertainable. In the instant case, they have received
consideration in terms of money and it is clearly ascertainable and hence the
Service Tax (Determination of Value) Rules, 2006 has no application; that in the
instant case, the decisions, circulars etc. issued under Section 67 squarely apply
and the Valuation Rules has no application.
47.20.
Reimbursements are not subject to service tax it is upheld that by
various Tribunals in the case of International Clearing & Shipping Agency (2007) 5
STR 107; Indian Register of Shipping (2006) TIOL 1588; Johns Lang Lasalle
Properties Consultant (2006) TIOL 1686; Jayalakshmi Enterprises (2008) 9 STR 19;
Keralam Enterprises (2008) 9 STR 503.
47.21.
From 18.4.2006 where the consideration for the services provided is in
money, the value is the gross amount charged for the service provided. Therefore,
even though the section has been amended yet when the consideration is in
money, the value still remains the gross amount for the services provided. In cases
where the consideration is not wholly or partly in money then Valuation rules come
in to play. Since in the facts of the case it is an undisputed fact that the
consideration is in money, the value will be the gross amount charged for the
service provided. The reimbursable expenses are not charges for the services
provided and hence the same are not liable to service tax. In exercise of the powers
conferred by Section 94(2) of the Act, the legislature has framed Service Tax
(Determination of Value) Rules, 2006. Rule 5 of the said Rules deals with the
treatment of expenses reimbursed and provides that where any expense or cost is
incurred by the service provider in the course of providing taxable services then all
such expenses or costs shall be treated as considerations for the services provided
and shall be included in the value. However, sub rule 2 of Rule 5 specifies certain
conditions
and
provides
that
on
compliance
with
these
conditions,
the
reimbursements will be excluded from the taxable value. Applying the ratio of the
aforesaid decisions, it is submitted that rule 5 of the valuation Rules cannot be
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 36 of 60
interpreted to bring within the purview of valuation an amount which section 67
does not envisage. Therefore, the provisions of Rule 5 of the valuation rules have to
be harmoniously interpreted so that any amount which is not a charge for the
services provided is not termed as part of the value of taxable service, otherwise it
would amount to overriding the provisions of section 67 of the Act. They submitted
that
the decision rendered in the context of Section 67 has become final and
therefore the expenses reimbursed cannot be included in the taxable value; that
the Board vide Circular No.119/13/2009 dated 29.01.2009 has clarified that
expenses incurred and reimbursed over and above CHA activities are not subject to
service tax under the category of Custom House Agent service ; that the expense
reimbursed
shall not be considered as taxable value,
that they are a multi-modal
transport operator, that they are in business of multi-modal transport for export of
goods from India and import of goods into India. Being a multi modal transport
operator their activities are governed by Multi Modal Transportation of Goods Act,
1993 which covers the business of multi modal transportation; that with regard to
exports, their activities commence from undertaking to export the consignments of
the shippers from various parts of the country to overseas destinations through air
/ sea . The goods which are to be exported have to be brought to the port of export
either by road or rail. From the port the goods are exported by ships or aircrafts to
the foreign destinations; that
the payments for these services are made by the
exporter/shipper of goods ; that they collect a consolidated amount from the
exporters/shipper towards freight charges and sometimes for other incidental
expenses; that cargo collected from the customers is moved by any of the modes
like, rail, road, air and sea and the revenue is earned in foreign exchange and or
local currency.
The cargo is transported from the exporter’s factory / godown /
airport by ship / aircraft from the origin port to destination port which includes
passage through number of intermediate ports as the cargo is being handled by
shipping line / steamer agents / IATA agents in the respective countries; that they
only arrange
for the transport of export goods and are not engaged in the
transportation of goods. For the said purpose they engage the service of various
transporters, shipping lines etc. It is a composite activity involving transportation,
unloading, loading, issue of title documents etc. They collect freight from the
exporters and the substantial part of the amount is towards payment of ocean
freight / air freight payable to shipping line/airlines ; that
the freight recovered
from the customer is remitted to the shipping line with a difference. This freight is
not a charge for the services rendered by them. The service in respect of freight is
provided by the shipping line and not by them. Consequently, freight which is not in
respect of the services rendered by them can not be part of the valuation under
section 67 of the Act.
47.22.
It is submitted that the activity of multimodal transport operator
includes transportation at least by two different modes of transport and the
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 37 of 60
payment is by way of freight. Therefore, this activity cannot be vivisected and
subject to tax under any other taxable service.
47.23.
They further submitted that their services are not covered under
Section 65(105) of the Finance Act, 1994; that
as per Section 65 (95) of the
Finance Act, 1994 service tax means tax leviable under the provisions of the
Chapter V of the Finance Act 1994.
As per Section 66 service tax is payable on the
taxable service referred to in various clauses of Section 65(105); that
as per
Section 66, service tax is payable on taxable service and for levy of service tax, it is
necessary to determine two things, namely taxable service and value of taxable
service. The multimodal transport operator activities are not specified taxable
service under Section 65(105) of Finance Act, 1994. Therefore, service tax is not
applicable.
47.24.
They further submitted that
the Customs department has issued a
Circular No. 72/95 dated 22.06.1995 wherein it has been very clearly stated that
any person appointed as a multimodal transport operator is only for the purpose of
said Act and any such appointment does not confer any rights for his appointment
as a Custom House Agent or Steamer Agent for the purposes of Customs Act, 1962.
This clarification very clearly indicates that the activities of multi modal transport
operator are governed separately by the Act and the said activities cannot be
brought under any other service category; that
the contract is a composite
contract involving transportation, unloading, loading, issue of title documents etc
and the same cannot be vivisected and part service portion cannot be subjected to
tax. It is submitted that in the case of works contract services there was an attempt
to vivisect the contract under various heads and the Tribunal in the case of Daelim
Industrial Co. Ltd. Vs. Commissioner of Central Excise, Vadodara (2003) 155 ELT
457 (T-Del), has held that a composite contract cannot be vivisected and part of it
subjected to service tax. The SLP filed by the Department against the judgment of
the Tribunal. [(2004) 170 ELT A181] ; that they
are a multi modal transport
operator and such services are not notified under Section 65(105) it is submitted
that the same service cannot be classified under different categories and on that
count itself the show cause notice is devoid of merits and the proposals needs to be
dropped.
47.25.
Further, the proposal in the Show Cause Notice to impose service tax
on this trading profit under the category of Business Auxiliary Service and ‘Business
support services’ cannot be sustained as the activity is outside the scope of the
definition; that
‘ocean freight charges’ recovered from the client is not liable to
service tax as firstly ocean freight itself is not taxable and secondly they are only
buying slot space from the liner and selling the same to the shipper as part and
parcel of their function viz. multimodal transport.
47.26.
They further submitted that :-
OIO NO.60/STC-AHD/ADC(AS)/2012-13
(i)
(ii)
(iii)
47.27.
Page 38 of 60
The total effective rate of service tax including cess applicable for the
period 01-04-2006 to 17-04-2006 is 10.20% whereas the SCN
calculates the same at 12.24%.
The total effective rate of service tax including cess applicable for the
period 01-04-2007 to 10-05-2007 is 12.24% whereas the SCN
calculates the same at 12.36%.
It is quite evident that on freight and activities incidental to freight,
they did not charge service tax in our bills due to bona fide belief that
no service tax is payable. Accordingly, even where the service tax is
payable, the same has to be worked out by considering the gross
amount as inclusive of service tax in terms of provisions of section
67(2) of the Act. In terms of provisions of section 67(2) of the Act,
where the gross amount charged by a service provider is inclusive of
service tax payable, the value of taxable service shall be such amount
as with the addition of tax payable, is equal to the gross amount
charged. While working the amount, no such deduction for service tax
appears to be given in the SCN.
They further submitted that
Section 75 of the Finance Act, 1994 as
amended provides for the levy of interest where a person who is liable to pay
service tax fails to make payment either in full or part thereof to the credit of the
Central Government. In the instant case there is no failure to make payment of
service tax and hence, there is no question of payment of interest under Section 75
of the Finance Act, 1994. Further, since no service tax is payable based on the clear
legal position, there is no question of payment of any interest and request you to
drop the demand of interest and oblige; that none of the requirements of Section
76 has been met for the purpose of penalty and hence there is no question of
penalty under Section 76. Further, none of the ingredients set out in Section 77
have been met to impose penalty; that Section 78 has no application since Section
78 contemplates penalty for non-payment by reason of fraud, collusion, and willful
misstatement, suppression of facts or contravention of the provisions of the
Chapter or Rules with intent to evade payment of service tax. In the instant case,
there is no suppression, fraud etc. on their part and hence penalty under section 78
cannot be imposed.
47.28.
They further submitted that
it is a settled principle that once the
dispute is on legal interpretation penalty cannot be imposed. This view is upheld by
the Tribunal in the case of Mundra Port and Special Economic Zone Vs. CCE (2009)
18 STT 314. Similar view has been expressed in the following decisions:
47.29.
(a)
Haryana Roadways Engg. Vs CCE (2001) 131 ELT 662
(b)
Biolwara Spinners Ltd. Vs CCE (2001) 135 ELT 719
(c)
Century Cement Vs CCE (2002) 150 ELT 1065
(d)
Cosmos Detective & Security Services Vs CCE (2010) TIOL 108
They submitted that
Section 76 and Section 78 of the Finance Act,
1994 as amended cannot be applied simultaneously. The Tribunal in the Case of
CCE Vs Pannu Property Dealers and Others (2008) 14 STR 635 has held that
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 39 of 60
Imposing penalty under both the Sections is too harsh, and if penalty under Sec 78
is levied, it does not call for penalty under Sec 76. Supreme Court in the case of
CCE Vs Balakrishna Industries (2006) 201 ELT 325 has held that when duty itself is
not payable there is no question of penalty.
47.30.
They further submitted that Section 80 of the Finance Act, 1994 as
amended provides that notwithstanding anything contained in Section 76, 77 and
78, penalty cannot be imposed if the assessee has a reasonable cause for the
failure to pay service tax. Their bonafide belief is a reasonable cause for non
payment of service tax on charges which are not taxable; that Section 80 of
Finance Act, 1994 as amended overrides Section 76, 77 and 78 and therefore the
same relief may be extended to them ; that Section 78 of the Act is amended with
effect from 10-05-2008 providing that if penalty is payable under this section, the
provisions of section 76 shall not apply. Accordingly, the proposal to impose penalty
under section 76 and section 78 is not in consonance with the provisions of law as
the SCN is issued on 20-04-2011. CCE, Surat, vide OIO No. 6/MP/2009 dated 3010-2009 has held that penalty under section 76 is not imposable when penalty is
imposed u/s. 78. This order is also accepted by the Committee of Chief
Commissioners as confirmed vide Letter No. DGCEI/AZU/12(4)62/05-06 Dated 5-52010 of Additional Commissioner of Central Excise, Surat-I. Though fifth proviso of
section 78 is inserted from 10-5-2008, its spirit is fully applicable even for the past
period also as held by Commissioner of Central Excise, Ahmedabad-III in the
matter of service tax in case of North Gujarat Research Division vide order-inoriginal No. 16/COMMR/2010 dated 06-05-2010 while holding that no penalty is to
be imposed under section 76 when penalty under section 78 is imposed. Further,
penalty u/s 77 is proposed for failure to take registration and to file prescribed
service tax returns for their branches at Baroda and Nagpur; that
Ahmedabad
Commissionerate has no jurisdiction to issue any SCN for the Baroda and Nagpur
Region and hence the proposal to demand service tax or penalty is without
jurisdiction and the SCN issued without jurisdiction is not legal or proper.
47.31.
They further submitted that they had taken service tax registration
since 08-09-2005, they have filed all their service tax returns regularly, they have
provided all the information as and when sought by the department, all their
incomes get reflected in invoices and books of accounts and audited accounts are
also available with department since 26-08-2008, they have not suppressed any
information with intent to evade payment of duty, they have not violated any
provisions of service tax law, they have discharged all service tax liabilities based
on their bonafide belief, the question of interpretation is involved in classification of
activities of freight forwarders and there is no short payment of service tax on their
part. All these facts prove that there was a reasonable cause on their part for not
paying service tax on ocean freight, air freight and other activities incidental to
freight. In terms of provisions of section 80 of the Act, no penalty shall be
imposable on the assessee for any failure referred to in the provisions of section 76,
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 40 of 60
77 and 78 of the Act if there was a reasonable cause for the said failure. We have
established that there was no short payment of service tax on our part therefore
penalty cannot be imposed under section 76; they are registered with service tax
department, are paying service tax regularly and are filing service tax returns
regularly and hence penalty cannot be imposed under section 77; they have
established that there was no suppression or intent to evade payment of service tax
on our part and accordingly penalty cannot be imposed under section 78. In view of
these facts, they pray for recording satisfaction for not imposing any penalty in
terms of provisions of section 80 of the Finance Act, 1994. Service tax is a new levy
and even the experts at times are not able to correctly interpret the law leaving
ambiguity. Under the circumstances, penalty cannot be imposed even if there is
violation of any statutory obligation based on genuine or bona fide belief. In a
series of other cases, it has been held that when suppression is not alleged or
proved, penalty cannot be levied and they earnestly request
not to impose any
penalty in view of the reasonable cause being shown by them in terms of provisions
of section 80 of the Finance Act, 1994. They draw
attention to the following
judgments wherein it is held that under such circumstances, no penalty can be
levied.
47.32.
(i)
CCE v. Ajanta Colour Labs [2009 (14) STR 468 (Tri.-Del.)] holding that
as the question of interpretation of statute is involved, extended
period of limitation and imposition of penalties would not warrant.
(ii)
Hindustan Steel v. State of Orissa [1978 (2) ELT (J159) (S.C.)]wherein
it was held that an order imposing penalty for failure to carry out the
statutory obligation is the result of quasi-criminal proceedings and
penalty will not ordinarily be imposed unless the party obliged either
acted deliberately in defiance of law or was guilty of conduct
contentions or dishonest or acted in conscious disregard of its
obligation. It also held that penalty will not also be imposed for failure
to perform the statutory obligation is a matter of discretion of the
authority to be exercised judicially and on a consideration of the
relevant circumstances.
They further submitted their defence reply on 19.03.2013 wherein
they submitted that
there is no short payment of service tax on their part either
under Business Auxiliary Service or under Business Support service and the SCN is
issued based on presumption, without in any way justifying how each of activities
can be classified under respective taxable services; that the demand under the SCN
is not sustainable on the ground of the SCN being vague as held in case of United
Telecom Ltd. v. CCE [2011 (21) STR 234 (Tri.-Bang.)] and Seagull Freight Systems
[2012 (27) STR 530 (Commr. Appl.)].
47.33.
They further submitted that they are not liable to pay any service tax
either under BAS or BSS and the total value of taxable service in their case should
be only Rs. 1,77,57,465/- as shown below and not Rs. 4,20,82,082/- as proposed
in the SCN. Since they have already paid service tax on the value of Rs.
1,78,88,559/- there is excess payment of service tax on value of Rs. 1,31,094/- by
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 41 of 60
them during the period from October, 2005 to March, 2009 instead of short
payment alleged in the SCN. They had given
details of value on which excess
payment is made by them as under :Details of Value on which Service Tax is paid in
October, 2005 to March, 2009
Sl. Particulars
1
Value on which service tax proposed to be demanded
as per SCN
2
Less: Value on which service tax not payable by us as
per details given below
3
Value on which service tax payable by us (1-2)
4
Value on which service tax paid by us
5
Value on which service tax paid in excess (4-3
47.34.
Excess during
Rs.
4,20,82,082.00
2,43,24,617.00
1,77,57,465.00
1,78,88,559.00
1,31,094.00
They further stated that they are not liable to pay service tax on the
following amounts and the reasons thereof are explained in the reply to the SCN
and in these further submissions.
Value on which service tax is not payable either under BAS or under
BSS and Service Tax Demand wrongly made as per SCN
Sl. Particulars
Value Rs.
Wrong ST
Demand Rs.
1
Ocean Freight
1,86,12,762.00 22,90,338.00
2
Air Freight
27,85,808.00
3,43,931.00
3
Amount paid to Shipping Line in
23,15,571.00
2,85,221.00
relation to Ocean Freight
4
Transportation charges
3,27,463.00
40,148.00
5
Amount paid for Customs Clearance
1,02,900.00
12,716.00
6
Amount paid to Fumigation Agency
34,150.00
4,221.00
7
Amount paid to Insurance Company
9,887.00
1,222.00
8
Statutory payments
64,076.00
7,911.00
9
Marketing and Supervision Charges
72000.00
8899.00
Total
2,43,24,617.00
2994607.00
47.35.
They submitted
a statement showing year wise details of each
component of this non-taxable value of Rs. 2,43,24,617/-
for ready reference.
They also submitted year wise details of value on which service tax is paid by them
and service tax paid thereon for the period October, 2005 to March, 2009; that as
per statement, they have paid total service tax of Rs.1,77,749.00 on total value of
Rs.1,78,88,559/-, that
the SCN shows payment of service tax by them
Rs.21,53,424.00 whereas it appears to them
that they have paid service tax of
total Rs.21,77,749.00 as per enclosed details.
47.36.
They submitted that based on the above details it appears clear that
out of total demand of service tax of Rs. 30,24,932.00 as per SCN, demand of
service tax of Rs. 29,94,607.00 on value of Rs. 2,43,24,617.00 is absolutely wrong
as the above stated nine activities cannot be treated as BAS or BSS by any stretch
of imagination. Further, demand of service tax to the tune of Rs.24,325.00 (Rs
21,77,749.00 – Rs 21,53,424.00) appears to be wrongly shown on higher side due
to incorrect figures of payment of service tax shown in the SCN. On top of it, after
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 42 of 60
deducting demand of service tax by applying wrong rates of service tax, there
appears to be more payment of service tax by them.
47.37.
They further submitted that as per the statement of value of taxable
service shown in their ST-3 returns even if one anomaly for period from 24-2-2009
to 31-3-2009 is taken into account, the wrong and higher demand of service tax is
to
the
tune
of
Rs.19,285.00
at
2.06%
(12.36%-10.30%)
on
value
of
Rs.9,36,179.00. Thus even without considering effect of the wrong and higher rates
applied for the period 1-4-06 to 17-4-2006 as also for 1-4-07 to 10-5-07, there is
an excess payment of service tax on their part to the tune of Rs.13,285.00 as can
be seen from the following working.
Sl.
1
2
3
4
5
47.38.
Particulars
Rs.
Demand of Service tax as per SCN
30,24,932.00
Less: Service tax not payable on 9 items stated 29,94,607.00
above
Less: Service tax payment difference as actual
24,325.00
amount of service tax paid is more than what is
shown in the SCN
Less: Excess service tax demand due to wrong
19,285.00
application of service tax rate for the period 24-209 to 31-3-09 in the SCN
Excess Service Tax paid (1-2-3-4)
13,285.00
That there is no service tax is payable on ocean freight or air freight or
amount paid to shipping lines towards ocean freight. Thus, they have shown that
service tax on items at Sl. 1, 2 and 3 of paragraph 2 of this reply is not payable
under any of the categories of taxable service and categorically not under BAS or
BSS.
47.39.
They further submitted that another major portion of demand under
the SCN is on activity of transportation of goods by road which is also not taxable
under the category of BSS as presumed in the SCN. According to their bona fide
belief, in terms of provisions of section 68 of the Finance Act, 1994, on service
relating to transportation of goods by road, service tax liability is either on the
‘goods transport agency’ or on the consignor or consignee who pays the freight and
hence the freight forwarders who only collect the freight and pay it to goods
transport agency or transporter are not liable to pay service tax as we do not
provide the service of transportation ourselves. In Clearship Forwarders Pvt. Ltd.
[2012 (28) STR 61 (Commr. Appl.)], it was held that appellant is not liable to pay
service tax on freight charges paid by him and reimbursed by their clients under
GTA service. Thus, the demand of service tax on transportation charges under the
category of BSS is clearly not sustainable and they pray for dropping the same.
47.40.
They further submitted that amount paid for customs clearance is
taxable under the category of Customs House Agent Service and when they receive
such services from CHAs, they already charge service tax thereon. They only get
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 43 of 60
reimbursement of such charges as freight forwarders and any demand of service
tax thereon from them will result into double taxation. Further, these services are
not provided by them but are provided by CHA and hence also they are not liable to
pay any service tax thereon. In any case, it is absolutely ridiculous to demand
service tax on this CHA service under the category of BSS and hence also the
demand is not sustainable as such services are more specifically covered under the
category of CHA.
47.41.
They further submitted that amount paid to fumigation agency is for
fumigation service provided by fumigation agency in respect of import or export
cargo. Such services are provided by fumigation agency and are taxable in the
hands of fumigation agency that provides such service and demand of service tax
from freight forwarder is absolutely illogical, illegal and unfair when freight
forwarder does not provide this service. In any case, it is absolutely ridiculous to
demand service tax on this fumigation service under the category of BSS and hence
also the demand is not sustainable since the activity of fumigation is not at all
stated in the definition of BSS.
47.42.
They further submitted that amount paid to Insurance Company is for
insurance premium and insurance company provides this service. Further,
insurance company also charges due service tax thereon as this service is provided
by insurance company. Merely because they get reimbursement of such insurance
charges, it cannot be taxed in their hand since they are not the provider of
insurance service. In any case, it is insane to demand service tax on insurance
premium under the category of BSS and they pray for dropping the demand of
service tax for this item as well.
47.43.
They further submitted that statutory payments to CONCOR and
wharfage charges reimbursed to them are not taxable under BSS as these items
are also not mentioned in the definition of that taxable service. Further, CONCOR or
the wharfage charges paid to port authorities are statutory payments and these
charges are not for any of their services and hence demand of service tax from
them is absolutely illegal. In any case, charges paid to Container Corporation or to
Port Authorities are not taxable under the category of BSS as can be seen from the
definition of taxable service.
47.44.
They further submitted that Marketing and supervision charges of Rs.
72000/- are for supervision charges of containers and not for any marketing
activity. Since they have one account head “Marketing and Supervision Charges”
the amount was credited to this account. However, since the actual nature of work
is supervision charges, it is not taxable under the category of ‘BAS’ as wrongly
proposed in the SCN. We state that activity of supervision is not included in any of
the clauses of section 65(19) of the Finance Act, 1994 that defines buseinss
auxiliary service.
OIO NO.60/STC-AHD/ADC(AS)/2012-13
47.45.
They further submitted that
Page 44 of 60
to the fact that BSS is not a category
where all the services in relation to business or commerce get covered. It covers
only those 11 categories of service if they are related to business or commerce. If
ridiculous view as proposed in the SCN is taken, there is no need of separate 119
categories of taxable services as almost all of these 119 services are in relation to
business or commerce.
47.46.
They further submitted that all the facts stated in their reply and
above further submissions show beyond doubt that no service tax is payable by
them on all 9 activities stated in paragraph 2 of this submission under ‘business
support service’ or under ‘business auxiliary service’. However, the SCN is issued to
them in a routine manner without there being any short payment of service tax on
our part. In view of there being no violation of any of the provisions of service tax
law on their part, they earnestly pray for holding that service tax as proposed in the
SCN is not payable by us. They further requested to hold that the extended period
of limitation cannot be invoked in their case in absence of any suppression on their
part; that to hold that under these circumstances, no penalty can be imposed on
them in view of provisions of section 80 of the Finance Act, 1994 as they have
shown reasonable cause for not paying service tax on ocean freight or air freight
and related charges and other charges which are not for any service provided by
them. they have already discharged their service tax liability on charges where
service tax was payable by them like brokerage or commission.
47.47.
They further submitted that in SCN, liability under business auxiliary
service is proposed without indicating specific sub-clause of section 65(19) under
which each of the activity falls. Similarly, demand of service tax under the category
of ‘business support service’ is also proposed without stating how the activity of
freight forwarding falls under any of the 11 activities stated in section 65(104c) of
the Finance Act, 1994. Hence, the demand of service tax based on vague SCN is
not sustainable and they pray for dropping the proceedings under the SCN on this
ground as well. In United Telecom Ltd. v. CCE [2011 (21) STR 234 (Tri.-Bang.)], it
was held that no tax liability can be confirmed against a person without putting
him/it to notice as to its liability. It is essential that the liability is indicated in the
notice with reference to the specific statutory provision. As the demand was
confirmed under the category Business Auxiliary Services without specifying which
specific sub-clause covered the activities rendered by the appellant, the appeal filed
by the assessee was allowed. Similar view has been taken in case of Seagull Freight
Systems [2012 (27) STR 530 (Commr. Appl.)] wherein it was held that an order
based on vague SCN issued without specifying under which specific clause of
“business auxiliary service” the activity falls is not sustainable.
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 45 of 60
PERSONAL HEARING :
48.
Shri N.V. Suchak, Chartered Accountant and Shri Samir Shah, Authorised
Signatory (erstwhile Director) appeared for personal hearing before me on
18.03.2013 and explained the facts of the case, and sought a day’s time to furnish
further written submissions. They requested to drop the demand on merits and on
limitation as there is no suppression on their part and all the details are available
on their records.
DISCUSSION & FINDINGS :
49.
I have carefully considered the facts on record and all the submissions made
by the said service provider. The short point for determination in this case is
whether the said service provider, who is an International Freight Forwarder, and
has provided various categories of services to its clients on recovery of charges for
such services can be said to have provided services under the category of “Business
Auxiliary Service” and/or under “Support Services for Business & Commerce”.
50.
The basic allegation in the show cause notice is that the said service provider
has split the consideration received by them from their clients, who are
importers/exporters/CHAs, etc into taxable and non taxable portion for example,
they have categorized “Ocean Freight” recovered from their client as non taxable
portion by showing it as a sale of service and during the period from August, 2006
to March, 2009 they have recovered the amount of Rs.1,68,06,595/- under the
head “Ocean Freight” and have showed expenses worth Rs.1,48,91,891/- under the
same head and hence they have recovered excess amount of Rs.19,14,704/- under
the head “Ocean Freight”. It is alleged in the notice that as detailed in Annexure-B
to
the
show
(Rs.13,67,828/-
cause
under
notice
the
taxable
category
value
of
received
“Business
is
Rs.4,20,82,082/-
Auxiliary
Service”
+
Rs.4,07,14,254/- under the category of “Business Support Service”) from October,
2005 to March, 2006 to the year 2008-09 as shown in Annexure-C to the show
cause notice. It is stated that as detailed in Annexure D the service provider has
already paid Rs.21,53,424/- during this period and the differential service tax of
Rs.30,24,932/- is short paid.
It was found on preliminary scrutiny of the
documents withdrawn from them that they were registered with the department
under the category of BAS and BSS. They were operating from Ahmedabad, Baroda
and Nagpur. They were issuing billing for all the services provided by them from
Ahmedabad, Baroda or Nagpur from Ahmedabad only. It was found that the credit
balances of all the ledgers representing service charges or income were being
carried forward by them to their Profit & Loss Account as income and accounted for
under the head “Income” in the balance sheets for the respective years. It was
found that the value representing receipts in credit side reflected in their ledgers
was higher than that of the value reflected in the respective ST-3 returns. To
demand the service tax from the service providers on these counts, explanation in
table format has been provided in Annexure-B attached to the notice wherein each
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 46 of 60
ledger head has been described as per the activity declared by the service provider
and on that basis the department has given fresh classification to the activities
either under BSS or BAS. Annexure-C to the show cause notice shows the
calculation of valuation done based upon the ledger entries which shows
classification of different charges under BAS or BSS and the value as mentioned in
the ledger accounts for each charge recovered by the said service provider has
been mentioned which shows total value of Rs.4,20,82,082/-. Annexure-D to the
show cause notice describes calculation of service tax under BAS and BSS and total
service tax payable is shown as Rs.51,78,356/-, out of which Rs.21,53,424/- is
shown to have been paid by the service provider as per the details collected from
the ST-3 returns filed by them and the balance amount of Rs.30,24,932/- is found
recoverable.
51.
Before proceeding to give my detailed findings about each charge mentioned
in ledger entries, I observe that the show cause notice does not specify as to which
are those charges on which the said service provider has not paid the service tax or
the charges on which there is difference in the value shown in ST-3 returns and
Profit & Loss account. Hence, the show cause notice is very vague in this regard. In
fact, I find that the show cause notice has been issued on simple mathematical
calculation after arriving at the value on the basis of values shown in the credit side
of ledgers and service tax payable on it, the service tax already paid has been
deducted and balance amount has been demanded, without examining which are
those charges on which service tax has been paid and which are those charges on
which service tax has not been paid.
52.
I find that the major demand on which service tax has not been paid by the
said service provider is “Ocean Freight” and “Air Freight” and the expenses relating
thereto. The said service provider has provided detailed worksheets in this regard
which are as under :Total value considered as taxable during 2005-06 to 2008-09 as per SCN :-
Sr. No.
LEDGER HEAD
Fresh
Classification
by
Investigation
A
Total
BAS
1
2
3
4
5
Air Commission Charges
Airline D O Charges
Brokerage Charges
INCENTIVE CHARGES
Marketing & Supervision
Charges
TOTAL (UNDER BAS)
B
1
2
3
4
5
6
7
8
9
A D Charges
ACD CHARGES (Ahmedabad)
ACD CHARGES (Nagpur)
ADF CHARGES
AGENCY CHARGES
AIR FREIGHT MARGIN
Air Freight
Air Way Bill Fees
Ammendment charges (Baroda)
BAS
BAS
BAS
BAS
134287
4794
1156747
0
BSS
72000
1367828
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
0
129820
9187
0
4000
0
2692998
10787
0
OIO NO.60/STC-AHD/ADC(AS)/2012-13
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
BAF Charges
BAF Charges
Bill of Lading Amendment
Charges
Bill of Lading Charges
(Ahmedabad)
Bill of Lading Charges (Baroda)
Bill of Lading Charges (Nagpur)
C C Charges
CERTIFICATE OF ORIGIN
CHARGES
CHARGES
Chocking Charges
Coloading Charges
CONCOR CHARGES
Page 47 of 60
BSS
BSS
483713
0
BSS
11988
BSS
1200600
BSS
BSS
BSS
0
0
BSS
19381
10150
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
0
68000
43998
35810
92600
24000
299434
10540
0
BSS
0
BSS
3075
BSS
BSS
BSS
BSS
32876
0
1502
0
BSS
126436
BSS
BSS
588010
1700
BSS
466171
BSS
BSS
BSS
BSS
BSS
BSS
353054
0
16492
0
16087
8750
BSS
123397
EXAMINATION CHARGES
EXIGENCY CHARGES
BSS
BSS
BSS
BSS
BSS
BSS
BSS
55554
367
0
0
40998
1500
0
51
FACTORY STUFFING
PERMISSION CHARGES
BSS
52
53
54
55
56
Forwarding Charges
FUEL & SECURITY CHARGES
FUMIGATION CHARGES
GSP CHARGES
BSS
BSS
BSS
BSS
BSS
5319334
73429
34150
1500
65769
BSS
49669
BSS
BSS
BSS
BSS
BSS
18191
139377
3000
20350
0
BSS
1066716
BSS
205756
BSS
296698
BSS
BSS
BSS
BSS
BSS
BSS
BSS
9887
1686
25513
96000
1847
165878
487879
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
Container Cleaning Charges
Co-Ordination Charges
Custom Clearance Charges
Custom Clearing Charges (Dest)
Custom Clearing Charges (Dest)
CUSTOM EXAMINATION
CHARGES
Custom Transit Declaration
Charges
Dad Charges
DAMAGE CHARGES
DDC Charges
DEEC Charges
Delivery Order Charges(Dest,
Destination)
Delivery Order Charges
DEPB Charges
Destinatination Delivery
Charges(Dest)
Destination Delivery Charges
Destination Thc
Destuffing Charges
Detention Charges
Documentation Charges
Documentation Charges (Dest)
Door Delivery Charges
(Ahmedabad)
Door Delivery Charges (Baroda)
EDI CHARGES
EMPTY REPO
ENDORSMENT FEES
ETCS CHARGES
Handling Charges
HANDLING CHARGES
(DESTINATION)
Haulage Charges
HAZARDOUS CHARGES
Haz Documantation Charges
HAZ. SURCHARGE
IGM CHARGES
Inland Haulage Charges
(Ahmedabad)
Inland Haulage Charges
(Baroda)
Inland Haulage Charges
(Nagpur)
INSURANCE
ISPS SECURITY CHARGES
IT DOC CHARGES
LASHING CHARGES
LCL CHARGES
LOLO CHARGES
MISCELLANEOUS CHARGES
900
OIO NO.60/STC-AHD/ADC(AS)/2012-13
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
Page 48 of 60
NFTS Charges
Ocean Freight
Ocean Freight
On Carriage Charges
Pallatisation Charges
PCS Charges
PCS Charges
Phytosanitary Charges
Pick Up Charges
Pick Up Charges
Port Charges
PORT THC
Pss Charges
Pss Charges
Rail Freight
Remuneration Charges
Repo Charges (Ahmedabad)
Repo Charges (Baroda)
SHIFTING CHARGES
SHUT OUT CHARGES
Storage Charges
STRIPPING FEES
STUFFING CHARGES
Surrender Charges
(Ahmedabad)
Surrender Charges (Baroda)
Surrender Charges (Nagpur)
Survey Fees Charges
Swith Bill of Lading Charges
THC (Ahmedabad)
THC (Baroda)
THC (Nagpur)
Transferance Copy Charges
Transhipment Permission
Charges
Transporatation Charges
Trucking Charges
UNLOADING CHARGES
VIA CHARGES (Ahmedabad)
VIA CHARGES (Baroda)
WAR SURCHARGE CHARGES
Warehouse Charges
Warehouse Charges (Dest)
Warfrage Charges
TOTAL (UNDER BSS)
GRAND TOTAL (UNDER BOTH
BAS & BSS)
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
37270
16369948
0
1250588
36339
146570
0
0
19773
0
10667
1167648
0
0
0
840904
3395175
213000
0
0
36030
73976
103860
BSS
17994
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
0
0
29325
29812
1313895
45990
117680
500
BSS
4275
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
306938
19475
1050
10664
0
71
14797
5270
28266
40714254
42082082
Out of the above charges, the charges on which the said service provider has
already paid service tax considering them as taxable, the details provided by the
service provider :-
Sr.
No.
1
2
3
2
3
8
12
13
17
20
24
BSS
BSS
BSS
Paid
Paid
Paid
Total PAID
134287
4794
1156747
1295828
129820
9187
10787
BSS
Paid
11988
BSS
Paid
1200600
BSS
Paid
10150
BSS
BSS
Paid
Paid
43998
299434
LEDGER HEAD
CATEGORY
Air Commission Charges
Airline D O Charges
Brokerage Charges
TOTAL (UNDER BAS)
ACD CHARGES (Ahmedabad)
ACD CHARGES (Nagpur)
Air Way Bill Fees
Bill of Lading Amendment
Charges
Bill of Lading Charges
(Ahmedabad)
CERTIFICATE OF ORIGIN
CHARGES
Coloading Charges
Custom Clearance Charges
BAS
BAS
BAS
Total –
PAID
OIO NO.60/STC-AHD/ADC(AS)/2012-13
31
35
37
39
41
43
44
45
49
52
56
58
63
64
65
77
83
84
88
89
90
96
99
101
102
103
105
109
DDC Charges
DEPB Charges
Destination Delivery Charges
Destuffing Charges
Documentation Charges
Door Delivery Charges
(Ahmedabad)
Door Delivery Charges
(Baroda)
EDI CHARGES
EXAMINATION CHARGES
Forwarding Charges
Handling Charges
Haulage Charges
Inland Haulage Charges
(Ahmedabad)
Inland Haulage Charges
(Baroda)
Inland Haulage Charges
(Nagpur)
Pallatisation Charges
Port Charges
PORT THC
Remuneration Charges
Repo Charges (Ahmedabad)
Repo Charges (Baroda)
Surrender Charges
(Ahmedabad)
Survey Fees Charges
THC (Ahmedabad)
THC (Baroda)
THC (Nagpur)
Transhipment Permission
Charges
VIA CHARGES (Ahmedabad)
TOTAL (UNDER BSS)
GRAND TOTAL (UNDER
BOTH BAS & BSS)
Page 49 of 60
BSS
BSS
BSS
BSS
BSS
Paid
Paid
Paid
Paid
Paid
1502
1700
353054
16492
16087
BSS
Paid
123397
BSS
Paid
55554
BSS
BSS
BSS
BSS
BSS
Paid
Paid
Paid
Paid
Paid
367
1500
5319334
65769
18191
BSS
Paid
1066716
BSS
Paid
205756
BSS
Paid
296698
BSS
BSS
BSS
BSS
BSS
BSS
Paid
Paid
Paid
Paid
Paid
Paid
36339
10667
1167648
840904
3395175
213000
BSS
Paid
17994
BSS
BSS
BSS
BSS
Paid
Paid
Paid
Paid
29325
1313895
45990
117680
BSS
Paid
4275
BSS
Paid
10664
16461637
17757465
The value of charges on which the service provider has not paid service tax
treating the charges as not covered either in BAS or BSS are as under :Sr.
No.
A
4
5
LEDGER HEAD
CATEGORY
Total
BAS
INCENTIVE CHARGES
Marketing & Supervision Charges
BAS
BSS
TOTAL (UNDER BAS)
0
72000
72000
1
4
A D Charges
ADF CHARGES
BSS
BSS
5
AGENCY CHARGES
BSS
0
4000
6
AIR FREIGHT MARGIN
BSS
0
Air Freight
Ammendment charges (Baroda)
BAF Charges
BAF Charges
Bill of Lading Charges (Baroda)
Bill of Lading Charges (Nagpur)
C C Charges
CHARGES
Chocking Charges
CONCOR CHARGES
Container Cleaning Charges
Co-Ordination Charges
Custom Clearing Charges (Dest)
Custom Clearing Charges (Dest)
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
2692998
7
9
10
11
14
15
16
18
19
21
22
23
25
26
0
0
483713
0
0
0
19381
0
68000
35810
92600
24000
10540
0
OIO NO.60/STC-AHD/ADC(AS)/2012-13
27
28
29
30
32
CUSTOM EXAMINATION CHARGES
Custom Transit Declaration Charges
Dad Charges
DAMAGE CHARGES
DEEC Charges
Delivery Order Charges(Dest,
Destination)
Delivery Order Charges
Destinatination Delivery
Charges(Dest)
Destination Thc
Detention Charges
Documentation Charges (Dest)
EMPTY REPO
ENDORSMENT FEES
ETCS CHARGES
EXIGENCY CHARGES
BSS
BSS
BSS
BSS
BSS
0
3075
32876
0
0
BSS
126436
BSS
588010
BSS
466171
BSS
BSS
BSS
BSS
BSS
BSS
BSS
0
0
8750
0
0
40998
0
51
FACTORY STUFFING PERMISSION
CHARGES
BSS
900
53
54
55
FUEL & SECURITY CHARGES
FUMIGATION CHARGES
GSP CHARGES
BSS
BSS
BSS
73429
34150
1500
57
HANDLING CHARGES (DESTINATION)
BSS
49669
HAZARDOUS CHARGES
Haz Documantation Charges
HAZ. SURCHARGE
IGM CHARGES
INSURANCE
ISPS SECURITY CHARGES
IT DOC CHARGES
LASHING CHARGES
LCL CHARGES
LOLO CHARGES
MISCELLANEOUS CHARGES
NFTS Charges
Ocean Freight
Ocean Freight
On Carriage Charges
PCS Charges
PCS Charges
Phytosanitary Charges
Pick Up Charges
Pick Up Charges
Pss Charges
Pss Charges
Rail Freight
SHIFTING CHARGES
SHUT OUT CHARGES
Storage Charges
STRIPPING FEES
STUFFING CHARGES
Surrender Charges (Baroda)
Surrender Charges (Nagpur)
Swith Bill of Lading Charges
Transferance Copy Charges
Transporatation Charges
Trucking Charges
UNLOADING CHARGES
VIA CHARGES (Baroda)
VIA CHARGES (Baroda)
WAR SURCHARGE CHARGES
Warehouse Charges
Warehouse Charges (Dest)
Warfrage Charges
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
BSS
139377
3000
20350
0
9887
1686
25513
96000
1847
165878
487879
37270
16369948
0
1250588
146570
0
0
19773
0
0
0
0
0
0
36030
73976
103860
0
0
29812
500
306938
19475
1050
0
0
71
14797
5270
28266
33
34
36
38
40
42
46
47
48
50
59
60
61
62
66
67
68
69
70
71
72
73
74
75
76
78
79
80
81
82
85
86
87
91
92
93
94
95
97
98
100
104
106
107
108
110
110
111
112
113
114
TOTAL (UNDER BSS)
GRAND TOTAL (UNDER
BOTH BAS & BSS)
52.1
Page 50 of 60
24252617
24324617
Regarding the above charges, the said service provider has contended as
under :Air freight: Aircraft operator is liable for tax on air freight in terms of provisions of
section 65(105)(zzn) under the category of Transportation of goods by air service.
Freight forwarder is not Aircraft Operator. In case of Gudwin Logistics v. CCE [2010
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 51 of 60
(18) STR 348 (Tri.-Ahmd.)] it is held that freight element cannot be included for
service tax.
Ocean Freight, BF Charges, ETCS Charges, Fuel & Security Charges,
Hazardous Charges, Hz. Surcharge, Miscellaneous Charges, NFTS Charges,
PCS charges: As explained above these are all the charges related to freight. It
has been held in the case of Gudwin Logistics v. CCE [2010 (18) STR 348 (Tri.Ahmd.)] and Bax Global India Ltd. v. CST [2008 (9) STR 412 (Tri.-Bang.)] that
freight element cannot be included for service tax.
Choking charges, Lashing Charges: As explained above, these are the charges
for packing inside container. The actual service provider in this case is some one
else who charges service tax to us, if respective service is taxable and since they
are not provider of this packing service, they are not liable for payment of service
tax even if they make profit/loss by charging something more/less for such activity
to their customer as held in the case of Bax Global India Ltd. v. CST [2008 (9) STR
412 (Tri.-Bang.)] and Baroda Electric Meters Ltd. v. Collector of Central Excise
[1997 (94) E.L.T. 13 (S.C.)].
Concor Charges: These are custodian charges and CONCOR charges due service
tax, if applicable in its bill for its service. They are not providing this service and
hence They do not charge any service tax. However, on this very service, due
service tax stands discharged by CONCOR and hence demanding service tax from
them would result into double demand of tax for the same service.
Container cleaning charge, Customs Clearance charges, DAD charges,
Delivery order charges (Dest), Delivery order charges, destination delivery
charges (dest), destination delivery charges, fumigation charges,
insurance, IT Doc charges, LOLO charges, Port THC, Storage charges,
stripping fees, stuffing charges, transportation charges: These are
independent and stand alone activities services and the actual service providers are
paying due service tax where payable. For example, for insurance premium,
insurance company pays due service tax; for port THC, the port service provider
pays due service tax; for fumigation charges, fumigating agency pays due service
tax. It is hazardous to brand insurance service or port service or fumigation service
as BSS and demand service tax from them. All these services need to be separately
classified going into the minute detail of nature of activity which is not done by the
investigating agency and hence demanding service tax under BSS on all the
services shows non application of mind. It is also not fair or legal to demand service
tax again from them in respect of services for which due service tax, if payable,
stands paid by the respective service provider. They only act as intermediary to get
these services for their customer. Demand of service tax on these very activities
again from them would amount to double taxation. Further, it may be noted that
any of the above activities cannot be branded as BSS as it does not fall under any
of the specified 11 activities covered in BSS; that many of the above activities are
taxable services under some heads and the actual provider of service charges and
pays service tax while raising the bill. Only if the service is not taxable, the service
provider may not charge service tax. Since they are not the actual service provider
and these activities are not taxable on their part, they do not take any Cenvat
credit for such service tax paid by actual service provider for above stated
activities; that it is illegal and unfair to ask for the service tax again on the same
service from them as it amounts to double demand of tax on the same service.
They rely on decision in case of India Gateway Terminal (P) Ltd. v. CCE [2010 (20)
STR 338 (Tri.-Bang.)] holding that since the amount which has been received by
the appellant is an amount on which service tax liability has already been
discharged by M/s. CONCOR, the said amount cannot be held to be taxable under
the category of port services in the appellant’s hand. In CST v. Geeta Industries P.
Ltd. [2011 (22) STR 293 (Tri.-Del.)] also it was held that there cannot be double
taxation of same service.
52.2
The main contention of the said service provider in this regard is that
there is no levy of service tax on “Ocean Freight” and “Air freight”. The said service
provider had arranged the space in Airways as well as in Shipping Lines and paid
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 52 of 60
Ocean Freight, Air Freight and other charges in relation to Ocean Freight and Air
Freight, they have also got Air Commission, Brokerage charges and Marketing &
Supervision charges etc. from concerned Agencies on which the service tax has
been demanded. In this regard, I find that the said service provider has raised the
issue of classification as if the department has newly classified the services
provided by them. In fact, the said service provider was already registered with the
department under BAS or BSS later, and for the same services, the department has
only demanded service tax on the charges on which they were not paying service
tax considering them as non-taxable. Therefore, the only question is whether the
charges which the said service provider treats as non-taxable, are in fact nontaxable or taxable under Business Auxiliary Service or Support Service for Business.
In this regard, as referred in the show cause notice the provisions of the Finance
Act, 1994 and the Service Tax Rules clearly provide for discharging service tax on
the gross value and no abatement can be claimed. The said service provider of their
own paid service tax on certain charges and considered the other charges as nontaxable, apart from the receipt towards ocean freight and air freight and expenses
relating thereto.
52.3
The said service provider has also relied upon certain case laws
discussed in the para elsewhere above and I find from that there is no service tax
on Ocean Freight and Air Freight and the charges related to these freight. The
Honorable Tribunal in the case of Gudwin Logistics reported in 2010 (18) STR 348
(T) has held that Ocean Freight is not liable to service tax at all. Therefore, ocean
freight and air freight and the expenses related thereto are not taxable. The details
of value and service tax which is related to Ocean Freight and Air Freight and other
expenses related thereto are given as under :-
Sr.
No.
As
per
SCN
200506(OCT-05
TO March 06)
LEDGER HEAD
2006-07
2007-08
2008-09
Total
10
BAF Charges
OCEAN FREIGHT
` 483,713
74
Ocean Freight
OCEAN FREIGHT
` 7,739,038
` 2,154,796
81
Pick Up Charges
OCEAN FREIGHT
` 16,473
` 3,300
48
ETCS CHARGES
OCEAN FREIGHT
` 40,998
59
HAZARDOUS
CHARGES
OCEAN FREIGHT
` 34,425
73
NFTS Charges
OCEAN FREIGHT
` 37,270
` 37,270
78
PCS Charges
OCEAN FREIGHT
` 146,570
` 146,570
60
61
67
68
76
94
Haz
Documantation
Charges
HAZ.
SURCHARGE
ISPS SECURITY
CHARGES
IT DOC
CHARGES
On Carriage
Charges
STRIPPING
FEES
` 483,713
` 6,476,114
` 16,369,948
` 19,773
` 40,998
` 66,600
` 38,352
` 139,377
OCEAN FREIGHT
` 1,000
` 2,000
` 3,000
OCEAN FREIGHT
` 8,100
` 12,250
` 20,350
` 831
OCEAN FREIGHT
` 855
OCEAN FREIGHT
OCEAN FREIGHT
OCEAN FREIGHT
-
`0
` 120,826
` 1,686
` 25,513
` 25,513
` 1,129,762
` 1,250,588
` 73,976
` 73,976
OIO NO.60/STC-AHD/ADC(AS)/2012-13
VALUE
% OF ST
ST AMT
16
53
7
Page 53 of 60
` 8,499,318
` 2,355,477
` 7,757,967
12.24
12.36
12.36
` 1,040,317
` 291,137
` 958,885
` 18,612,762
` 2,290,338
C C Charges
FUEL &
SECURITY
CHARGES
AIR FREIGHT
` 7,188
` 12,193
` 19,381
AIR FREIGHT
` 18,155
` 55,274
` 73,429
Air Freight
AIR FREIGHT
` 303,371
` 328,714
` 2,389,627
` 2,457,094
` 2,692,998
` 2,785,808
12.24
12.36
12.36
40235
303697
0
VALUE
% OF ST
ST AMT
GRAND TOTAL
10.20%
VALUE
ST
52.4.
343931
21398570
2634269
On the basis of the above the total service tax involved on the Ocean
Freight and Air Freight and expenses related thereto during the entire period in
dispute comes to Rs.26,34,269/- (including EC & SHEC as applicable) which is
required to be dropped as the same is not taxable service.
52.5
Now the question arises whether they are required to pay service tax on
the difference between the value of sale and purchase of “Ocean Freight” and “Air
Freight” as per the Valuation Rules read with Section 67(2) of the Finance Act,
1994.
In this regard, I find that the difference between the sale value and
purchase value of Ocean Freight and Air Freight would not be taxable for the simple
reason that when the main services of “Ocean Freight” and “Air Freight” are not
taxable, the profit made on such charges recovered by the said service provider
from their clients would also not be liable to service tax.
53.
Apart from the Ocean Freight and Air Freight and expenses related
thereto, the other charges collected by the said service provider on which they have
not paid service tax are viz., the amount of Rs.23,15,571/- involving service tax of
Rs.2,85,221/- is towards expenses recovered for having paid to shipping line,
Rs.3,27,463/- is value towards transportation on which service tax involved is
Rs.40,148/-, value of Rs.1,02,900/- is towards Customs clearance related activity
on which service tax involved is Rs.12,716/-, Rs.34,150/- is value towards
fumigation agency involving service tax of Rs.4,220/-, Rs.9,887/- involving service
tax of Rs.1,222/- is value towards Insurance company, Rs.64,076/- involving
service tax of Rs.7,011/- is value towards statutory fees paid by them and
Rs.72,000/- value including service tax of Rs.8,899/- is towards Marketing &
Supervision charges.
54.
Regarding non payment of service tax on the above said charges, the said
service provider has mainly contended that these charges are not taxable under
Business Auxiliary Service or Business Support Service and in this regard they have
mainly placed reliance on Bax Global (supra) and related case laws. I have studied
all these case laws and I find that in those cases because the demands on these
expenses incurred by the appellants therein were raised by including them in the
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 54 of 60
taxable value of the services primarily provided by them, such as CHA service,
Steamer Agent service or C&F agent service, hence, CESTAT has in all those cases
held that these expenses cannot be included in the taxable value of the services
primarily provided by the appellants. In this case, the show cause notice is
demanding service tax from the said service provider on these expenses/recoveries
from their clients treating them as taxable value for having provided Business
Auxiliary Service or Business Support Service and not under “Freight Forwarder
Agent” or similar such other services. Hence, the ratio of the case laws cited by the
said service provider are not applicable to the facts of the present case. Moreover,
when the said service provider themselves got registered with the department
under Business Auxiliary Service and later under Business Support Service and paid
service tax on various recoveries made by them from their clients under various
heads which were also stand alone services classifiable under individual categories
respectively, still the said service provider themselves classified these charges as
BAS or BSS. This shows that the said service provider also believed that by
providing all such services to their clients which were apart from the freight
forwarding services, they were supporting their clients in their business and
therefore these services were classified under BAS or BSS. Hence, now their plea
cannot be accepted that at the material time they had paid service tax mistakenly
or that these charges cannot be considered as taxable under BAS or BSS but under
the respective services. They have also claimed that they had not provided these
services directly to their clients and services were being provided by third party,
therefore, they were not liable to pay service tax on these expenses which they had
recovered from their clients and paid to respective agencies providing services. If
this plea of the said service provider is accepted then it will be a modus operandi
for evasion of service tax. The primary service provider would obtain registration in
one particular service and avail various services from other service providers on
behalf of their client and escape service tax liability. Therefore, it is concluded that
the said charges recovered by the said service provider and shown in their income
side are the taxable values received by them for providing various services falling
under stand alone classification, but since these were provided as a composite
service as for supporting the business of their clients, the same are classifiable
under Business Auxiliary Service and/or Support for Business or Commerce Service.
The demand to the above extent i.e. service tax of Rs.2,85,221/- towards expenses
recovered
for
having
paid
to
shipping
line,
service
tax
Rs.40,148/-
on
transportation, Rs.12,716/- is Customs clearance activity, Rs.4,221/- is towards
fumigation expenses, Rs.1,222/- is towards Insurance company, Rs.7,911/- is
towards statutory fees and Rs.8,899/- is towards Marketing & Supervision charges.
Total service tax required to be recovered and confirmed under first proviso to
Section 73(1) of the Finance Act, 1994, against the said service provider on above
expenses is Rs.3,60,338/- under Support Service for Business, along with interest
payable in terms of Section 75 of the Finance Act, 1994. These charges are covered
under Support Service for Business as they have been paying service tax on other
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 55 of 60
charges collected from their clients and their main reason for not paying service tax
on these charges is that the related services have been provided by third party and
therefore, liability to pay service tax is on third party who has actually provided the
service tax and not on them. This issue has already been discussed by me above
and it clear that if the charges recovered are for taxable service, in the present case
under Support Service for Business, then even if the actual service has been
provided by third party, the intermediary like the service provider in the present
case, who has assisted their clients for provision of respective services to support
them in their business or commerce, is liable to pay service tax on the amount so
collected by them under Support Service for Business.
55.
The said service provider has contended other contentions stating that the
demand is time barred on various grounds, mainly that the department was aware
about their activities on 24.8.2008 and the show cause notice notice has been
issued beyond one year from this date. In this regard, I rely on the decision
delivered by the Hon’ble Supreme Court of India in the case of appeal filed by the
department in the case of M/s Mehta & Co. cited as 2011(264) ELT 481 (SC)
wherein in identical issue was decided reversing the decision of CESTAT. Relevant
para is reproduced below:“24. The cause of action, i.e., date of knowledge could be attributed
to the appellant in the year 1997 when in compliance of the memo
issued by the appellant and also the summons issued, the hotel
furnished its reply setting out the details of the work done by the
appellant amounting to Rs. 991.66 lakhs and at that stage only the
department came to know that the work order was to carry out the job
for furniture also. A bare perusal of the records shows that the
aforesaid reply was sent by the respondent on receipt of a letter issued
by the Commissioner of Central Excise on 27-2-1997. If the period of
limitation of five years is computed from the aforesaid date, the show
cause notice having been issued on 15-5-2000, the demand made was
clearly within the period of limitation as prescribed, which is five
years.”
55.1.
I further rely on the following judgments of Hon’ble Supreme Court &
Tribunals ;
 Mathania Fabrics Vs CCE, Jaipur reported in 2008 (221) ELT 481 (SC)
 CCE, Ahmedabad I Vs M Square Chemicals reported in 2008 (231)
ELT 194 (SC)
 Salasar Dyg & Ptg. Mills (P) Ltd., Vs CCE, Surat reported in 2009
(235) ELT 93 (Tri-Ahmd.)
 Associated Cement Companies Ltd., Vs CC reported in 2001 (128) ELT
21 (SC)
55.2
The Hon’ble High Court of Gujarat in the case of CCE, Surat – I Vs
Neminath Fabrics Pvt. Ltd., reported at 2010 (256) ELT 369 (Guj), while
deciding the similar issue in Central Excise, has held that proviso cannot be read to
mean that because there is knowledge, suppression which stands established
disappears – concept of knowledge, by no stretch
of imagination, can be read
OIO NO.60/STC-AHD/ADC(AS)/2012-13
into
provisions – suppression not
Page 56 of 60
obliterated, merely because department
acquired knowledge of irregularities.
53.
I further find that the said service provider has also contended on the issue
of calculation error in service tax demand in the show cause notice. On facts, I
admit that the during the period 1.4.2006 to 17.4.2006 the service tax should have
been demanded @ 10.20% whereas, the notice demands service tax @ 12.24%
and rate of service tax including cess applicable for the period 01-04-2007 to 1005-2007 is 12.24% whereas the SCN calculates the same at 12.36% and rate of
service tax including cess applicable for the period 24-02-2009 to 31-03-2009 is
10.30% whereas the SCN calculates the same at 12.36%. However, I find that
since the service tax is being demanded and confirmed on the basis of value and
service tax calculated by the service provider themselves, the difference in the rate
of service tax has mitigated and is not required to be considered separately.
54.
As regards their contention to treat the value as cum-tax value and to give
them benefit of re-determining the value as per Section 67(2) of the Finance Act,
1994, I find that the said service provider has been consistently holding that these
receipts were not for having provided any taxable service and therefore obviously
they have not recovered the service tax from their clients and have only received
the actual expenses incurred by them or the taxable value, hence, they are not
admissible for the benefit of redetermination of value in terms of Section 67(2) ibid
as there is no evidence that the amount collected by them from their clients was
inclusive of service tax.
55.
Since the said service provider had not discharged service tax liability
on the amount of taxable value received demanded under the show cause notice
and therefore, they have contravened the provisions of Section 67, 68, of the
Finance Act, 1994 and thereby rendered themselves liable to penalty under
Sections 76, 77 & 78 of Finance Act 1994.
56.
As the said service provider failed to pay the service tax on the correct value
in the stipulated period, they have made themselves liable for penalty under
Section 76 of the Finance Act, 1944. My conclusion is also based on various
decisions of Hon’ble High Courts & Tribunals as mentioned below ;
1. CCE & ST Vs First Flight Couriers Ltd reported at 2007(8) STR 225
(Kar.)
2. UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.)
3. UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.)
4. Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (TriAhmd)
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 57 of 60
5. CCE, Vapi Vs Ajay Sales Agencies reported at 2009 (13) STR 40 (Tri–
Ahmd)
6. Siddhi Motors Vs CCE, Rajkot reported at 2009 (15) STR 422 (TriAhmd)
57.
I further observe that the Hon’ble CESTAT in the case of M/s Gujarat
Industrial
Security
Force
Society
Vs
CST,
Ahmedabad,
vide
order
No.
A/1110/WZB/AHD/2010 dated 05.08.2010, has held that no lenient view can be
taken under section 76 of the Finance Act, 1994.
57.1.
The Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port
Officer, reported at 2010 (19) STR 641 (Guj) has now settled the issue of
penalty under Section 76.
57.2.
The Hon’ble High Court of Gujarat has further confirmed the above
view in the case of CCE Vs S J Mehta & Co., reported at 2011 (21) STR 105
(Guj.) and CCE Vs Bhavani Enterprises reported at 2011 (21) STR 107
(Guj.).
58.
I further find that the said service provider failed to file their ST-3 returns
correctly for the period covered under the impugned show cause notice & hence
they are liable for penalty under Section 77 for non filing of ST-3 returns correctly
for the period in dispute.
59.
I further observe that the show cause notice also proposes imposition of
penalty under Section 78 of the Finance Act, 1994. I find that the contravention of
the provisions of the Finance Act, 1994 and the rules made thereunder with intent
to evade payment of service tax has been established beyond doubt as discussed
and concluded in the earlier part of this order. Accordingly, I hold that the said
service provider have rendered themselves liable to penalty under the provisions of
Section 78 of the Finance Act, 1994. However, as per the amendment to Section 78
by the budget of 2008 w.e.f. 10.5.2008, the simultaneous penalty under Section 76
is not imposable if penalty is being imposed under Section 78.
60.
As it is already proved that the service provider had suppressed the facts and
contravened the provisions of the Finance Act, 1994 or the rules made thereunder
as specified above, the consequences shall automatically follow.
The Hon’ble
Supreme Court has settled this issue in the case of U.O.I Vs Dharmendra Textile
Processors reported in 2008 (231) ELT 3 (S.C) and further clarified in the case of
U.O.I Vs R S W M reported in 2009 (238) ELT 3 (S.C). Hon’ble Supreme Court
has said that the presence of malafide intention is not relevant for imposing penalty
and mens rea is not an essential ingredient for penalty for tax delinquency which is
a civil obligation.
OIO NO.60/STC-AHD/ADC(AS)/2012-13
60.1
Page 58 of 60
I further observe that recently hon’ble High Court of Punjab & Haryana, in
the case of CCE Vs Haryana Industrial Security Services reported at 2011 (21)
STR 210 (P&H), has also upheld the penalty equal to service tax imposed under
Section 78 of the Finance Act, 1994. Hon’ble Karnataka High Court has also taken
similar view in the case of CCE, Mangalore Vs K Vijaya C Rai reported at 2011
(21) STR 224 (Kar.)
61.
I also find that penalty under Section 76 ibid is provided for failure to pay
service tax whereas penalty under Section 78 ibid is for suppressing value of
taxable service. In the instant case, service tax liable to be paid in terms of Section
68 read with Rule 6 of the Service tax Rules, 1994, have not been found paid as
well as service tax has not been paid / short paid by suppressing value of taxable
service by reason of wilful mis-statement and suppression of facts. Of course these
two offences may arise in the course of same transaction, or from the same action
of the person concerned. But the incidents of imposition of penalty are distinct and
separate and even if the offences are committed in the course of same transaction
or arises out of the same act the penalty is imposable for ingredients of both
offences, this aspect was also considered by the Hon’ble High Court of Kerala in
the case of Assistant Commissioner, C.Ex. Vs Krishna Poduval – 2006 (1)
STR 185 (Ker). I also find that the Hon’ble Mumbai Tribunal in the case of Golden
Horn Container Services Pvt. Ltd. v/s Commr. of C. Ex., Raipur reported at
2009 (16) S.T.R. 422 (Tri.-Mumbai), has held that Section 76 provides for a
penalty on the person who commits default simpliciter in payment of the tax
whereas section 78 is a more stringent penal provision, which provides harsher
penalty who commits default with mens rea. Since in this case also, non payment of
service tax is deliberate, the decision of the tribunal is squarely applicable.
61.1. Therefore, I am of the view that in the facts and circumstances of the case, it
is justifiable, if the penalty is imposed under the provisions of Section 76 and 78 of
the Finance Act, 1994, separately, following the decisions of Hon’ble Kerala High
Court and Mumbai tribunal (supra). My views are also further supported by various
decisions of tribunals in the cases of ;
a) Shiv Network v/s Commissioner of Central Excise & Customs, Daman
reported at 2009 (14) S.T.R. 680 (Tri.-Ahmd.)
b) Commissioner of Central Excise, Vapi v/s Ajay Sales Agencies
reported at 2009 (13) S.T.R. 40 (Tri.-Ahmd.), and
c) Mett Macdonald Ltd. v/s Commissioner of Central Excise, Jaipur
reported at 2001 (134) E.L.T. 799 (Tri.-Del.).
d) M S Shah & Co., Vs CST, Ahmedabad – Order No. A/1328/ WZB/
Ahd/ 2010 dated 30.06.2010 / 26.08.2010.
e) Bajarang Security Services Vs CST, Ahmedabad – Order No. A/745/
WZB/Ahd/2010 dated 09.06.2010 / 23.06.2010.
f) CESTAT, Principal Bench, New Delhi in the case of Bajaj Travels Ltd.,
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 59 of 60
Vs CCE, Chandigarh – 2009 (16) STR 183 (Tri.Del.)
62.
All other contentions raised by the said service provider have been examined
and except for those already discussed above have not been found to be relevant
and hence are not being deliberated upon in detail.
63.
In view of the above, I pass the following order :ORDER
(i) I confirm the demand of service tax amounting to Rs.3,60,338/- (Rupees
Three Lakh Sixty Thousand Three Hundred and Thirty Eight only) against M/s
Seagul Maritime Agencies Private Limited, Ahmedabad under first proviso to
Section
73(1)
of
the
Finance
Act,
1994
on
the
taxable
value
of
Rs.29,26,047/- for the period from 2005-06 to 2008-09 at the different rates
of service tax prevailing from time to time.
(ii) I order to recover interest as applicable on the amount of service tax liability
of Rs.3,60,338/- under Section 75 of the Finance Act, 1994 as amended;
(iii) I impose a penalty of Rs.200/- (Rupees Two Hundreds Only) upon M/s
Seagul Maritime Agencies Private Limited, Ahmedabad per day or at the rate
of 2% of the service tax amount per month, whichever is higher, under the
provisions of Section 76 of the Finance Act, 1994, as amended, for failure to
pay Service Tax and Education Cess within the stipulated period as required
under the provisions of Section 68(1) of the Finance Act, 1994 read with Rule
6 of the Service Tax Rules, 1944, as amended. The penalty under the Section
76 should be calculated upto 10.05.2008 in view of amendment under
Finance Act, 2008. As the actual amount of penalty could be depending on
actual date of payment of service tax, however, as per Section 76 of the
Finance Act, 1994, penalty will be restricted to the above confirmed amount
of service tax liability.
(iv) I impose penalty of Rs. 5,000/- (Rupees five thousand only) on M/s
Seagul Maritime Agencies Private Limited, Ahmedabad under Section 77 of
the Finance Act, 1994 for failure to file prescribed Service Tax Returns
correctly within the stipulated time.
(v) I also impose a penalty of Rs.3,60,338/- (Rupees Three Lakh Sixty
Thousand Three Hundred and Thirty Eight only) upon M/s Seagul Maritime
Agencies Private Limited, Ahmedabad under Section 78 of the Finance Act,
1994 for suppressing the value of taxable services provided by them before
the Department with intent to evade payment of service tax. If the service
tax amount is paid along with interest payable thereon as confirmed at (i) &
(ii) above within 30 days from the date of receipt of this order, then the
amount of penalty under Section 78 as per proviso thereto shall be reduced
OIO NO.60/STC-AHD/ADC(AS)/2012-13
Page 60 of 60
to 25% of Rs.3,60,338/-, the service tax amount, provided that such penalty
of 25% is also paid within period of 30 days of receipt of this order.
(vi) I drop the demand of service tax on Ocean freight and Air Freight, expenses
relating thereto and on value difference of these services as discussed above.
(Amarjeet Singh)
Additional Commissioner,
Service Tax, Ahmedabad.
F. No. STC-05/O&A/SCN/SMA/ADC/11-12
Date: 29 /03/2013
By Regd. Post A.D./Speed Post
To,
M/s. Seagull Maritime Agencies Pvt. Ltd.,
Ambica Chambers,
Behind Old High Court,
Navrangpura, Ahmedabad-09.
Copy to :
(i)
(ii)
(iii)
(iv)
The Commissioner , Service Tax, Ahmedabad. (Attn. Review Cell)
The Deputy Commissioner, Service Tax, Division-III, Ahmedabad.
The Superintendent, Service Tax, A.R.-XIII, Division-III,
Ahmedabad with
an extra copy of OIO to be delivered to the assessee and send the
acknowledgement.
Guard file.