Destination charges – When assessee merely collects and hands over documents to consignees, destination charges will not form part of taxable value of storage and warehousing

These appeals deal with common questions of facts and law emanating from Order-in-Appeal No.107/2005-ST dated 29.04.2005 passed by the Commissioner of Central Excise (Appeals), Bangalore and Order-in-Original No.57/Commr.LTU dated 17.07.2008 passed by the Commissioner of Central Excise & Service Tax, Large Tax Payers Unit, Bangalore. Both the orders impugned deal with liability to Service Tax of activities engaged in by M/s. Mysore Sales International Ltd. (MSIL for short), Bangalore, a State Government PSU, Inter alia, operating as custodian at the Air Cargo Complex, Bangalore. MSPL has been appointed as custodian of goods in international trade, transiting through the Airport.

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE

(1) Service Tax Appeal No.ST/61/2005

Arising out of Order-in-Appeal No.107/2005-ST Dated: 29.04.2005
Passed by the Commissioner of Central Excise (Appeals), Bangalore

Date of Decision: 21.12.2010

M/s MYSORE SALES INTERNATIONAL LTD

Vs

ASSISTANT COMMISSIONER OF CENTRAL EXCISE
SERVICE TAX DIVISION, BANGALORE

(2) Service Tax Appeal No.ST/63/2005

Arising out of Order-in-Appeal No.107/2005-ST Dated: 29.04.2005
Passed by the Commissioner of Central Excise (Appeals), Bangalore

COMMISSIONER OF CENTRAL EXCISE
SERVICE TAX COMMISSIONERATE, BANGALORE

Vs

M/s MYSORE SALES INTERNATIONAL LTD

(3) Service Tax Appeal No.ST/523/2008

Arising out of Order-in-Original No.57/Commr. LTU Dated 30.06.2008/17.07.2008
Passed by the Commissioner of Central Excise & Service Tax, Large Tax Payer Unit, Bangalore

M/s MYSORE SALES INTERNATIONAL LTD

Vs

COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, LTU, BANGALORE

Appellants Rep by: K S Ravi Shankar and N. Anand, Advs.
Respondents Rep by: D.P. Nagendra Kumar, JCDR

CORAM: M V Ravindran, Member (J)
P Karthikeyan, Member (T)

FINAL ORDER NOS. 1538 to 1540/2010

Per: P Karthikeyan:

These appeals deal with common questions of facts and law emanating from Order-in-Appeal No.107/2005-ST dated 29.04.2005 passed by the Commissioner of Central Excise (Appeals), Bangalore and Order-in-Original No.57/Commr.LTU dated 17.07.2008 passed by the Commissioner of Central Excise & Service Tax, Large Tax Payers Unit, Bangalore. Both the orders impugned deal with liability to Service Tax of activities engaged in by M/s. Mysore Sales International Ltd. (MSIL for short), Bangalore, a State Government PSU, Inter alia, operating as custodian at the Air Cargo Complex, Bangalore. MSPL has been appointed as custodian of goods in international trade, transiting through the Airport.

Appeal No. ST/523/2008: Impugned Order: OIO No. 57/Commr./LTU dated 30.06.2008

2. The impugned order confirmed differential Service Tax of Rs. 37,40,231/- plus interest found due from MSIL on the activities undertaken by it classified under ‘Storage and Warehousing Services’. This amount was short paid, as MSIL had classified the activities of baggage handling and export terminal charges during the period February, 2004 to September, 2005 wrongly under ‘Cargo Handling Services’. Of the various activities undertaken during the material period, only ground handling and cargo handling were liable to Service Tax under Cargo Handling Service, as per the order.

2.1. Vide the impugned order, the Commissioner found that MSIL had deliberately misclassified the services under Cargo Handling Services to avail exemptions provided under Cargo Handling Services in respect of passenger baggage and export cargo. He held that longer period provided under proviso to Section 73(1) of the Finance Act, 1994 (the Act) was rightly invocable in the case. He also imposed equal amount of penalty as the Service Tax demanded under Section 78 of the Act, penalty of Rs. 1000/- under Section 77 of the Act as well as penalty @ Rs. 200/- per day for every day during which the default continued or 2% of such tax per month whichever was higher for the delay starting from the first day after the due date till the date of payment. Appeal No. 523/2008 has been filed by MSIL seeking to vacate this order.

Appeal No.ST/61/2005; Impugned Order: OIA No.107/2005-ST dated 29.04.2005

3. While disposing a show-cause notice dated 30.06.2004 issued to MSIL, the Assistant Commissioner, Service Tax Division, Bangalore, confirmed the following amounts of Service Tax, applicable interest on the amount of Rs.26,01,981/- demanded and imposed a penalty of Rs.100/- per day for the period of delay in paying the Service Tax demanded under Section 76 of the Act.

A. Storage and warehousing services:-

B. Cargo Handling Services:-

3.1. Partly allowing the appeal filed by MSIL, the Commissioner (Appeals) vacated the demand of Service Tax on the following items:-

(i) Demurrage charges; (ii) Wharfage charges; (iii) Abandoned Cargo; (iv) Destination Charges; and (v) OT charges/penalties.

Appeal No: ST/63/2005; Impugned Order: OIA No.107/2005-ST dated 29.04.2004.

4. This appeal is filed by Revenue against the impugned order, which held that MSIL is not liable to pay Service Tax on the following:

(i) Demurrage charges; (ii) Wharfage charges; (iii) Abandoned Cargo; (iv) Destination charges and (v) OT charges/penalties.

5. The facts of the case in appeal Nos. ST/61/2005 and ST/523/2008, in brief, are that MSIL has been appointed as a custodian at the Air Cargo Complex, Bangalore , under Section 45 of the Customs Act, 1962. As a custodian, the assessee will have custody of goods in transit through the Airport pending clearance of imported goods for home consumption, warehousing or transshipment and of export goods pending clearance for export. The assessee is not a warehouse licensee under Chapter IX of the Customs Act. The assessee is registered with the Department as provider of taxable services classifiable under ‘Cargo Handling Services’ from the year 2002. MSIL handles as a custodian, three types of cargo viz. Import cargo, export cargo and unaccompanied passenger baggage. The assessee held the view that Service Tax can be levied on its activities relating to handling of import cargo under the head Cargo Handling service. As regards the import cargo, pursuant to delivery by the concerned airlines, the assessee takes over the cargo after verifying with the import manifest. Pending clearance of the various consignments to the respective importers, the cargo will be in the custody of MSIL. Whereas most passengers clear the cargo brought with them, household articles and personal baggage often reach the airport unaccompanied by the passenger. Such baggage is also kept in the custody of the assessee pending clearance by the concerned passengers. The assessee collects a fixed charge of Rs. 4/- per Kg. for the consignments entrusted with it, which the assessee has described in the appeal as cargo handling Charge. The assessee was of the view that it rendered the services of handling the cargo by carrying out the above activities. It was not in the business of providing Storage and Warehousing Services. It was not authorized to provide such services. As regards the export cargo, the assessee comes on the scene whenever an exporter of cargo approaches it and delivers the cargo against a shipping bill filed before the customs authorities. After customs clearance, the assessee delivers the cargo to the concerned airlines/carrier. The assessee charges for the above what is called a terminal charge.

5.1. Following inspection of its records by the Internal Audit party, a show-cause notice was issued proposing to demand Service Tax under various heads on account of certain other charges in addition to those mentioned above such as destination charges, wharfage charges, demurrage charges, abandoned cargo, OT charges and penalties. In adjudication, the Original authority held that by keeping in safe custody the goods involved in international trade transiting through the airport, the assessee rendered a taxable service classifiable under ‘Storage and Warehousing services’. The original authority relied on CBEC Circular No. B/11/1/2002-TRU dated 01.08.2002. In para 3 of this Circular, CBEC had clarified the scope of the entry ‘Storage and Warehousing Services’ and by way of illustration had indicated that such service was provided by public warehouses, private warehouses by agencies such as the Central Warehousing Corporation, Airport Authorities, Railways, Inland Container Depots, Container Freight Stations, storage godown and tankers operated by private individuals.

The storage and warehousing service provider normally made arrangement for space to keep the goods, loading, unloading and stacking of goods in the storage area, kept inventory of goods, made security arrangements and provided insurance cover, etc. The activities of the assessee were storage and warehousing, as clarified by the CBEC in the above Circular. He discussed the liability of the following activities:-

(A) Import Cargo : After the cargo carried by airlines is brought to the Air Cargo Complex, after unloading, the same is stored in the premises after verifying with the manifest. The cargo is later presented for customs clearance. After customs formalities are complete, the goods are presented for inspection by customs, cross checked and delivered to importer. The assessee charges the importer for keeping the cargo safely in its custody till the same is delivered.

(i) Destination Charges : The assessee provides service of ground handling to Air India and Blue Dart. It collects documents from the carrier and intimates the importer about the arrival of the cargo. While handing over the documents to them, for this service, they charge an amount describing it as destination charges or ground handling charges. The Assistant Commissioner found that this activity sets the ball rolling for actual handling of the cargo, which is also handled by the assessee itself. The Assistant Commissioner held that this was an additional trade promotion measure undertaken by the assessee and the assessee was liable to pay Service Tax on this activity.

(B) Import of Passenger Baggage:

(i) Handling/Storage charge: The assessee charges the passengers for storing the cargo till delivery of the same to the passenger on clearance by customs.

(ii) Demurrage : Whenever the cargo remains with the custodian beyond a period of five days, the importer or passenger is charged an additional amount as demurrage based on the weight. The Assistant Commissioner found that this was done to discourage the importer/passenger for taking too much time in clearing the cargo which would result in congestion/non-availability of space for the other regular cargo. He held this amount also as collected towards storage.

(iii) Re-packing charges : The cargo of the importer/passenger is opened for customs examination by the custodian. The custodian repacks the same after examination. This activity involved opening of baggage/cartons and sealing it with adhesive tape and did not involve packing as understood in common parlance. This was only a facilitating measure to the importer/passenger to clear the cargo safely. Repacking was a misnomer in his view. The charges were collected under the name ‘Repacking charges’.

C. Export Cargo: The export of the cargo is entrusted with the assessee after filing the shipping bill with the customs. The cargo remains with the assessee till the same is delivered on clearance by customs to the concerned airline.

(i) Terminal charges and Cargo handling over charges: The assessee charges an amount for handing over of the cargo to the carrier from the exporter and for the facilities provided to the exporter by the assessee. This was the primary activity of the assessee as custodian of cargo. This activity clearly fell under the category Storage and Warehousing Service. The Assistant Commissioner relied on a Circular of the CBEC No. B11/1/2002-TRU dated 01.08.2002 where it was stated that as per Notification No. Cargo/13519/Pt.I dated 04.06.93 of the International Airport Authority of India, “terminal charges” meant charges payable to, or collected by the Authority or Cargo Handling Agency for use of the facilities for processing of cargo. The Assistant Commissioner found that as per this Notification, “storage and processing charges” specifically included terminal charges also. Therefore, he held that Service Tax was leviable on such charges holding that the activity was properly classifiable under Storage and Warehousing Services.

(ii) Wharfage: In case, delivery is delayed beyond 24 hours, an additional amount was collected as wharfage. This was to ensure faster delivery to reduce congestion as discussed under the heading ‘Demurrage’. This amount was taxable again under Storage and Warehousing Services.

(iii) OT charges and Penalties : The custodian charged amounts in excess of regular charges for goods cleared for export after the prescribed office hours. This was in relation to the cargo clearance. It was not clear to the Assistant Commissioner as to the nature of the penalties imposed by the custodian, but it was clear that these penalties related to violations committed by the exporter. Since these were collected in connection with the services rendered by the custodian, he was of the view that Service Tax was payable on this amount also. He confirmed demand on these OT charges and penalties.

D. Abandoned Cargo : In cases where the importer does not turn up to clear the cargo by filing Bill of Entry, the assessee issues notice to the importer. Such consignments are auctioned and the sale proceeds allotted towards expenditure on auction, customs duties, charges towards storage and warehousing etc. The Assistant Commissioner demanded Service Tax under the head ‘Storage and Warehousing Service’ on the charges received.

E. Demand of Service Tax on amount collected against Debit Note raised against import of cargo of value Rs. 45977/-. The Assistant Commissioner held that Service Tax of Rs. 4678/- was due on this amount under ‘Storage and Warehousing Service’.

5.2. Vide the impugned Order-in-Appeal No.107/2005-ST dated 29.04.2005, the Commissioner(Appeals) examined the entry Storage and Warehousing and found to the effect that the essential character of the activity carried out by the assessee was that of Storage and Warehousing Services. He rejected the contention of the assessee that the activities in question were appropriately classified under ‘Cargo Handling Services’. He also rejected the contention of the assessee that only the warehousing falling under Chapter IX of the Customs Act was exigible under the head ‘Storage and Warehousing’. He agreed with the findings of the original authority except that the following charges viz. (i) Demurrage charges; (ii) Wharfage charges; (iii) Abandoned cargo; (iv) Destination charges and (v) OT charges/penalties were exigible under ‘Storage and Warehousing services’.

6. The assessee has raised the same grounds as taken before the lower authorities that the activities in question were classifiable under the head ‘Cargo Handling Services’. Warehousing operation envisaged under the head ‘Storage and Warehousing Services’ was an entirely different operation falling under Chapter IX of the Customs Act requiring licences for public and private warehouses. The appellant did not have a licence for any such warehouses. The definition of Cargo Handling Service excluded from its purview export cargo and passenger baggage. The legislative intention was thus clear. By classifying the impugned activities under Storage and Warehousing, the authorities defeated the object obvious from the statute. The services of the assessee were not available to all members of interested public. The assessee dealt with members of the trade and authorized airlines. The assessee collected a fixed charge based on weight as cargo handling charge. This was not for storage or warehousing of cargo. The assessee was not in the business of providing storage and warehousing. The appellant rendered similar services for handling of export cargo. These were called terminal charges and were not taxable as charges for storage and warehousing. By charging Service Tax on terminal charges, Indian exports were rendered less competitive in international market which was inconsistent with the legislative intent.

6.1. It is submitted that the lower authorities had wrongly relied on the Notification No. Cargo/13519/Pt.I dated 04.06.1993. In the light of the clarification issued by CBEC vide Circular F. No.B11/1/2002-TRU dated 01.08.2002, unaccompanied baggage of passengers was not liable to Service Tax. As the Commissioner had allowed their appeal in part, the challenge is restricted to parts of the order adverse to it.

6.2. In appeal No. ST/523/2008, the impugned order is challenged also on the ground that the Commissioner had invoked Section 73(1) of the Act without any justification. Such a demand could not be raised for a period beyond one year. The period of limitation of five years had no application, as there were no circumstances warranting application of such extended limitation. The Commissioner had grossly erred in imposing penalty under Section 78, as suppression of facts coupled with intent to evade payment of tax could not be attributed to the assessee. More so, when the assessee was in appeal before the Tribunal on the same issue for an earlier period. In a Note submitted on 31.08.2007, the assessee agreed that it was liable to pay Service Tax for keeping the imported consignments in safe custody pending completion of customs formalities and delivery. This tax was paid at the relevant time at the rate of Rs. 4/- per kg. There was no issue as regards this liability. The demand relating to passenger baggage and export cargo is contested on the basis that these are excluded from the levy as clarified by the Board’s Circular. Demurrage and Wharfage charges were similarly exempted. As regards the abandoned cargo, no demand could be raised on the amounts received as a share of the proceeds under any category of taxable service. Destination charges pertained to handing over of documents and not goods. The same was not liable to tax. The CBEC Circular clarified that charges towards, inter alia, demurrage handling charges, storage and processing charges and terminal charges recovered were to be considered as cargo handling charges and accordingly, Service Tax would be leviable. This showed that the impugned amounts could not be taxed under storage and warehousing service.

7. In the appeal filed by the Revenue, the impugned order (OIA No. 107/05-ST dated 29.04.2005) is challenged for holding that the following charges collected by MSIL are not liable to Service Tax without justifying the same.

(i) Demurrage charges: It is submitted that the demurrage charges are nothing but rental charges for services provided by the assessee to customers in relation to storage of goods and were, therefore, liable to Service Tax. Value of taxable services was the gross amount charged. The gross amount included demurrage charges.

(ii) Abandoned Cargo: As per the instructions contained in para 12 of CBEC Circular B.11/1/2002-TRU dated 01.08.2002, proceeds of auction on abandoned cargo are to be shared towards cost of auction, customs duties and then to the custodian of the goods. It is submitted that MSIL receives a portion of the amount which is only in relation to the storing and warehousing of goods. Therefore, the same are liable for levy of Service Tax.

(iii) Overtime Charges/Penalties: It was apparent that the penalties in question were collected for the violations on the part of the clients of the assessee in relation to storage and warehousing of goods. Similarly overtime charges were levied by MSIL in relation to storage and warehousing of goods provided by MSIL. Therefore, these charges were liable to Service Tax under Storage and Warehousing services.

(iv) Wharfage charges: The liability of this charge is canvassed on the same ground as found by the original authority.

(v) Destination Charges: It is submitted that destination charges or ground handling charges were collected by MSIL for storage and warehousing service in relation to the clearance of goods. The service formed an integral part of service relating to clearance of goods and the charges were towards storage and warehousing.

8. During hearing, the learned counsel for the assessee, in both the appeals, raised a new legal argument on the basis that MSIL was a statutory authority. MSIL was posted as a custodian by issue of Public Notice No. 1/77 dated 10.01.1997. As per the Public Notice, MISL was appointed as custodian of imported cargo under Section 45(1) of the Customs Act. The Air Cargo Complex had already been specified as “Customs Area”. It is submitted that Section 45 of the Customs Act provided for the Commissioner approving a person in whose custody imported goods unloaded in a Customs Area shall remain until they are cleared for home consumption or are warehoused or are transshipped. It is submitted that MSIL was a custodian as per the above provisions of the Act. The custodian appointed under Section 45 of the Customs Act carried out statutory functions as a public authority. The custodian collected fee for carrying out the prescribed statutory function. In the instant case, MISL was a public authority and the activities performed by it are statutory functions; they were in the nature of statutory obligations to be fulfilled in accordance with law. The learned Counsel relies on Circular No. 89/7/2006-ST dated 18.12.2006 in support of the above argument. As per the Circular, such activities are exempt from levy. He relied on the following judgments to canvass the above plea.

(i) Asset Engineering Vs. Mysore Sales International Ltd. [2006 (205) ELT 114 (Kar.)]

In this judgment, the Hon’ble High Court of Karnataka had expressed the view that MSIL was acting as statutory functionary under the provisions of the Customs Act.

(ii) Amarchand Fulchand Vs. UOI [1995 (77) ELT 539 (Bom.)]

In this case, the Hon’ble High Court had decided that the custodian appointed under Section 45 for the areas notified as Customs Area was not competent to levy higher fees for services provided by it under the Customs Act as deligatee of Collector. The custodian was required to collect fees as per regulations.

(iii) Mysore Sales International Ltd. Vs. United India Insurance Co. Ltd. [2009 (243) ELT 161 (Kar.)]

In this judgment, the Hon’ble High Court had held that the Custodian was a statutory creation under Section 45(1) of the customs Act and was answerable to the Customs department, for any loss or destruction of such goods.

8.1. It was argued that in the second notice issued to the same assessee relating to the same dispute, larger period of limitation could not have been validly invoked. The relevant facts were within the knowledge of the department when the first show-cause notice was issued. Therefore, subsequent show-cause notice could not allege suppression of facts as held in Geo Tech Foundations & Construction Vs. CCE, Pune [2008 (224) ELT 177 (SC)] = (2008-TIOL-39-SC-CX) .

8.2. Relying on the decision of the Tribunal in Dr. Lal Path Lab Pvt. Ltd. Vs. CCE, Ludhiana [2006 (4) STR 527 (Tri.-Del.)] = (2006-IST-247-CESTAT-DEL) affirmed by the Punjab & Haryana High Court as reported in 2007 (8) STR 337 (P & H) = (2007-IST-13-HC-P-H-ST) , it is submitted that activities kept out of a levy by the Legislature could not be subjected to tax by the Revenue under another entry. This was to buttress the plea that export cargo and passenger baggage were excluded from cargo handling service; this meant that these activities could not be subjected to tax under any other entry.

9. We have also heard the learned DR for the Revenue. We have examined the case records and studied the rival submissions carefully. The taxable entries ‘Storage and Warehousing’ and ‘Cargo Handling’ read as under:

Storage and Warehousing:-

“storage and warehousing” includes storage and warehousing services for goods including liquids and gases but does not include any service provided for storage of agricultural produce or any service provided by a cold storage.”

As per Section 105 (zza) of the Act, the taxable service is that provided or to be provided ‘to any person by a storage or warehouse keeper in relation to storage and warehousing of goods’.

Cargo Handling Service:

“cargo handling service” means loading, unloading, packing or unpacking of cargo and includes, —

(e) cargo handling services provided for freight in special containers or for non-containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and cargo handling service incidental to freight; and

(b) service of packing together with transportation of cargo or goods, with or without one or more of other services like loading, unloading, unpacking,

but does not include, handling of export cargo or passenger baggage or mere transportation of goods;”

9.1. The impugned orders challenged by the assessee held various activities undertaken by MSIL to be exigible to Service Tax under the entry Storage and Warehousing services.

9.2. From the case records, we find that the assessee collects various charges from importers/exporters including passengers for keeping the cargo in transit safely pending export or customs clearance for home consumption. In holding that keeping safe custody of cargo in transit pending clearance by the customs constitute an activity exigible under the above entry, the lower authorities relied on Circulars of the CBEC which clarified that storage and warehousing service provided by, inter alia , Airport authority is covered by the entry. The entry Cargo Handling Service was clarified by CBEC as not covering export cargo and passenger baggage. We find that the clarification is not to the effect that all activities relating to export cargo and passenger baggage are also excluded from levy under other entries. We agree with the finding of the Commissioner that the exceptions provided under cargo handling services with regard to passenger baggage and export cargo cannot be claimed under storage and warehousing services.

9.3. Demurrage or wharfage charges are collected respectively in relation to clearance of import/export cargo beyond five days and 24 hours. As found by the original authority, these are higher charges for continued storage of cargo collected by the assessee from members of the trade. We find that these are part of the taxable value collected towards storage and warehouse charges.

9.4. As regards the abandoned cargo, these accrue to the assessee towards storage and warehousing of cargo, which are not taken delivery by the importer. The procedure for auctioning abandoned cargo and the sharing of the proceeds is prescribed by the Ministry of Finance. These instructions also make it clear that the assessee receives amounts towards the service of storage and warehousing of cargo under this head. However, the services are not rendered to any person in the case of abandoned cargo. Therefore, demand under this head is not sustainable.

9.5. As regards the destination charges, we find that the assessee collects the documents representing the consignments brought by Air India and Blue Dart and hand over to the respective consignees. In cases where the assessee merely collects and hands over the documents to the respective consignees, destination charges will not form part of taxable value under storage and warehousing.

9.6. As regards the OT charges/penalties, the lower authorities have not given a finding as to the nature and purpose of these penalties but presume that these are collected for violations on the part of their clients in relation to storage and warehousing services. The Commissioner (Appeals) did not find this item to be taxable under storage and warehousing. In the absence of a finding as to how this amount is taxable towards any service rendered by the assessee, we find it difficult to accept the stand of the Revenue in this regard. We find that the assessee has not also explained the nature and purpose of collecting these charges. This matter may be decided after hearing the party afresh.

9.7. We find considerable merit in the submission made by the assessee that there was no suppression of facts, etc. to warrant invocation of larger period. From the orders impugned, we do not find a reliable finding by the authorities that MSIL, a State PSU, had resorted to suppression of facts to evade appropriate Service Tax amount. Considering the nature of the activities involved, the Commissioner could not have found with certainty that the assessee had deliberately misclassified the activities undertaken by it under the head Cargo Handling Services instead of Storage and Warehousing Services. Therefore, the authorities could not have validly invoked extended period and imposed penalties. The penal liability of the appellant requires reconsideration in the light of Section 80 of the Act.

10. In the assessee’s appeal, it is submitted that the Commissioner (Appeals) ought to have held that levy of interest and penalty by the Assistant Commissioner was not justifiable for the reason that there was no willful intent on the part of the assessee in non-payment of tax legitimately payable by them. As regards the demand of interest, we find that the relevant Section 75 of the Act reads as under:-

“Every person, liable to pay the tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at such rate not below ten per cent, and not exceeding thirty-six per cent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette for the period by which such crediting of the tax or any part thereof is delayed.”

10.1. In view of the above provision, the assessee is liable to pay interest for delay in payment of the tax found due from them. We, therefore, uphold the order of the lower appellate authority as regards interest.

11. A ground raised for the first time before us is based on the following Circular issued by the CBEC.

“Public Authorities – Service tax on fee collected by Public Authorities – Clarifications

Circular No. 89/7/2006-S.T., dated 18-12-2006

F.No. 255/1/2006-CX.4

Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi

Subject: Applicability of Service tax on fee collected by Public Authorities while performing statutory functions / duties under the provisions of a law – Regarding

A number of sovereign/public authorities (i.e. an agency constituted/set up by government) perform certain functions/ duties, which are statutory in nature. These functions are performed in terms of specific responsibility assigned to them under the law in force. For examples, the Regional Reference Standards Laboratories (RRSL) undertake verification, approval and calibration of weighing and measuring instruments; the Regional Transport Officer (RTO) issues fitness certificate to the vehicles; the Directorate of Boilers inspects and issues certificate for boilers; or Explosive Department inspects and issues certificate for petroleum storage tank, LPG/CNG tank in terms of provisions of the relevant laws. Fee as prescribed is charged and the same is ultimately deposited into the Government Treasury. A doubt has arisen whether such activities provided by a sovereign/public authority required to be provided under a statute can be considered as ‘provision of service’ for the purpose of levy of service tax.

2. The issue has been examined. The Board is of the view that the activities performed by the sovereign/public authorities under the provision of law are in the nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by them for performing such activities is in the nature of compulsory levy as per the provisions of the relevant statute, and it is deposited into the Government Treasury. Such activity is purely in public interest and it is undertaken as mandatory and statutory function . These are not in the nature of service to any particular individual for any consideration. Therefore, such an activity performed by a sovereign/public authority under the provisions of law does not constitute provision of taxable service to a person and, therefore, no service tax is leviable on such activities.

3. However, if such authority performs a service, which is not in the nature of statutory activity and the same is undertaken for a consideration not in the nature of statutory fee/levy, then in such cases, service tax would be leviable, if the activity undertaken falls within the ambit of a taxable service.

4. Trade and field formations may be advised accordingly.

5. Hindi version will follow.

12. We find that the lower authorities had no occasion to examine this plea and to determine the liability of the assessee in the light of the same. We are not in a position to decide the issue as it is not clear whether the Circular applies to MSIL and if MSIL would come under the description ‘public authority’ as envisaged in the above Circular. In any case, records do not indicate that the charges collected by MSIL are deposited with the Government. The Circular defines statutory authorities discharging sovereign functions etc. to be those that deposit the ‘fees’ collected with the Government.

26. In the Circumstances, we allow all the appeals by way of remand. The impugned orders are set aside. Needless to say that the assessee shall be allowed an adequate opportunity to present its case before a fresh decision is taken.

(Pronounced in open Court on 21.12.10)

NF