CESTAT Mumbai has held that demurrage was part of handling of import and export shipments of the assessee and therefore Cenvat credit of tax paid on such demurrage charges would be available. The demurrage charges were paid by the C&F service provider on behalf of the assessee and billed to him as out of pocket expenses. The Tribunal also observed that Customs Clearance Service also qualified to be input service covered by Cenvat Rule 2(l).
FULL TEXT OF THE CESTAT JUDGEMENT
The instant Appeal has been filed against the impugned order dated 23.02.2018 passed by the Commissioner of CGST & Central Excise, Thane Rural, Mumbai in Order-in-Appeal No. CD/TR(Appeals)/ ME/200/2007-18. The issues to be decided in this appeal is whether the Appellant is eligible for Cenvat credit of Rs.12,68,968/- under Rule 14 of Cenvat Credit Rules, 2004 and also whether the Appellant is liable for penalty under Section 78 of the Finance Act, 1994 in respect of the credit availed on admissible input services?
2. The facts giving rise to the filing of the Appeal are stated in brief as follows. The Appellant i.e. Federal Express Corporation is into the business of Transport of Goods by Air/Road, Courier Agency Services, Management Consultancy Services and Online Information Data Base Access & Retrieval Services. During the course of audit it was observed that during the period from April, 2007 to March, 2008 they had wrongly availed and utilised cenvat credit total amounting to Rs.12,68,968/- on ineligible services by contravening the provisions of Rule 9taxguru.in(2) of the Cenvat Credit Rules, 2004. The details of the ineligible services are as under:-
|Sr. No.||Name of the
|Service provided||Amount (Rs)||Remarks|
|1||Delhi Int. airport||Demurrage Charges||20,162||It is not input service for the output service|
|2||M/s Cambata Aviation P. Ltd.||Repair &
|2,472||Vehicle not owned by the appellant|
|3||M/s Prakash Air Freight P. Ltd. (PAFEX)||Reimbursement of expenses Such asmobile bills, telephone bills||14,251||Telephone not installed at
appellant’s premises but of PAFEX and
used by them.
|4||Fedex Express||No particular category of service mentioned||12,32,083||Reimbursement charges paid to M/s Jeena & Co. No nexus to output
Accordingly a show cause cum demand notice dated 10.11.2011 was issued to the Appellant as to why the Cenvat Credit wrongly availed and utilised should not be disallowed and recovered with interest and penalty. The aforesaid demand of Rs.12,68,968/- alongwith interest and also equal penalty under section 78 ibid was confirmed by the Adjudicating Authority vide Order-inOriginal dated 4.12.2013. The Appeal filed by the Appellant against the Adjudicating Order was rejected by the learned Commissioner vide impugned order dated 23.2.2018.
3. Learned Counsel for the appellant submits that expenditure or cost charged by the service providers to the Appellant in the form of Out of Pocket Expenses (OPE) forms part of the taxable output service and therefore they have been rightly included in the value of service. According to him, once value of service provided by the service provider includes reimbursement charges/expenses, the service recipient cannot be denied benefit of Cenvat Credit on the said reimbursement. He also submits that there is no suppression of facts and therefore no penalty can be imposed under section 78 ibid. As per learned counsel, the commissioner has erred in disallowing Cenvat Credit of Rs.12,32,083/- on reimbursement of customs clearance expenses by the Appellant to Federal Express (India) Pvt. Ltd. [FedEx Express], which were incurred by FedEx Express during the course of providing customs clearance services to the Appellant. The has been disallowed only on the ground that the invoice of FedEx Express states that the charges are recovered as reimbursement charges paid to one Jeena & Co. According to learned counsel, the Appellant entered into Customs Clearance Services Agreement with FedEx Express for providing customs clearance services to the Appellant and as per the Appendix to the said agreement, in case of High Value Clearance, the FedEx Express shall charge to the Appellant all the cost incurred by it plus a mark up of 9% on such cost (excluding third party cost). Further FedEx Express shall recover at actual all the Third party cost incurred by it on Customs Clearance of High Value Packages. According to him in the case of low value shipments, customs clearance services are done by FedEx Express themselves, whereas for high value shipments the customs clearance services is provided by Jeena & Co. to FedEx Express.
4. The definition of input service specifically provides that “Input Service” means any service used by a provider of taxable service for providing an output It is not disputed that as per the agreement between the Appellant and FedEx Express, for high value shipments FedEx Express would charge the Appellant the costs incurred by it plus a mark up on the costs incurred. The relevant clause of the aforesaid agreement is extracted as under:-
“Appendix to Customs Clearance Service Agreement dated September 1, 2005
Pricing Structure – Based on categories as per Indian Customs Act, 1962
Xxx xxx xxx
4. In addition to above, in case of High Value Clearance, the Service Provider shall charge to the Service Recipient all the cost incurred by it plus a mark up of 9% of such cost (excluding third part cost). Further Service Provider shall recover at Actuals all the Third party cost incurred by it on Customs Clearance of High Value Packages.”
5. The said reimbursement has been denied to the Appellant since as per revenue FedEx Express has outsourced the work to an independent identity Jeena & Co. and they have failed to establish the nexus between the services provided by Jeena & Co. and the services provided by FedEx Express. The authorities below have failed to take into consideration the customs clearance contract between the FedEx Express and Jeena & Co., a reading of which makes it clear that Jeena & Co. is providing Customs Clearance services to FedEx for certain international shipments of FedEx. If the services are provided by Jeena & Co., the invoice is issued to FedEx Express who in turn raises invoice on the Appellant, including the charges/reimbursement levied by Jeena & Co., alongwith its own coordination fees/charges. Although the learned commissioner in the impugned order has admitted that the services have been received by the appellant from FedEx Express through Jeena & Co. but still rejected the claim on the ground that the appellant has not produced any evidence which link such reimbursement to the value of taxable service received from FedEx Express. Customs Clearance Service is in relation to overall business activity of the appellant, therefore, it is an input service and the credit is admissible. There is contract between appellant and FedEx Express for the purpose of Customs Clearance Service, therefore, it is an input service for the appellant, being service recipient of the service. Customs Clearance Service received by the Appellant from FedEx Express through Jeena & Co. also qualifies to be input service and is covered by Rule 2taxguru.in(l) of Cenvat Credit Rules, 2004 i.e., the definition of input services. I have been informed that the reimbursable component is payable by the Appellant, only upon furnishing of evidence of the payment by FedEx Express to Jeena & Co. for customs clearance service relating to the Appellant. I have also been informed that the Appellant has also submitted an undertaking to confirm that they are aware of the fact that FedEx Express has appointed Jeena & Co. as a third party subcontractor for customs clearance service of the high value shipments of the Appellant. The customs clearance services provided by FedEx Express is directly connected with the courier services of import and export shipments provided by the Appellant, without which the Appellant cannot provide services to its customers, therefore undoubtedly the same is ‘input service’. Merely because the invoice of FedEx Express recorded that the charges are recovered as reimbursement charges of Jeena & Co., it does not take away the fact that it is essentially the consideration for the customs clearance services provided by FedEx Express through Jeena & Co. to the Appellant.
6. So far as the amount of Rs.2472/- towards Repair and Maintenance of Vehicle is concerned, admittedly the appellant are not owner of those vehicles. It is rejected on the ground that no evidence has been produced to show that the onus to repair the hired vehicles is on the appellant. To keep the vehicle in good condition is very essential for providing the courier service by the Appellant because if the vehicles are in good conditions only then the appellant can provide the satisfactory and efficient services to its clients and therefore it has nexus with the output service. The Appellant has also paid the service tax charged on the invoice to the vendor and this has not been disputed. Therefore the Cenvat credit on it is available to the Appellant.
7. So far as the Cenvat credit amount of Rs.14,251/- on reimbursement of expenses such as obtroi, mobile bills and telephone bills are concerned, it is contended that one M/s. Prakash Airfreight Private Ltd. (Pafex), provided co-loader services to the Appellant and while providing the services, they charged the expenses such as Octroi charges, mobile and telephone expenses from the Appellant which are admittedly installed at the premises of the said M/s. Prakash Airfreight Pvt. Ltd. But since they have not been installed at the premises of the Appellant and nothing has been produced which shows that actually the mobile and telephone expenses have been incurred by the said M/s. Prakash Airfreight Pvt. Ltd. exclusively in connection with the output service provided by the Appellant, therefore the same has been rejected by authorities below. It has been submitted that it is part of the agreement between the Appellant and M/s. Parkash Airfreight Pvt. Ltd. that the octroi, mobile and telephone expenses bill are to be paid by the appellant and the same has been booked as expenditure by the appellant, therefore, it can be said that the aforesaid services has been used for business activity of the In my considered view these services are input service used for output service, in particular, when the Revenue could not establish with any evidence that the octroi/telephone/mobile has been used by the said M/s. Pafex for its personal use.
8. The demurrage charges of Rs.20,162/- have also been rejected on the ground that it cannot be considered as input service used for providing output service. These demurrage charges are paid by the C&F service provider on behalf of the Appellant and billed to the Appellant as Out of pocket expenses. According to revenue the appellant has been charged for such demurrage directly by Delhi International Airport and it is not a case where the service provider incurs demurrage charges which are in the nature of out of pocket expenses. These demurrage charges were charged during the course of providing services to the Appellant by the service provider. During the course of providing services to the appellant, sometimes the goods are retained at the airport beyond the free period and in such cases the airport would charge the service recipient i.e. the appellant, demurrage for the period for which the goods were stored in excess of the free period. It is not the case of revenue that no demurrage charges have been paid. Demurrage is part of handling of import and export shipments of the appellant and therefore the Cenvat credit of tax paid on such demurrage charges is available to the appellant.
9. Since I have allowed the Cenvat Credit on the aforesaid services therefore there is no question of any interest or penalty and the Appeal filed by the Appellant is allowed with consequential relief, if any.