EMU Lines Pvt. Ltd. Vs Commissioner of CGST & CE (CESTAT Mumbai)
Summary: The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal allowed the appeal of EMU Lines Pvt. Ltd. against the Commissioner of CGST and Central Excise, Belapur, concerning service tax demands raised on freight-related receipts under the category of Business Auxiliary Services. The appeal challenged Order-in-Original No. 28-31/MA/Commissioner/Belapur/2020-21 dated 25 September 2020. The adjudicating authority had confirmed demands under Section 73(2) of the Finance Act, 1994 for periods extending from April 2009 to June 2017, together with interest and penalties. EMU Lines submitted that the issue was already covered by the Delhi Bench decision in its own case and by decisions concerning freight margins and purchase and sale of cargo space.
The Revenue argued that the appellant provided composite services to exporters and shippers, including procurement of space on vessels, and that the receipts were taxable as Business Auxiliary Services. It also objected to the appearance of counsel on the ground that the vakalatnama was not in his name. The Tribunal rejected the preliminary objection because the chartered accountant in whose name the authorisation stood was present. The Tribunal found that the arguments raised by the Revenue were materially the same as those examined in the earlier Delhi Bench decision. Relying on the reasoning in Greenwich Meridian Logistics (I) Pvt. Ltd. and other cited cases, it distinguished independent principal-to-principal purchases and sales of cargo space from agency services rendered on behalf of a client. Freight margins earned in those transactions were not consideration for Business Auxiliary Services.
Finding the controversy squarely covered by the earlier Tribunal decisions, the Mumbai Bench set aside the impugned order and allowed the appeal. The order was pronounced in open court on 28 October 2022. The Supreme Court subsequently dismissed the Revenue’s civil appeal on 27 February 2023 without issuing a detailed ruling on the underlying tax issue.
Related Supreme Court Decision: The Supreme Court subsequently declined to interfere with the CESTAT ruling concerning service tax on freight margins. Read: Supreme Court Upholds CESTAT Order Setting Aside Service Tax Demand on EMU Lines Freight Margins.
Cases Discussed
- EMU Lines Pvt. Ltd. — earlier CESTAT Delhi decision, 2017-TIOL-4246-CESTAT-DEL
- Bhatia Shipping Pvt. Ltd. — 2022-TIOL-116-CESTAT-MUM
- Greenwich Meridian Logistics (I) Pvt. Ltd. — 2016 (43) STR 215 (Tri.-Mumbai)
- Bax Global India Ltd. — Final Order No. 42113/2017 dated 18 September 2017
- Karam Freight Movers — Final Order No. 52258/2017 dated 7 March 2017
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal is directed against Order-in-Original No. 28- 31/MA/Commissioner/Belapur/2020-21 dated 25.09.2020 passed by the Commissioner of GST & Central Excise, Belapur. By the impugned order, the Commissioner has held as follows:-
“ORDER
6.1 As regards the first show cause notice bearing No. ST/Audit III/PL/SCN-EMU/Commr/Gr.24/04/15-16 dated 22.04.2015 issued for the period from April, 2009 to March, 2014 –
a) I confirm the demand of Service Tax amounting to Rs. 16,46,32,093/- (Rupees Sixteen Crores Forty Six Lakhs Thirty
Two Thousand Ninety Three only) under the provisions of section 73(2) of the Finance Act, 1994.
b) I direct the noticee to pay interest at appropriate rate as provided under section 75 of the Finance Act, 1994 on the demand confirmed at sr. no. 6.1(a) above
c) I impose penalty of Rs. 16,46,32,093/- under the provisions of section 78 of the Finance Act, 1994.
6.2 As regards second demand notice issued vide V/ST- VII/Dn.V/Gr.01/EMU-Lines/2014-15 dated 22.03.2016 issued for the period 2014-15 –
a) I confirm the demand of Service Tax amounting to Rs. 1,59,88,245/- (Rupees One Crore Fifty Nine Lakh Eighty Eight Thousand Two hundred Forty Five only) under the provisions of section 73(2) of the Finance Act, 1994.
b) I direct the noticee to pay interest at appropriate rate as provided under section 75 of the Finance Act, 1994 on the demand confirmed at sr. no. 6.2(a) above
c) I impose penalty of Rs. 15.98,824/- (Rs. Fifteen Lakhs Ninety Eight Thousand Eight Hundred Twenty Four only) under the provisions of section 76 of the Finance Act, 1994.
6.3 As regards third demand notice issued vide V/GST/Bel/Dn.1/R 11/EMU Lines/2017-18, dated 29.01.2018 for the period 2015-16 –
a) I confirm the demand of Service Tax amounting to Rs. 1,14,94,801/- (Rupees One Crore Fourteen Lakhs Ninety Four Thousand Eight Hundred One Only) under the provisions of section 73(2) of the Finance Act, 1994.
b) I direct the noticee to pay interest at appropriate rate as provided under section 75 of the Finance Act, 1994 on the demand confirmed at sr. no. 6.3(a) above
c) I impose penalty of Rs. 11,49,480/- (Rs. Eleven Lakhs Forty Nine Thousand Four Hundred Eighty only) under the provisions of section 76 of the Finance Act, 1994
6.4 As regards forth demand notice issued vide V/OST/Bel/Dn.1/R II/EMU Lines/2017-18, dated 22.04.2019, for the period 2016-17 and 2017 18 (up to June, 2017) –
a) I confirm the demand of Service Tax amounting to Rs. 98,09,592/- V (Rupees Ninety Eight Lakh Nine Thousand Five Hundred and Ninety Two Only) under the provisions of section 73(2) of the Finance Act, 1994.
b) I direct the noticee to pay interest at appropriate rate as provided under section 75 of the Finance Act, 1994 on the demand confirmed at ar. no. 6,4(a) above
c) I impose penalty of Rs. 9,80,959/- (Rs. Nine Lakhs Eighty Thousand Nine Hundred Fifty Nine only) under the provisions of section 76 of the Finance Act, 1994.”
2.1 A show cause notice dated 22.04.2015 was issued to the appellant asking them to show cause as to why:-
“a. The aforesaid services provided by them, should not be classified under category ‘Business Auxiliary services‘ as defined under Section 65(105) (zzb) of Finance Act, 1994, read with Section 65(19) ibid and they should not be held liable for payment of Service Tax at appropriate rate on their aforesaid activities, during the years April 2009 to March 2014 in terms of Section 66/66B of the Chapter-V of the Finance Act, 1994; Service Tax amounting to Rs. 16,46,32,093/- (Rupees Sixteen Crores Forty Six Lakhs Thirty Thousand Ninety Three only) (inclusive of Education Cess and Secondary & Higher Education Cess) on the aforesaid “Business Auxiliary Services”, rendered during the year October, 2009 to March, 2014, as detailed above, should not be demanded and recovered from them under Section 68 read with proviso to Section 73(1) of the Act read with Rule 6 of the Service Tax Rules, 1994.
b. Interest at appropriate rate on the Service Tax demanded, as mentioned at clause (ii) above, should not be demanded and recovered from them under Section 75 of the Act.
c. Penalty should not be imposed for not disclosing true and correct information in respect of the value of the aforesaid services on which no Service Tax was paid in the half yearly returns by the due dates under Section 77 of the Finance Act, 1994.
d. Penalty should not be imposed for non-payment of Service Tax by the due dates under Section 76 of the Finance Act, 1994 and
e. Penalty should not be imposed on them for suppressing the receipt of true value of taxable services and not paying the aforesaid Service Tax of Rs. 16,46,32,093/- (Rupees Sixteen Crores Forty Six Lakhs Thirty Thousand Ninety Three only) with intent to evade payment of service tax as discussed above under Section 78 of the Finance Act, 1994.”
2.2 Subsequently another show cause-cum-demand notice dated 22.03.2016 was issued to the appellant asking them to show cause as to why:-
“(i) Service tax (including cesses payable) Rs.1,59,88,245/- (Rupees One Crore Fiftynine Lakh Eighty Eight Thousand Two hundred Forty Five only) (including the cesses) as detailed in Table shown at para 11 ibid for the period from 2014 15 should not be demanded and recovered from them in terms of the section 73(1) of the Finance Act, 1994,
(ii) Interest at applicable rates should not be demanded and recovered from them under Section 75 of the Finance Act, 1994; and
(iii) Penalty should not be imposed on them under the Section 76 of the Finance Act, 1994 from their failure to pay the Service Tax as in time for the period 2014-15, as required under Section 68
of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994;
(iii) Penalty should not be imposed on them Section 77 of the Finance Act, 1994 for contraventions of provisions of service tax rules and Finance Act, 1994; as amended.”
2.3 Another show cause-cum-demand notice dated 29.01.2018 was issued to the appellant asking them to show cause as to why:-
“(i) Service Tax (including SBC payable) Rs.11494801/- (Rupees One Crore Fourteen Lakhs Ninety Four Thousand Eight Hundred One Only) as detailed in Table shown at para 7 above for the period 2015-16 should not be demanded and recovered from them in terms of section 73(1) of the Finance Act, 1994;
(ii) Interest at applicable rate should not be demanded and recovered from them under Section 75 of the finance Act, 1994; and
(iii) Penalty should not be imposed on them under Section 76 of the Finance Act, 1994 for their failure to pay the Service Tax as in time for the period 2015-16, as required under Section 68 of the Finance Act, 1994 read with Rule 6 of the Services Tax Rules, 1994;
iv) Penalty should not be imposed on them under Section 77 of the Finance Act, 1994 for the contraventions of provisions of Service Tax Rules and Finance Act, 1994 as amended;”
2.4 All three show cause notices have been adjudicated by the impugned order. Aggrieved by the impugned order, appellant has filed this appeal.
3.1 We have Heard Shri Bharat Raichandani, Advocate with Ms. Puloma Dalal, Chartered Accountant, for the appellant and Shri Anand Kumar, Additional Commissioner, Authorised Representative for the Revenue.
3.2 Arguing for the appellant, learned counsel submits that:-
- The issue involved in the present case is covered by the decision rendered by the Delhi Bench in appellant’s own case vide final order reported at [2017-TIOL-4246- CESTAT-DEL].
- Accordingly he submits that following the ratio of the above decision, appeal filed by the appellant should be allowed.
- He would also rely upon the decisions in the case of Bhatia Shipping Pvt. Ltd. [2022-TIOL-116-CESTAT-MUM] and Greenwich Meridian Logistics (I) Pvt. Ltd. [2016 (43) STR 215 (Tri.-Mumbai)] and the appeal against this decision of the Tribunal was dismissed by the Hon’ble Bombay High Court.
3.3 Arguing for the Revenue:-
- Learned AR raised preliminary objection with regard to appearance of Shri Bharat Raichandani as he has no Vakalatnama filed in his name authorising him to cause appearance.
- The services provided by the appellant are composite service in nature and business auxiliary services. These are the services provided to the exporters/shippers intending to export/ship their goods outside India.
- Business auxiliary service has been defined any service in relation to –
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(i) promotion or marketing of service provided by the client; or [Explanation – For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “service in relation to promotion or marketing of service provided by the client includes any service provided in relation to promotion or marketing of games of change, organized, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;]
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or [Explanation – For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;]
(v) production or processing of goods for, or on behalf of the client; or (vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub clauses (i) to
(vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any activity that amounts to “manufacture” of excisable goods. Explanation – For the removal of doubts, it is hereby declared that for the purposes of this clause, –
(a) “Commission Agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person –
(i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services;
-
- Since the services rendered by the appellant are covered by clause (iv), these services to be the service of procurement of space on the vessel needs to be classified under this category and should be subject to levy of tax.
- The present case is distinguishable from the decisions relied upon by the appellant
- Reliance is placed upon the decisions in the case of Bax Global India Ltd. [final order No. 42113/2017 dated 18.09.2017 of Chennai Bench] and Karam Freight Movers [final order No. 52258/2017 dated 07.03.2017 of Delhi Bench].
- Accordingly he prays for dismissal of appeal.
4.1 We have considered the impugned order along with the submissions made in appeal and during the course of argument.
4.2 The preliminary objection raised by learned Authorised Representative cannot be sustained as the Chartered Accountant in whose name the Vakalatnama has been filed is present for the argument of the case.
4.3 We find that the issue is squarely covered by the decision of this Tribunal as referred to by the learned counsel for the appellant.
4.4 The arguments advanced by the learned AR before us were exactly identical to those considered by the Delhi Bench as is apparent from para 1 of the order which records as follows:-
“The Revenue filed these two appeals against the original orders passed by the Commissioner dropping the proceedings against the respondent. The proceedings against the respondent were initiated to demand service tax under the category of Business Auxiliary Service with reference to various considerations received by them. The Adjudicating Authority after examination of the terms of contract and submissions made by the respondent held that the respondent were not promoting or marketing the services of client, either shippers or shipping lines. Accordingly, he dropped the demand proceedings against the respondent.
3. The learned AR elaborating the grounds of appeal submitted that the respondents are getting various considerations and termed the same as freight TLC, local charges, documentation charges etc. The Original Authority erred in dropping demand against the respondent. The fact that the respondent were involved in shipment of cargo and promoted the business of shippers. The respondent also acted on behalf of various shipping lines and received consideration for their services. In terms of sub-clause (ii) and (iv) under Section 65 (19) of the Finance Act, 1994 the tax liability of the respondent will arise under BAS.”
4.5 After consideration of the submissions made, Tribunal has observed as follows:-
“6. We note that similar issues came up for decision before the Tribunal. The Tribunal after examining the facts held that in the arrangement relating to shipment of cargo provided by the shippers, the freight element or any profit on such freight cannot be subjected to tax under BAS. A reference can be made to a recent decision of the Tribunal in Bax Global India Ltd. vs. CST, Chennai vide final order No. 42113 of 2017 dated 18/09/2017 and in Greenwich Meridian Logistics (I) Pvt. Ltd. vs. CST, Mumbai – 2016 (43) S.T.R. 215 (Tri. – Mumbai) = 2016-TIOL- 869-CESTAT-MUM and final order No. 52258 of 2017 dated 07/03/2017 in Karam Freight Movers. In all these decisions, the Tribunal examined the tax liability of the appellants with reference to considerations received as freight or mark up on freight. The service tax liability was held to be not applicable in such arrangement.”
4.6 In the case of Greenwich Meridian Logistics (I) Pvt. Ltd. [2016 (43) STR 215 (Tri.-Mumbai)], the Tribunal has specifically observed as follows:-
“11. Slots may be contracted for by the shipper or its agent with the shipping line through the steamer agent. Implicit is a uni- directional flow of consideration because the space belongs to the shipping line. Steamer agent or agent of shipper may earn commission in such a transaction. Leaving that situation aside, the contention of the appellant is that it is a ‘multi-modal transport operator’ which entails a statutorily assigned role in cross-order logistics. According to section 2 of the Multi-modal Transportation of Goods Act, 1993
(m) “multimodal transport operator” means any person who-
(i) concludes a multimodal transport contract on his own behalf or through another person acting on his behalf;
(ii) acts as principal, and not as an agent either of the consignor, or consignee or of the carrier participating in the multimodal transportation, and who assumes responsibility for the performance of the said contract; and
(iii) is registered under sub-section (3) of section 4;
And
(a) “carrier” means a person who performs or undertakes to perform for a hire, the carriage or part thereof, of goods by road, rail, inland waterways, sea or air;
12. The appellant takes responsibility for safety of goods and issues a document of title which is a multi-modal bill of lading and commits to delivery at the consignee’s end. To ensure such safe delivery, appellant contracts with carriers, by land, sea or air, without diluting its contractual responsibility to the consignor. Such contracting does not involve a transaction between the shipper and the carrier and the shipper is not privy to the minutiae of such contract for carriage. The appellant often, even in the absence of shippers, contract for space or slots in vessels in anticipation of demand and as a distinct business activity. Such a contract forecloses the allotment of such space by the shipping line or steamer agent with the risk of non-usage of the procured space devolving on the appellant. By no stretch is this assumption of risk within the scope of agency function. Ergo, it is nothing but a principal-to-principal transaction and the freight charges are consideration for space procured from shipping line. Correspondingly, allotment of procured space to shippers at negotiated rates within the total consideration in a multi-modal transportation contract with a consignor is another distinct principal-to-principal transaction. We, therefore, find that freight is paid to the shipping line and freight is collected from client-shippers in two independent transactions.
13. The notional surplus earned thereby arises from purchases and sale of space and not by acting for a client who has space or slot on a vessel. Section 65(19) of Finance Act, 1994 will not address these independent principal-to-principal transactions of the appellant and, with the space so purchased being allocable only by the appellant, the shipping line fails in description as client whose services are promoted or marketed.”
5.1 As we find the issue is squarely covered by the above two decisions, we do not find merit in the impugned order.
5.2 The impugned order is set aside and the appeal allowed.
(Order pronounced in the open court)
