Case Law Details
Income from auction of abandoned cargo not taxable under Storage & Warehousing Services as its a sale
COMMISSIONER OF CENTRAL EXCISE (APPEALS), CHENNAI BENCH
Sical Distriparks Ltd., In re
P. AYYAM PERUMAL, COMMISSIONER (APPEALS)
ORDER-IN-APPEAL NO. 121 of 2011 (MST)
Appeal No. 41 of 2010 (MST)
JULY 27, 2011
ORDER
1. This is an appeal filed by M/s. SICAL Distriparks Limited, No. 32, Rajaji Salai, Chennai – 600 001 (hereinafter referred to as appellant), against the Lower Adjudicating Authority’s Order-in-Original No. 83/2009 dated 27-11-2009.
2. Brief facts of the case are that the appellants are in the business of Container Freight Station having their CFS situated on the Ponneri High Road about 23 kms away from Chennai Port and 5 kms from New Ennore Port.
2.1 The Goods, which are imported by the containers, are stored in the Bonded warehouse (both open and closed) where de-stuffing of cargo is done and customs examinations are carried out. Wherever the imported goods are not cleared immediately by the importers on reaching the CFS, the goods are de-stuffed and kept in the custody of the warehouse keeper. Sometimes, the goods, which were not taken delivery by the importers within the normal period of warehousing, are treated as abandoned goods. Such goods are auctioned after following the prescribed procedure. Out of the proceedings of the auction, the fees for the auctioneer and the Customs duty are paid by the appellant. The sales tax is recovered from the successful bidder and remitted to the Sales tax department. The remaining amount is retained by the custodian of the goods viz. the warehouse keeper, towards the charges for the storage.
2.2 During the course of audit of the accounts of the appellant by the Internal Audit Group of the Service tax Commissionerate, Chennai, the audit team, on perusal of the balance sheet, have noticed that the appellant have shown an income as “Auction Income”. The “auction income” is the income realized from the auction proceeds of the abandoned cargo by the importers. Therefore the auction income is retained by the appellant in lieu of the storage and warehousing charges due from the importer. Hence, it appeared that the auction income is nothing but the storage and warehousing charges realized by the appellant and therefore, liable to Service tax under the category “Storage and Warehousing services”.
2.3 Hence a Show Cause Notice No. 225/2008 dated 11-9-2008, was issued to the appellant proposing to demand of Rs. 21,19,466/- towards Service tax, Rs. 40,132/- towards Ed. Cess and Rs. 3,750/- towards SHE cess under proviso to Section 73(1) of the Finance Act, 1994 along with interest under Section 75 of the Finance Act, 1994 besides proposal for imposing penalties under Sections 76, 77 and 78 of the Finance Act, 1994. After due process of law, the Lower Adjudicating Authority confirmed the proceedings initiated in the SCN but dropped the proposal of penalty under Section 76 of the Finance Act, 1994 vide impugned Order-in-Original.
3. Aggrieved by the impugned order, the appellant had filed the present appeal mainly on the following grounds –
(i) that in the instant case, in the absence of claim from the importer(s) over the goods, there was actually no person to whom the taxable storage & warehousing service was said to have been provided by the appellants’ CFS. The question of collection of storage and warehousing charges would arise, only if any person claiming as importer has come forward at a time later to auction to lay claim on the proceeds thereof. In the instant case, during the relevant period (2003-04 to 2007-08) no person/importer has ever preferred any claim over the goods or the sale proceeds at any time later to auction. In the circumstances, the original authority ought to have held that there being no service provider-service receiver relationship between the appellants herein and any other person/importer(s) in respect of the auction sale of the abandoned goods during the impugned period, the question of levy of Service tax would not arise and hence the demand would not sustain in law;
(ii) that the findings of the original authority that the auction of the abandoned goods was conducted only to recover the storage and warehousing charges from the date of unloading at the appellants’ CFS to the date of auction, is incorrect both factually and also legally.
(iii) that further the findings of the lower authority that the Board’s clarification contained in F.No. B. 11/1/2002-TRU, dated 1-8-2002 would apply only to cargo handling service and not to storage and warehousing service whose levy was introduced later to clarification i.e. with effect from 16-8-2002, is not correct;
(iv) that the original authority has not considered the fact that the show cause notice has not clearly brought out as to how element of wilful suppression of facts would be attracted to invoke extended time-limit as-
(a) the ‘auction income’ has been duly and fully reflected in the appellants’ books of accounts;
(b) the confirmation of demand based on Balance Sheets which are public document, and as such there is no suppression of fact on the part of the appellants;
(c) the ST-3 format only require declaration of exempted value of service or non-taxable value of service or value of exempted goods; however the impugned transaction (auction sale) would not fit in any of these three categories of declaration in ST-3 returns;
(d) there was no conscious or deliberate or wilful withholding of information on the part of the appellants. Something more than mere inaction or failure was also absent on the part of the appellants, as held in various judgments.
4. Personal hearing was held on 13-6-2011. S/Shri T.A. Rangarajan, Consultant and R.V. Parthasarathy, Dy. Manager of the appellant-company appeared before me. Despite intimation no one has appeared from the Department side.
4.1 The Consultant, during the hearing, in addition to reiterating the submissions made already in the appeal memorandum and also filing written submissions, has submitted that no Service tax is payable in the instant case since the element of service provider and service recipient are absent.
4.2 As regards the time limit, the consultant further submitted that though the dispute relates to the period from 2003-04 to 2007-08, the SCN was issued only during 2008. Audits were also conducted during the disputed period and hence the question of suppression is absent and therefore the extended period is not invokable.
4.3 I have carefully gone through the records of the case and submissions made by the appellant. The issues to be decided in the instant case are whether –
(i) extended period can be invoked, and
(ii) the appellant is liable to pay Service tax under ‘storage and warehousing service’
Let me take up the issue one by one :-
5. Whether the extended period can be invoked in the instant case :-
5.1 I find that the extended period of limitation was invoked under proviso to Section 73(1) of the Finance Act, 1994, in the instant case only because the “auction income” was not reflected/shown in the relevant column of ST-3 returns filed by the appellant during the relevant period. Apart from this the Show Cause Notice is not alleging anything which leads to wilful suppression of facts with an intention to evade payment of Service tax. It is pertinent to note here that the ‘auction income’ has been duly and fully reflected in the appellants’ books of accounts, which is a public document. In fact the Audit Team had taken the details of ‘auction income’ only from the balance sheet. The appellant had contended that the original authority has not considered the fact that the ‘auction income’ has been duly and fully reflected in the appellants’ books of accounts and that there has been no intention whatsoever on the part of the appellants to hide the ‘auction income’ from the knowledge of the department. Further it is also not the case of department that the ‘auction income’ has not been reflected in their regular books of accounts so as to invoke extended time limit. In this connection they have relied upon the judgment of the Hon’ble Supreme Court in the case of Collector of Central Excise v. H.M.M. Ltd. 1995 (76) E.L.T. 497. I find force in their argument and hold that extended period of limitation cannot be invoked in the instant case.
5.2 The period of demand of the Show Cause Notice is from 2003-04 to 2007-08 whereas the SCN was issued only on 11-9-2008. Thus, the demand will survive only for one year from the relevant date i.e. the demand will survive only from 1-4-2007 onwards.
6. Whether the appellant is liable to pay Service tax under ‘storage and warehousing service’ :-
6.1 The appellant had submitted that no Service tax is payable in the instant case since the element of service provider and service recipient are absent. They also submitted that in the case of Service tax recoverable on storage and warehouse service, the tax will be due only if such service is said to have been rendered by the appellants (service provider) to another person who is said to have received such service. In the absence of service receiver, the question of payment of Service tax would not arise. I find force in their argument.
6.2 The appellant had relied heavily on the Board Circular F.No. B11/l/2002-TRU, dated 1-8-2002, wherein it has been stated as under :-
“A clarification has been sought as to whether Service tax “12. is payable on abandoned cargo which are auctioned by the CFS as no service is rendered to any person. In the case of auctioned goods, the proceeds of the auction goes first to the cost of auction, then towards customs duties and then to the custodian of the goods. It is clarified that no cargo handling service can be said to have been rendered in such cases, therefore Service tax is not leviable.”
6.3 It is pertinent to note here that when the Board had issued this clarification for ‘Cargo Handling Service’, the service of ‘Storage and Warehouse’ was not brought under Service tax net. Board’s said clarification on ‘cargo handling service’ would equally apply to ‘storage and warehousing service’ by inference.
6.4 Even though the appellant is the custodian of the goods and not the owner, still transfer to title of the goods takes place during the auction and hence it is to be treated as a sale. The fact of sale is also evident from the sales tax having been paid by the successful bidder. Thus, when the transaction is one of sale and not a service, the question of payment of Service tax will never arise.
6.5 The appellants are obligated to return/refund the sale proceeds after deducting/adjusting statutory levies (viz. customs duties) and other charges {viz. auctioneer fees), even though fact remains that in reality, no importer has ever come forward to claim the goods or proceeds thereof even after the completion of the auction. The auction proceeds thus retained by the appellants was only the remainder of the sale proceeds after deducting/paying auctioneer fees and customs duty and it is, therefore, incorrect to hold that the auction income only represents storage and warehousing charges.
6.6 In view of the discussions and conclusions arrived at, I hold that the appellant need not pay any Service tax on the ‘auction income’ by treating the same as consideration for ‘storage and warehousing service’. Hence I set aside the impugned order of the lower authority and allow the appeal.
7. Appeal allowed.
