Ocean freight was prima facie not covered under any entry, hence, could not be covered under BSS also

CESTAT, CHENNAI BENCH

Agility Logistics (P.) Ltd.

Versus

Commissioner of Service Tax

FINAL ORDER NOs. 892-893/2012
STAY ORDER NOs. 765-766/2012
MISC. ORDER NOs. 749-754/2012
application nos. st/s/185 & 186/2010
st/misc./387 & 377 of 2010 and others
Appeal Nos. 326 & 327 of 2010

AUGUST  28, 2012

ORDER

Mathew John, Technical Member

Two appeals along with two stay petitions are being considered in this proceeding. Both the appeals arise from the same impugned order numbered as Order-in-Original Nos. 7 & 8 dated 29-01-2010 adjudicating two different Show Cause Notices for the two periods, namely, July 2003 to Sept. 07 and Oct 07 to Sept. 08 on the similar issues.

2. The appellants have been registered with the Service Tax Department for the following taxable services, namely,

and were paying service tax on such services as assessed by them.

3. On Investigations Revenue found that the appellants were rendering many other services on which they were not paying service tax. The services identified by Revenue were the following:

4. After adjudication, the demands in the show cause notices have been confirmed for a total demand of Rs.33.26 crores (approx) along with interest and penalties under various sections of the Finance Act, 1994. The details of tax amounts confirmed are briefly as under:

5. Aggrieved by the order, the applicant has filed the present appeal along with stay application for waiver of pre-deposit of the tax demanded from the impugned order to the extent not already pre-deposited by them and also other dues adjudged for admission of appeal. It is submitted that they have already paid an amount of Rs. 86,08,583/-as service tax and Rs. 14,40,133/- towards interest and this may be considered as sufficient for admission of appeal because there is no merit in the balance demands.

6. Arguing for the applicant, ld. Counsel submits that demand has been confirmed to the extent of Rs. 1.07 crores on commission, discount and incentive received from airlines and shipping lines. The submission of the applicants is that they have paid service tax of Rs. 25,20,951/- on this count being tax payable on commission received. The amounts received as incentive is on account of price difference between the rate at which space was sold to the customers and the price for space on the day of its use. This is profit on buying and selling space available with shipping lines or with airlines for transportation of cargo and these activities do not amount to any service. He argues that these activities do not amount to promotion or marketing of service provided by their clients.

7. Tax demand of Rs. 4.57 crores is on consideration received for miscellaneous services like warehousing, loading and unloading charges, agency fees, terminal handling fees, screening charges, documentation charges, opening packing expenses, Customs inspection charges, delivery order fees, supporting charges, etc. On such services show cause notice demanded service tax under Business Auxiliary under Section 65(19)(iv) as service in relation to procurement of service for the client. He submits that he is not procuring any inputs or input service for his clients and these services are supporting services and some of the service charges are towards reimbursement of expenses incurred for procurement of service from various other service providers, government agencies, etc. to their clients. According to him, these services cannot be classified under Section 65(19)(iv). He fairly concedes that some of these services would get classified under Business Support service from 01-05-2006 when Business Support Service as defined under section 65(104c) came into force. They have accepted liability from this date and have paid tax on such services. The applicants also contest that on some of the items they have already discharged liability under the categories of CHA services, Clearing and Forwarding Services and Business Auxiliary services. The contention of the applicants is that prior to 01-05-2006 the services could not be taxed under Business Auxiliary Services.

8. Service tax demand of Rs. 13,55,90,863/- and Rs. 13,51,30,458 in the two Show cause Notices is confirmed on charges collected toward transportation of cargo by sea or by air. The Counsel for the applicant submits that this demand is basically on the amounts collected by them towards freight charges payable to the shipping lines or airlines for transportation of cargo. His argument is that there is no entry in the Finance Act, 1994 levying service tax on ocean freight. In the case of transportation of goods by air, there is an entry but liability to pay tax under this entry is on aircraft operator and no other persons like the present applicants is liable to pay such tax.

9. Service tax demand is confirmed amounting to Rs. 0.51 crores on the recipients of the service of Goods Transport Agency. In this matter the appellant did not contest the tax liability. However, there is an issue that the demand has been made in the SCN as a recipient of the service of goods transport agencies whereas the adjudicating authority has confirmed the demand under Freight Forwarding services/ CHA services for the reason that these expenses should form part of the value of services of Freight Forwarders or CHA. Therefore the demand is not confirmed on the basis of charge in the SCN.

10. The Counsel also submits that the Revenue has taken the entire figures shown in the balance sheet and demanded service tax involved and the amount of tax payable on each service without looking into the aspects like whether such services were taxable or not and whether the consideration was for charges rented during a period when the service was not taxable.

11. The Counsel also submits that in this case, the adjudicating authority gave the personal hearing in the matter in July 2009. The order was passed on 29.1.2010 i.e. after a gap of more than 6 months and therefore the adjudication is not proper, in view the various instructions issued by the CBEC and various judicial forums in the matter of issuing orders without delay after hearing.

12. He pleads that the amount already deposited by them may be considered as sufficient pre-deposit under Section 35F of the Central Excise Act, 1944 read with Section 68 of the Finance Act, 1994 and the appeal itself may be remanded back for fresh consideration by the adjudicating authority for arriving at a more detailed and correct finding.

13. Opposing the prayer of the applicants, ld. AR for the Revenue draws our attention to para 6.1 of the impugned order which reads as under:-

“6.1 The assessee are engaged in the business of Air Cargo Agents and Freight Forwarding Agents. They are members of International Air Transport Association and the assessee. The assessee accepts the cargo from the shippers on behalf of the airlines for transporting of cargo. The airlines provide blank Airway bills to the assessee. The assessee, as a cargo agent, books the cargo, prepare the airway bill and issue the same to the shippers on behalf of airlines. The airway bill contains various details such as name of the shipper, name of the ITAT agent, destination airport, gross weight of cargo, chargeable weight, rate/charge and the total freight charges. The freight rates are fixed by airlines. The assessee collect payments for the pre-paid transportation and other charges and remit the same to the airlines. For above services the airlines pay in the name of Commission, Discount, Incentives and Market Price Adjustment. This Business Auxiliary service includes the service provided by a person in relation not only to promotion, marketing of services but also incidental or auxiliary support services such as billing, collection or recovery of cheques, accounts and remittance etc. inasmuch as the assessees are providing various services such as marketing and canvassing for the cargo space, and other auxiliary support service as envisaged under BAS, I hold that the assessee are liable to pay service tax on the Commission, Discount and Marketing Price Adjustment under BAS w.e.f. 1-7-2003.”

14. He submits that the appellant is not buying any space after paying consideration or with firm commitment for payment whether or not cargo is booked. The appellants are not authorized to sell the space at a price chosen by him to the actual users of the space. So there is no trading of services. No contracts showing terms of buying and selling space is produced. Activity of the appellant is only to canvass clients for airlines and shipping agents and also to do some incidental and ancillary activities necessary for booking such space. He argues that such activates correctly falls within the definition of section 65(19)(ii) of the Finance Act, 1994 defining the business auxiliary service. Therefore, the contention is that the applicant is buying and selling space is not correct at all and consideration received for such services whether in the name of commission, discount or incentive should be subjected to tax.

15. In the case of miscellaneous activities done by the applicants, it is the contention of A.R. for Revenue that the services in question were for the use of their clients. The appellants procured such services. But they were not billing the exact cost of such services. So the service amounted to procuring input services for their clients as alleged in the SCN. He however concedes that while confirming the demand adjudicating authority has relied on different clause in the definition at section 65(19).

16. In the case of the amounts collected towards freight, the Ld. AR for revenue submits that the applicants undertake to do all services in relation to movement of cargo from the customers premises to the premises desired by the customer and one bill is raised for the service. The essential nature of this service is one of business support. That being the case there is no justification to split the amount billed to the customers into freight component and other charges and hence. So the demand is confirmed for services as defined under section 65(104c) which covers activity like managing distribution and logistics and information and tracking of delivery schedules which activities the applicants are doing.

17. The Ld. A. R. did not make any submission in the matter of demand under the category of Goods Transport Agency the demand for Rs. 10,49,152/- in the second SCN.

18. We have considered arguments on both sides. In the matter of commission earned by the appellants from the airlines the tax liability is stated to be paid. The question whether incentives and discounts will form part of value of services under Business Auxiliary Service needs closer examiner with reference to terms of contract.

19. In the case of miscellaneous activities, the proposal was to tax it under Section 65(19)(iv) as it is existing after 10-09-2004 as seen from para 4.2 of the SCN. It is seen that in the impugned order the demand is confirmed under section 65(19) (iv) as existing prior to 10-09-2004.

19.1 Different clause under section 65(19 (iv) prior to 10-09-2004

19.2 Clauses of Section 65(19)(iv) in force from 10-09-2004

and includes services as a commission agent, but does not include any information technology service and any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).

(these clauses were further amended later)

20. The period involved covers both periods prior to 10-09-2004 and after. It is very obvious that appellants were not given proper opportunity to explain as to why the service may not fall under clause (iv) prior to 10-09-2004. The issue why it will not fall under section 65(19)(iv) as proposed in the SCN is not dealt with at all. So this part of demand requires re-adjudication after hearing the submission of the appellant.

21. In the case of consideration received for freight we are of the prima facie view that ocean freight was not liable to service tax. While there are specific entries in Finance Act, 1994 levying tax on transportation of goods by road, rail, aircraft, pipeline etc. there is no entry levying tax on transportation by sea. It has to be reasonably presumed that this is kept outside the tax net and it cannot be taxed under a general entry like business support services. Further it appears that such services are rendered in respect of export cargo.

22. It appears that the expression “aircraft operator” as defined in Finance Act 1994 may cover any person who may be not having an aircraft also. But in the case of transportation of goods by air, there is an exemption under notification 29/2005-ST for services rendered for transport of export goods by air. All these aspects are not considered while demanding tax on such charges.

23. Against the above background firstly we have evaluated the submissions to assess whether the deposit already made by the applicant is sufficient for the purposes of section 35F of Central Excise Act. What we find is that the major component of demand to the extent of Rs.27.06 crores is on account of airfreight charges and ocean freight charges. On this issue the Tribunal has granted waiver of pre-deposit of dues for admission of appeal for other persons similarly situated. The next major component is in respect of miscellaneous charges brought into tax net under Business Auxiliary Services. This demand is confirmed under section 65(19)(iv) as it existed prior to 10-09-2004 whereas the proposal in the SCN was for demanding tax under section 65(19)(iv) as it existed from the said date. Therefore the demand is confirmed without hearing the appellant on the issue whether the clause invoked will apply. Some of these items like Terminal Handling Charges, EDI charges, screening charges etc appear to be expenses incurred by the appellant on behalf of the clients which expenses are reimbursed by the clients. The question whether the amounts charged were actuals needs to be examined. The question whether these will form part of the value of services rendered by appellants also needs to be examined. In the case of services of goods transport agency there is difference between proposal in SCN and finding in the adjudication order. In the case of demand of Rs. 1049152/- there is no clear finding regarding the nature of activity and whether the services could be considered to be exported as contended by the applicant. Considering these aspects we are of the view that the deposits already made are sufficient for the purpose of section 35F of Central Excise Act made applicable to appeals under Finance Act, 1994. So we grant waiver of pre-deposit of balance dues for admission of appeal.

24. We also note that the appellant had not given adequate assistance to adjudicating authority in reconciling the figures appearing in the balance sheets and to explain the nature of services for which charges were being collected by them and also the charges which have been already included in the value of the services on which they have paid service tax. Since the applicants understand their accounts and returns better than the department it is their duty to explain the figures properly rather than argue that the Revenue has not been able to prove that consideration received is for non-taxable service or that on such consideration received tax has been paid under other heads. While making submissions for a fresh adjudication the appellant is directed to make full submissions in this regard.

25. Since there are basic flaws in the adjudication order as already pointed out and there is need for re-adjudication, we consider it proper to set aside the impugned order at this stage itself and remit the matter to the adjudicating authority for a fresh decision after hearing the appellant on all issues. We make it clear that all the views expressed in this order on issues involved are prima facie views and all issues are kept open for adjudication in de novo proceedings. However the deficiencies pointed out above should be removed.

26. Thus stay petition and appeal are disposed of accordingly.

NF