Customs, Excise & Service Tax

 Appellate Tribunal West Zonal

Bench At Ahmedabad

REGIONAL BENCH- COURT NO.3

Service Tax Appeal No.13183 of 2013-DB

(Arising out of OIA-113-114-2013-STC–SKS-COMMR-A–AHD dated 12/06/2013 passed by Commissioner of Service Tax-SERVICE TAX – AHMEDABAD)

 

Liladhar Pasoo Forwarders Pvt Ltd

VERSUS

C.S.T.-SERVICE TAX – AHMEDABAD

 

APPEARANCE:

Shri Nilesh V Suchak, Chartered Accountant for the Appellant Shri Rajesh Agarwal, Superintendent (AR) for the Respondent

CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON’BLE MEMBER (TECHNICAL), MR. C.L. MAHAR

 

Final Order No. A/11238/2023

 

 

 

 

RAMESH NAIR

DATE OF HEARING: 03.04.2023 DATE OF DECISION: 12.06.2023

 

 

The issue involved in the present case are as follows:-

 

• Whether amounts recovered as reimbursement of expenses while providing CHA service can be included in value of taxable service when such service is not provided by CHA but by other agencies and CHA has only acted on behalf of its clients to pay such expenses and get reimbursements from clients?;
• Whether service tax is payable under the category of “Business Auxiliary Service” on incentive/commission received from shipping line or steamer agent for achieving business target during the period from 01-04-2003 to 31-03-2008 and whether such amount can be said to be services in relation to “procurement of customer andverification thereof” as stated in Section 65(19) (iv) of the

 

Finance Act, 1994? Even where such clause has come into force from 10-09-2004 and when no such clause was ever specified in the SCN?

• Can CENVAT credit in respect of input services such as Air conditioner repairs, motor car repair, travelling expenses etc. used in relation to business activities of this appellant?’
• Can extended period of limitation be invoked and savage penalties be imposed on this appellant when there is not an iota of evidence of suppression or intent to evade payment of service tax and all transactions are duly reflected in books of accounts and when question of interpretation is involved and when hundreds of cases on these issues has travelled to Tribunals and courts and CBIC has to issue more than one clarifications on these issues?

 

 

2. Shri Nilesh V. Suchak, Learned Chartered Accountant appearing on behalf of the appellant submits that as regard the reimbursable expenses under CHA service, the appellant is a custom house agent and had paid duly service tax on Agency Charge which is taxable value of its service under the category of CHA and had not recovered tax on reimbursable charges for incurring various expenses on behalf of its clients. He submits that any expenses over and above the agency charges which is incurred on behalf of the client cannot be included in the service charge of CHA. He relied upon Board Circular No. B43/1/97-TRU dated 06.06.1997. He submits that though the learned counsel for the appellant held in the impugned order that no service tax stand payable by the appellant on reimbursable amount prior to 18.04.2006 however, upheld the demand of service tax on the same reimbursement in view of Rule 5(2) of Service Tax (Determination of Value) Rules, 2006 for the period from 18.04.2006 to 31.03.2008 on the pretext thatthe appellant claimed reimbursement charges as a pure agent, the

 

appellants were required to follow the conditions before these expenses should be permitted to be deducted from the gross taxable value.

• He submits that as per the Hon’ble Supreme Court judgment in the caseof UOI  Intercontinental Consultants and Technocrats Pvt. Ltd.- 2018

(10) GSTL 401(SC), it was held that amount which is not collected by providing taxable service cannot be part of valuation and service tax is to be put only on service actually provided by service provider. He submits that the Hon’ble Apex Court held Rule 5 of Service Tax (Determination of Value) Rules, 2006 as ultra vires to Section 67.

• As regard the circular which is binding on the departmental officers in the light of judgment in the case of RANADEY MICRONUTRIENTS-1996 (87) ELT 19(SC). He submits that vide circular dated 21.12.2009 CBEC again clarified on the issue admitting that divergent practises were followed at different place and clarified that CHA’s exclusion should be allowed to such charges from taxable value of CHA where all the conditions as stated therein are satisfied. They confirmed demand for the period up to 31.03.2008 based on circular issued on 21.12.2009 which should be given prospective effect is not proper. He submits that the appellant have complied with all the conditions of Rule 5(2) of Service Tax (Determination of Value) Rules, 2006 also and has recovered only the actual expenses paid to third parties as reimbursement therefore, the demand is not sustainable on this count.
• As regard the demand of service tax under Business Auxiliary Service on incentive/commission received from shipping line or streamer agent for achieving business target during the period from 01.04.2003 to 31.03.2008 he submits that there was no proposal under SCN to demand service tax under Section 65(19)(iv) of the Finance Act, 1994 and hence the impugned order has travelled beyond the scope of show cause notice. This clause was notin statute till 09.2004 and hence confirmed the demand also for the

 

period 01.04.2003 to 09.09.2004 is illegal. Further the appellants were getting incentive/commission from shipping line which has not provided any procurement of customer and verification service. The dealing of the appellant with shipping line or streamer agent is on principal to principal basis and when the incentive is received for achieving certain targets and the same is not consideration for any goods or service and thus is not taxable under Business Auxiliary Service.

• Without prejudice he also submits that even if the same is presumedto be taxable, the service of Commission Agent was exempted under notification no. 31/2003-ST dated 20.06.2003 from 01.07.2003 to 07.2004.

As regard the demand of cenvat credit in respect of input service such as Air Conditioner Repair, Motor car repair, Travel expenses, etc., he submits that this are all in relation to business activity of the appellant and the same is used for providing output service hence, the cenvat credit thereof is clearly admissible in terms of Rule 2(l) of Cenvat Credit Rules, 2004. He placed reliance on the following judgments:

• Bombay Market Art Silk Co-op. (Shops & Warehouse) Society Ltd.- 2022 (65) GSTL 86 (Tri.-Ahmd.)
• CocaCola India Pvt.  V. CCE- 2009 (15) ELT 657 (Bom.)

 

• He submits that as regard the invocation of extended period of limitation and imposition of penalties under various sections he submits that the appellant has not suppressed any information and has paid due service tax on its CHA service and filed the periodical returns regularly showing all required particulars thereon and there is no iota of evidence or intent to evade payment of service tax on the part of the appellant. A show cause notice was issued based on the information provided by the appellant from thebooks of account maintained by it therefore, there is no suppression of

 

fact accordingly, demand for the period up to 30.09.2007 is hopelessly time barred as the ST 3 returns for half year period ended and on that they filed return on 25.10.2008 and one year from this relevant date is over on 25.10.2008 and SCN is issued on 24.04.2009 beyond the period of 12 months from the relevant date.

3. Shri Rajesh Agarwal, learned Superintendent (AR) appearing on behalf of the revenue reiterates the finding of the impugned order.
4. We have carefully considered the submissions made by both the sides and perused the records. As regard the first issue that whether the reimbursement of expenses during providing the service of CHA should be liable to service tax or otherwise, we find that there is no dispute that the appellant being CHA has been discharging their service tax on the agency service the expenses were incurred on behalf of their client and the same was reimbursed by the client.
   • The issue that whether the reimbursable expenses should be part and parcel of the service charge of CHA has been clarified by the Board in the circular no. B43/1/97-TRU dated 06.06.1997 which is reproduced below:-

F.No. B 43/1/97-TRU, Dated 6-6-1997

 

Imposition of Service Tax on services rendered by Custom House Agents and Steamer Agents regarding.

 

By the issue of Notification No. 17/96-Service Tax dt. 6.6.97, service tax has been imposed on Custom House Agents and Steamer Agents w.e.f. 15.6.97. The service Tax is imposed under the provisions of Chapter V of the Finance Act, 1994 (32 of 1994), as amended.

 

2. CUSTOMHOUSE AGENTS

 

In the context of these two services, certain points have been raised for clarification which are discussed below:

 

• The expression “Custom House Agent” has been defined to mean a person licensed, temporarily or otherwise, under the regulations made under sub-section (2) of Section 146 of the Custom Act, 1962. A person is permitted to operate as a Custom House Agent, temporarily under regulation 8(1) and permanently Regulations, 1984.

 

• As per the Finance Act, 1997, the taxable service rendered by aCustom House Agent means any service provided to a client by a Custom House Agent in relation to the entry or departure of conveyances or the import or export of goods. The value of the taxable service in relation to the service provided by a Custom House Agent to a client has agent from the client for services rendered in any manner in relation to import or export of goods. The service tax is chargeable @ 5% on the value of the taxable service.

 

• The services rendered by the Custom House Agent are not merely limited to the clearing of the import and export consignment. The CHA also rendersthe service of loading/ unloading of import or export goods from /at the premises of the exporter / importer, the packing, weighment, measurement of the export goods, the transportation of the export goods to the customs station or the import goods from the customs station to the importer’s premises, carrying out of various statutory and other formalities such as payment of expenses on account of octroi, destuffing / pelletisation, terminal handling, fumigation, drawback/ DEEC processing, survey / amendment fees, dock fees, repairing and examination charges, landing and container charges, statutory labour charges, testing fees, drug control formalities, sorting / marking / stamping / sealing on behalf of the exporter / importer. The Custom House Agent also incurs various other expenses such as crane / fork lift charges, taxi charges, photostat and fax charges, bank collection charges, courier service charges, and miscellaneous other expenses on account of the exporter / importer. For all the above charges, the CHA is ordinarily reimbursed by the importer / exporter for whom the above services are rendered. Apart from the above charges, the CHA also charges the client for his service under the head / nomenclature of ‘agency and attendance charges’ or similar kind of heads which is purported to be his service charge in respect of the services rendered in relation to the import / export goods.

 

• It is clarified that in relation to Custom House Agent, the service tax is to be computed only on the gross service charges, by whatever head / nomenclature, billed by the Custom House Agent to the client. It isinformed that the practice obtaining is to show the charges for services as ” agency commission”, “charges”, “agency and attendance charges”, “agency charges” and some similar descriptions. The service tax will be computed only with reference to such charges. In other words, payments made by CHA on behalf of the client, such as statutory levies (cess, Customs duties, port dues, etc.) and various other reimbursable expenses incurred are not to be included for computing the service tax.

 

• In manycases, the Customs House Agent undertakes “turnkey” imports and exports where a lump sum amount is charged from the client for undertaking various services. In these cases, the lump sum amount covers not only the “agency commission” fee but also other expenses and no separate break-up is given in respect of these expenses. It has been decided that in such cases, the value of the taxable service shall be 15% of the lumpsum amount charged to the client. The Custom House Agents are required to show the service charges as 15% of such lumpsum amount of the bills and Service Tax of 5% will be chargeable on the above 15%.

 

• Some times, CHAs sub-contract their work to CHAs located in other stations. In such cases, it is possible that the sub-contracting CHA raises the billon the main CHA who in turn raises the bill to the client. It has been decided that in such cases, the sub-contracting CHA will not be required to pay service tax on the bills raised by him on the main CHA, The service tax will be payable by the CHA who provides the actual service to the client and raises the bill to the client.

 

• A CHA may have various branch offices located at different stations but allthese branch offices do not raise the bills and only the main or central

 

office will be raising the bills. In such cases, only the central office should be registered with the Department.

 

• Sometimes, the bills raised by the CHA are not entirely paid by the client andthe CHA is forced to give discounts. In such cases where the final bill raised is lower than the initial bill, it may be mentioned that the law provides for claiming of refund of excess service tax paid within six months from the date of payment of  If the CHA can produce evidence of having charged less services fee, he may claim refund of excess service tax paid, if any, as per the provisions of law.

 

 

 

From the above portion of circular which is relevant to CHA service, it can be seen that during the provision of service of CHA the agency charges shall be taxable and reimbursable expenses incurred by CHA on account of various other expenses on behalf of the client cannot be part and parcel of the CHA service hence, the same cannot be taxable. The adjudicating authority and the Commissioner (Appeals) upheld the demand on reimbursable expenses invoking Rule 5(2) of Service Tax (Determination of Value) Rules, 2006. We find that the Hon’ble Apex Court in the case of UOI Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. (supra) held Rule 5 of Service Tax (Determination of Value) Rules, 2006 as ultra vires to Section 67 therefore, considering this settled legal position, we are of the view that the reimbursable expenses incurred by the CHA which is other than the CHA Agency charges cannot be taxable hence, the demand on such reimbursable expenses is not sustainable.

• As regard the demand under Business Auxiliary Service on incentive/Commission for the period 01.04.2003 to 31.03.2008, we find that the consideration received by the appellant is in connection with service for their client therefore, it is clearly covered under Business Auxiliary Service. The taxable entry under BAS is reproduced below:

“business auxiliary service” means any service in relation to, –

 

• promotion or marketing or sale of goods produced or providedby or belonging to the client; or
• promotionor marketing of service provided by the client; or

 

• anycustomer care service provided on behalf of the client; or
• any incidental or auxiliary support service such as billing, issue or collection or recovery of cheques, accounts and remittance, evaluation of prospective customer and public relation services,

and includes services as a commission agent, but does not include any information technology service.

From the definition of Business Auxiliary Service, it can be seen that one of the service procured in relation to procurement of service against commission is chargeable to service tax. In the present case, the appellant have received the incentive/Commission from shipping line or streamer agent as commission agent, they have received the commission in course of provision of service of shipping line and streamer agent for the service recipient therefore, the commission is liable to service tax. However, the appellant have also raised the issue that the said commission was exempted under notification no. 13/2003-ST dated 20.06.2003. On going through the notification, we find that the service of Commission Agent was indeed exempted for the period from 01.07.2003 to 08.07.2004 therefore, the demand of the said period is not sustainable as, the same is covered under exemption.

• As regard the issue of admissibility of the cenvat credit in respect of Air Conditioner Repairs, Motor Car Repair, Travel Expenses, etc. we find that the service are indeed used in provision of the output service of the appellant i.e. CHA Service. In many judgments, this service have been held as admissible input service.

Moreover, expenses on account of these services are indeed included in the cost of the output service. For this reason also, the input service are admissible under Rule 2(l) of Cenvat Credit Rules, 2004 therefore, we hold that the appellant are eligible for the cenvat credit on the input service in question.

 

• As regard the penalties, we find that the majority of demand is set aside accordingly, the penalties under Rule 76 and 78 of the Finance Act, 1994 are also not imposable invoking Section 80 of the Finance Act, 1994.

5. Considering our above discussions and findings, the impugned order is modified to the above extent. Appeal is partly allowed in the above terms.

 

 

 

(Pronounced in the open court on 12.06.2023)

 

(RAMESH NAIR) MEMBER (JUDICIAL)

(C.L. MAHAR) MEMBER (TECHNICAL)

KL