2014 (12) TMI 169 - AT - Service Tax

C&F Agent services - Business Auxiliary Services - Export of services - Cargo Handling services & Storage & Warehousing Services - Whether the Distribution fee/ Agency fee, received by MIPL from their foreign principal is liable for payment of service tax under the category of Business Auxiliary Services - Whether the benefit of saving in Ocean freight passed on by the principal to them is chargeable to service tax under the category of Cargo Handling Service - Whether the amount received by them towards customs clearances, port clearances and transportation should be considered as taxable service under the single head of clearing and forwarding Agent - Held that - a service which has not been consumed in India, cannot be taxed in India. - Services rendered by the appellant under Commission Sales Agreement and Non-exclusive Distributor Agreement , pertaining to Distribution Fee/ Agency Fee, have to be considered as export of services and no service tax is leviable on such export of services. Following decision of M/s. GAP International Sourcing (India) Private Limited vs. CST 2014 (3) TMI 696 - CESTAT NEW DELHI Saving in Ocean Freight - Amount is given to the appellant by the foreign principal as an incentive out of the freight saved by the principal. There is no service involved as the goods, for which facilities of appellant are availed, belong to the appellant. charging service tax there has to be a service provider and a service recipient. One cannot be held to be a service provider to one s own self. On the same issue of the appellant for a subsequent period adjudicating authority has dropped the demand. In view of these observations appeal of the appellant with respect to service tax on amount received from the principal on saving in ocean freight is required to be allowed. Demand of service tax on other activities - composit contract or not - Held that - There is no evidence that the contract were artificially splited to avoid service tax. As the services are separate and service recipient in future could avail the services of a service provider from a service provider other than the appellant, therefore, it can not be held that all the independent and separate contracts represent a common composite contract. - Decided in favour of assessee.

Issues Involved:
1. Whether the Distribution fee/Agency fee received by the appellant from their foreign principal is liable for payment of service tax under the category of Business Auxiliary Services.
2. Whether the benefit of saving in Ocean freight passed on by the principal to the appellant is chargeable to service tax under the category of Cargo Handling Service.
3. Whether the amount received by the appellant towards customs clearances, port clearances, and transportation should be considered as taxable service under the single head of Clearing and Forwarding Agent.

Detailed Analysis:

Issue 1: Distribution Fee/Agency Fee under Business Auxiliary Services
The appellant argued that the services provided to their foreign principal as distributors and commission agents should be considered as export of services under the Export of Services Rules, 2005, and hence not liable for service tax. They cited several case laws, including *Microsoft Corporation (I) (P) Limited vs. CCE* and *M/s. GAP International Sourcing (India) Pvt. Limited vs. CST*, to support their claim that these services qualify as export of services. The Tribunal agreed, noting that the services rendered under the 'Commission Sales Agreement' and 'Non-exclusive Distributor Agreement' fall under the category of export of services, and thus, no service tax is leviable.

Issue 2: Ocean Freight Savings
Regarding the service tax on the amount received as savings in ocean freight, the appellant contended that this amount is an incentive from the foreign principal and not related to any Cargo Handling services rendered. The Tribunal observed that the goods for which the facilities were availed belonged to the appellant, and thus, there was no service provided to a third party. The Tribunal concluded that since there must be a distinct service provider and recipient for service tax to apply, the appellant could not be considered a service provider to themselves. The Tribunal referenced a subsequent period where the adjudicating authority had dropped the demand on similar grounds and ruled in favor of the appellant.

Issue 3: Composite Services of Cargo Handling, Customs Clearance, Port Services, and Transportation
The appellant argued that these services were provided under separate contracts and should be treated as distinct services rather than a composite service. The Tribunal examined the case records and determined that the contracts were not artificially split to avoid service tax. Citing the case of *Essar Project (India) Limited vs. CCE & ST, Rajkot*, the Tribunal held that each contract should be interpreted separately according to its terms. The Tribunal found no evidence to suggest that the contracts were artificially divided and ruled that the services should be treated as separate, thus allowing the appellant's appeal on this count.

Conclusion:
The Tribunal ruled in favor of the appellant on all counts, determining that:
1. The distribution fee/agency fee qualifies as export of services and is not subject to service tax.
2. The savings in ocean freight do not constitute a taxable service as there is no service provider-recipient relationship.
3. The separate contracts for customs clearance, port services, and transportation should not be treated as a composite service for the purposes of service tax.

As the issues were resolved on merits in favor of the appellant, the Tribunal did not address the time-bar nature of the demands. The appeal filed by the appellant was allowed.

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