2015 (6) TMI 545 - AT - Service Tax

Penalty u/s 76 & 78 - Classification of service - Valuation - Held that - Irrespective of the fact whether the activity is classified as port service or as a Cargo handling service, the stated policy of the government is to exempt exports from levy of any tax. But the fact whether almost the entire cargo pertains to export containers is not discussed in the order of the Commissioner although the learned AR did not dispute the statement made by the counsel before the bench. Section 67 which deals with valuation was amended on 18.4.2006. Prior to this date, service tax was chargeable on the gross amount charged by the service provider for service provided. After the amendment on 18.4.2006, explanation (c) to section 67 was introduced which states that the gross amount charged will include payment of cheque, credit cards, deduction from accounts, credit or debit notes, or book adjustment. We do not agree with Revenue that the amendment to Section 67 has not made any material difference to the provisions of valuation. Before the amendment on 18.4.2006, the gross amount charged by the appellant would be none other than the amount for which invoice is raised. There is no other consideration flowing from the receiver to the appellant. The whole transaction can be read as a contract that provides for charging only on the basis of the net number of containers handled in excess by the appellant. It must be noted that during the relevant period there was no valuation Rules. The Service Tax (Determination of Value) Rules 2006 came into effect form 19.4.2006, that is after the period of dispute in the present case. Therefore resort cannot be had to these Rules for the determination of value. In this view of the matter the taxable value on which service tax is chargeable must be considered as the invoice raised for the service provided - Decided in favour of assessee.

Summary

Issues:
1. Classification of service under 'port services' or 'cargo handling'
2. Valuation of services provided
3. Revenue neutrality in the case of mutual transactions between two entities
4. Time limitation for demand due to audits conducted

Classification of service under 'port services' or 'cargo handling':
The judgment dealt with appeals arising from an order confirming the demand of service tax and penalties against two appellants for the relocation of containers between two container handling terminals. The issue revolved around whether the activity of relocating containers should be classified under 'port services' or 'cargo handling' services. The appellants argued that since their activity mainly involved handling export containers, service tax should not be applicable. However, the tribunal noted that the government's policy exempts exports from tax but found no discussion in the Commissioner's order regarding the predominance of export containers in the activity.

Valuation of services provided:
Another key issue addressed in the judgment was the valuation of services provided by the terminals. The tribunal analyzed the relevant provisions of Section 67 of the Finance Act 1994, particularly focusing on an amendment introduced on 18.4.2006. The tribunal disagreed with the Revenue's stance that the amendment did not significantly impact the valuation rules. It emphasized that during the relevant period, there were no specific valuation rules in place, and hence, the taxable value for service tax should be based on the invoice raised for the service provided.

Revenue neutrality in mutual transactions:
The judgment also delved into the concept of revenue neutrality in the context of mutual transactions between the two container terminals. The tribunal considered the implications of imposing service tax on the total number of containers handled by both entities. It concluded that there would be no net gain or loss as both terminals would charge the same amount to each other, resulting in revenue neutrality. The unique nature of the transactions between the terminals led the tribunal to reject the argument that revenue neutrality would not apply in such cases.

Time limitation for demand due to audits conducted:
Lastly, the judgment touched upon the issue of time limitation for the demand of service tax, considering that audits had been conducted in the past. The tribunal acknowledged that the demand might get time-barred for a significant part due to the audits. While noting that there was no willful suppression of facts to evade duty, the tribunal decided the issue on merits, avoiding the need to bifurcate the demand based on time limitations.

In conclusion, the tribunal allowed the appeals of both appellants on merits, leading to the dismissal of Revenue's appeals on the issue of penalties. The judgment provided a detailed analysis of the various legal and factual aspects surrounding the classification, valuation, revenue neutrality, and time limitation issues in the context of the service tax demand on container relocation activities between the two terminals.