2015 (12) TMI 1105 - AT - Service Tax

Demand of service tax - best judgement assessment - wrong filing of ST-3 return - appellants have adjusted the payables against receivables in the figures given in the return - Classification of service tax - Business Support service or courier service - Taxability of network fee - Export of Service - Bar of limitation - Imposition of penalty - Cum Tax benefit - Held that - DHLI are the service receivers and they have hired the appellants for the job. The entire operation takes place within India. - The nature of services in BSS is totally different from the services provided by the appellant. The Section 65A deals with the classification of services - The activity being carried out by the appellants is transportation of time-sensitive documents, goods or articles utilising the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles from DHLI office to consignor s premises or from consignee s premises to DHLI premises. Since this is a more specific classification available it has to be preferred over a more general classification. Thus it is a clear case of courier service provided by the appellants to DHLI. It has been admitted that the network fee is only in respect of the Billed shipments as a compensation for funding the network costs. In fact the appellants receive services of the DHLI only for billed shipments. For Unbilled shipments no services are provided by DHLI to appellants. In respect of the Unbilled shipments it is the appellants who provide services to the DHLI. However since a single consolidated account is maintained the amounts payable by appellant to DHLI and those payable by DHLI to appellant get adjusted against each other. While doing so they are maintaining a consolidated account of amounts to be paid and only net transaction are made on monthly basis. From above it is apparent that as a result of the setting off of amounts payable against receivables there has been a undervaluation of not only assessable value in respect of courier service provided by the appellants but also of the courier service received by the appellants. Appellants are recouping their compensation i.e. costs as well as an arm length margin (costs plus 10%), from the billed shipments contracted by them. In other words the consideration for the services provided by the appellant are adjusted against the money payable to DHLI for the services received in respect of billed shipments. Appellants are getting a consideration from the DHLI on the costs plus basis. The figures for the Network fee are arrived on net basis after deducting the appellant s consideration, not only of billed consignments in respect of which they receive some services from DHLI, but also of Unbilled consignments in respect of which no services are provided by DHLI to appellants and other costs. Thus it is held that adjustment of the receivables for service provided against the amounts payable for the service received, or incentives and costs, is incorrect. The service tax in each case has to be paid on the Gross value of each service separately. Circumstances prescribed in the said section do not exist in the instant case to enable the Commissioner to adopt the best judgment method. They claimed that they have indeed filed the returns and have assessed their liability correctly. The appellants have filed the returns but have, according to the Order, failed to assess the tax in accordance with the provisions of the Act or rules made thereunder. They have not paid tax on the Unbilled transactions in respect of provision of service to the DHLI. Thus it is possible to determine the assessable value on the best judgement method by virtue of clause (b) of the section 72 of the Act. It is seen that the service provide by the appellants is courier service specified under clause 105(f) of section 65 of the Act. This falls under the category under clause (ii) of sub-rule (1) of rule 3 of the Export of Services Rules, 2005. In respect of this category the place of performance is critical in determining the factum of export. In the instant case the entire courier service provide by appellants to DHLI was performed in India. The documents to be couriered are delivered in India and the same are received in India. It is immaterial if the payment of the same is received in Foreign Currency. The law is very clear that gross amount charges is to be declared in the returns and service tax is to be paid on the same. There is no ambiguity in the law in this regard. There is no provision where the amount payable for a service can be set off against amount receivable for the services provided to arrive at assessable value. There is no case for invoking Section 80. The demand in respect of services received by appellant and where service tax has been demanded on reverse charge basis is set aside for the period beyond the normal period of limitation. - For the demand in respect of services provided by appellant to DHLI in respect of Unbilled consignments the benefit of calculation of tax on cum duty basis is allowed. - The penalty under Section 78 is reduced correspondingly to the revised amount of demand worked out after allowing cum duty benefit and limitation worked out - Penalty under Section 77 is upheld - Petition disposed of.

Summary

Issues Involved:
1. Classification of services provided to DHL International (DHLI) by the appellant.
2. Determination of assessable value for service tax.
3. Applicability of service tax on unbilled consignments.
4. Inclusion of investment rebate, customs clearance charges, and finance costs in the assessable value.
5. Export of service and applicability of relevant rules.
6. Limitation period for issuing the show cause notice.
7. Imposition of penalties under Sections 77 and 78 of the Finance Act.
8. Eligibility for cum-tax benefit.

Detailed Analysis:

1. Classification of Services Provided to DHLI:
The appellants argued that the services provided to DHLI should be classified as Business Support Service (BSS) rather than Courier Service. The Tribunal held that the appellants' activities fall under the definition of courier service as they involve "door-to-door transportation of time-sensitive documents, goods or articles." The Tribunal emphasized that specific classifications should be preferred over general ones, and thus, the services provided to DHLI were correctly classified as courier services.

2. Determination of Assessable Value:
The appellants contended that there was no separate consideration for the services provided to DHLI in respect of unbilled consignments. The Tribunal found that the appellants were compensated by DHLI on a cost-plus basis (110% of local costs). The Tribunal held that the assessable value should be determined based on the gross amount charged for the service, as per Section 67 of the Finance Act. The Tribunal rejected the appellants' argument that the valuation rules did not prescribe a mechanism for determining the value in such cases.

3. Applicability of Service Tax on Unbilled Consignments:
The Tribunal held that the appellants were providing courier services to DHLI in respect of unbilled consignments and were liable to pay service tax on the consideration received from DHLI. The Tribunal found that the appellants had not paid service tax on these services and had adjusted the amounts receivable for services provided against the amounts payable for services received, resulting in undervaluation.

4. Inclusion of Investment Rebate, Customs Clearance Charges, and Finance Costs:
The Tribunal held that investment rebate, customs clearance charges, and finance costs should not be deducted from the assessable value. The investment rebate was considered an incentive for upgrading infrastructure and not related to the courier services provided. Customs clearance and finance costs were reimbursable expenses and not part of the local costs. The Tribunal emphasized that the assessable value should be the gross amount charged for the service without such deductions.

5. Export of Service:
The appellants argued that the services provided to DHLI were export services and thus exempt from service tax. The Tribunal found that the courier services provided by the appellants were performed entirely in India and did not qualify as export services under the Export of Services Rules, 2005. The Tribunal noted that the place of performance is critical for determining export status, and since the services were performed in India, they did not qualify as export services.

6. Limitation Period:
The appellants claimed that the extended period of limitation could not be invoked as they had disclosed all necessary details in their returns and during audits. The Tribunal found that the appellants had misrepresented the nature of the network fee and had not disclosed the adjustment of payables against receivables. The Tribunal upheld the invocation of the extended period of limitation for the demand of service tax on unbilled consignments.

7. Imposition of Penalties:
The Tribunal upheld the penalty under Section 77 for not filing proper service tax returns, as the appellants had not declared the gross amount charged. However, the Tribunal reduced the penalty under Section 78 to correspond with the revised demand after allowing the cum-tax benefit and considering the limitation period.

8. Eligibility for Cum-Tax Benefit:
The Tribunal allowed the appellants the benefit of calculating tax on a cum-tax basis for the services provided to DHLI in respect of unbilled consignments. The Tribunal acknowledged that the amount received by the appellants was an all-inclusive cost-plus consideration, and thus, the demand should be quantified accordingly.

Conclusion:
The Tribunal modified the impugned order by setting aside the demand for the period beyond the normal limitation for services received by the appellants on a reverse charge basis, allowing the cum-tax benefit for the services provided to DHLI in respect of unbilled consignments, and reducing the penalty under Section 78 correspondingly. The penalty under Section 77 was upheld.