2008 (10) TMI 105 - AT - Service Tax

CHA valuation - Service tax has been demanded on certain surplus amounts collected from their clients, treated by the department as service income , freight income etc. It is submitted that these services were, at best, to be treated as the CHA s profits and the same were not liable to service tax - demand of service tax under the head, Business Auxiliary Service for the consideration for sale of cargo space stay partly granted

Summary

Issues:
1. Demand of service tax on appellants for the period 2002-03 to 06-07.
2. Higher penalty imposed on appellants under various provisions.
3. Differential taxable value demands under "CHA Service" and "Business Auxiliary Service" heads.
4. Treatment of surplus amounts collected from clients by the Customs House Agent (CHA).
5. Prima facie case against the demand of tax based on invoices.
6. Exclusion of taxable value for payment of service tax by the appellants.
7. Sustainability of demand under the head "Business Auxiliary Service."
8. Deposit requirement for service tax demanded under different heads.

1. Demand of Service Tax and Penalty:
The judgment involves a demand of service tax exceeding Rs. 1.1 crores on the appellants for the period 2002-03 to 06-07, along with a higher penalty under the Finance Act, 1994. The appellants, registered as a Customs House Agent (CHA), faced differential taxable value demands under "CHA Service" and "Business Auxiliary Service" heads, totaling over Rs. 1.1 crores. The appellants contested the demand, arguing that certain surplus amounts collected from clients were not liable to service tax, especially for the year 2006-07, where the entire amount collected was erroneously taxed, including reimbursable expenses.

2. Treatment of Surplus Amounts and Prima Facie Case:
The appellants claimed that the surplus amounts collected were part of their profits and not subject to service tax. The judgment considered invoices presented by the appellants, indicating discrepancies in the payment of service tax on charges like forms, stamps, and inspection expenses. The court acknowledged that service tax was not paid on certain charges, which should have been taxable under the "CHA Service" head, leading to a prima facie case against the demand.

3. Exclusion of Taxable Value and Sustainability of Demand:
The court estimated that approximately 10% of the taxable value for the periods 02-03 to 05-06 was excluded from the gross taxable value for service tax payment by the appellants. This exclusion amounted to around Rs. 64 lakhs. Regarding the demand under "Business Auxiliary Service," the court analyzed the definition and concluded that consideration for the sale of cargo space attracted the levy under this head, indicating that the appellants lacked a prima facie case against this demand.

4. Deposit Requirement and Compliance:
The judgment directed the appellants to deposit Rs. 12 lakhs within four weeks, comprising the service tax demanded under "Business Auxiliary Service" for the period 03-04 to 06-07 and on a value of Rs. 64 lakhs for the period 02-03 to 05-06 under "CHA Service." The court did not require a pre-deposit for the demand under "CHA Service" for the period 06-07, considering it prima facie unsustainable. Compliance was to be reported by a specified date.

This detailed analysis of the judgment highlights the key issues, arguments presented, court's reasoning, and the directives given regarding the service tax demands and penalties imposed on the appellants.