2016 (4) TMI 547 - AT - Service Tax

Demand of Service tax - Business auxiliary service - Commission received from shipping line for slots that were booked on ships according to instructions from exporters - Appellant contended that this amount is a profit from trading and the Finance Act, 1994 taxes certain services and not profits - Held that - the appellant has admitted to receiving commission from shipping lines on account of freight and discharge of tax liability on the same. However, there is no justification for fastening the same liability on all other receipts of the appellant. Each source of income must, therefore, be looked at independently. The appellant takes responsibility for safety of goods and issues a document of title which is a multi-modal bill of lading and commits to delivery at the consignee s end. To ensure such safe delivery, appellant contracts with carriers, by land, sea or air, without diluting its contractual responsibility to the consignor. Such contracting does not involve a transaction between the shipper and the carrier and the shipper is not privy to the minutiae of such contract for carriage. The appellant often, even in the absence of shippers, contract for space or slots in vessels in anticipation of demand and as a distinct business activity. Such a contract forecloses the allotment of such space by the shipping line or steamer agent with the risk of non-usage of the procured space devolving on the appellant. It is nothing but a principal-to-principal transaction and the freight charges are consideration for space procured from shipping line. Correspondingly, allotment of procured space to shippers at negotiated rates within the total consideration in a multi-modal transportation contract with a consignor is another distinct principal-to-principal transaction. Therefore, it is found that freight is paid to the shipping line and freight is collected from client-shippers in two independent transactions. The notional surplus earned thereby arises from purchases and sale of space and not by acting for a client who has space or slot on a vessel. Section 65(19) ibid will not address these independent principal-to-principal transactions of the appellant and, with the space so purchased being allocable only by the appellant, the shipping line fails in description as client whose services are promoted or marketed. Therefore, the demands, with interest thereon, and penalties are set aside. - Decided in favour of appellant

Summary

Issues:
Appeal against tax demand for business auxiliary service for the period 2005-06 to 2010-11, imposition of penalties under Finance Act, 1994.

Detailed Analysis:
1. The appellant, a multi-modal transport operator, handles logistics for exporters and is registered with the Director General of Shipping. The appellant receives commission for booking cargo space on vessels for exporters, which is considered as ocean freight. The tax demand was raised on the surplus income under the head 'ocean freight surplus' as commission received from shipping lines, treated as taxable 'business auxiliary service'.

2. The appellant argued that the surplus income was from trading, not a taxable service under Finance Act, 1994. They contended that they are not agents but intermediaries, citing relevant case law. The Authorized Representative supported the impugned order, highlighting the commission received by the appellant from shipping lines.

3. The Tribunal emphasized that each income source must be assessed independently, and the manner of booking profit does not determine taxability under section 65(105) of the Finance Act, 1994. The judgment in Bax Global India Ltd case was referenced to support the position that not all activities of a service provider may be taxable.

4. Referring to the High Court judgment in Sports Club of Gujarat Ltd case, it was reiterated that service tax is on the service provided, not the provider. The absence of a finding on the service provider's activity and consideration received from the recipient in the impugned order was noted as a deficiency.

5. The Tribunal analyzed the nature of transactions involving the appellant as a multi-modal transport operator, emphasizing the principal-to-principal relationship in procuring and allocating space on vessels. The surplus income arose from trading in space, not from promoting the services of a client. Therefore, the demand for tax on the surplus income was found unjustified, and the impugned order was set aside.

6. The Tribunal concluded by setting aside the tax demands, interest, and penalties in both orders, along with disposing of cross-objections filed by the department.