2018 (5) TMI 1473 - AT - Service Tax

Extended period of limitation - terminal handling charges - Held that - even the department was under total confusion as to how these charges fall under BAS. Nothing with clarity is coming out neither from the show cause notice nor from the adjudication order - the Commissioner (Appeals) has rightly set aside the demand for the extended period - appeal dismissed - decided against Revenue.

Summary

Issues:
Department's appeal against Commissioner (Appeals) order setting aside demand on limitation and merits for certain services.

Analysis:
The appeal was filed by the department challenging the order passed by the Commissioner (Appeals) regarding the demand for various services. The respondents were involved in providing Custom House Agent Service, Cargo handling Service, Business Auxiliary Service, and Goods Transport Agency Service. The audit revealed several discrepancies, including non-payment of service tax on terminal handling charges, transport charges, local transport charges, excess income received as handling charges, and service charges. A show cause notice was issued proposing a demand of ?39,21,501 along with interest and penalties. The adjudicating authority confirmed the demand but dropped the penalty under section 76 of the Finance Act, providing a reduced penalty under section 78. The Commissioner (Appeals) set aside the demand on limitation for the period up to 1.10.2007 and on merits for certain services, while upholding the demand for transport charges. The department, aggrieved by this decision, approached the Tribunal.

The department argued that the respondents had not paid service tax on terminal charges collected from clients due to additional service charges, making them ineligible for exclusion as a "pure agent." They contended that the charges were not mere expenses but additional income subject to service tax. The Commissioner (Appeals) was criticized for not invoking the extended period due to alleged suppression of facts by the respondents. The department sought the restoration of the adjudicating authority's order.

On the other hand, the consultant for the respondents supported the Commissioner (Appeals) order, stating that the respondents had provided detailed explanations in response to the show cause notice. They clarified that certain charges were incentives or commissions received for booking cargo space and were not taxable under Business Auxiliary Service. The consultant highlighted the lack of clarity in the show cause notice regarding the margin to be taxed under terminal handling charges. They referenced a previous Tribunal decision in favor of the respondent on similar issues, indicating a bona fide belief in non-taxability. The consultant argued that the Commissioner (Appeals) correctly set aside the demand on limitation grounds and in favor of the respondent on major issues.

After hearing both parties, the Tribunal reviewed the orders of the adjudicating authority and the Commissioner (Appeals). It was noted that the terminal handling charges were essentially rent paid for storing cargo before export, not a service rendered to customers. The charges were for storage space provided by IAAI, with the respondent receiving incentives for cargo space booking. The Tribunal found discrepancies in how these charges were categorized under Business Auxiliary Service and agreed with the Commissioner (Appeals) decision to set aside the demand for the extended period. The Tribunal dismissed the Revenue's appeal and disposed of the respondent's cross-objection accordingly.