2022 (6) TMI 1085 - AT - Service Tax

Levy of service tax - Ocean Freight - Department was of the view that the appellant is liable to pay Service Tax on the ocean freight charges collected by them as these fall under Business Support Services - eligibility for benefit of Notification No. 04/2004 - input services / approved services have not been consumed within the SEZ unit itself. Whether the charges collected by the appellant from its customers in the nature of ocean freight are subject to levy of Service Tax under Business Support Services? - HELD THAT - This issue has been considered in various decisions of the Tribunal wherein the Tribunal has held that ocean freight charges are not subject to levy of Service Tax under Business Support Services or Business Auxiliary Services. The relevant discussion in the case of GREENWICH MERIDIAN LOGISTICS (INDIA) PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX MUMBAI 2016 (4) TMI 547 - CESTAT MUMBAI has held that 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 - Following the same, there are no hesitation to hold that the demand of Service Tax on ocean freight charges cannot sustain and requires to be set aside. Demand of Service Tax - benefit of exemption as per Notification No. 04/2004 dated 31.03.2004 denied on the ground that the input services / approved services have not been consumed within the SEZ unit itself - HELD THAT - The very same issue was considered by the Tribunal in the case of M/S. VISION PRO EVENT MANAGEMENT VERSUS CCE ST, CHENNAI 2018 (7) TMI 334 - CESTAT CHENNAI where it was held that Even if the event is held outside, since the services were for advertisement of product of SEZ, the services provided is to be considered as consumed within SEZ. It also needs to be mentioned that for availing the services, the SEZ has to get these services approved by the Development Commissioner - thus, it can be safely concluded that the demand of Service Tax alleging that the appellant has wrongly availed the benefit of Notification No. 04/2004 cannot sustain and requires to be set aside. Both the issues are found to be in favour of the assessee-appellant and against the Revenue - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether ocean freight charges collected by the appellant are subject to levy of Service Tax under Business Support Services.
2. Whether the appellant is eligible for the benefit of Notification No. 04/2004 dated 31.03.2004 for input services not physically consumed within the SEZ unit.

Issue-wise Detailed Analysis:

1. Levy of Service Tax on Ocean Freight Charges:
The primary issue is whether the ocean freight charges collected by the appellant are subject to Service Tax under Business Support Services. The Department contended that these charges fall under Business Support Services, thus attracting Service Tax. However, the appellant argued that ocean freight charges are not incurred in the course of providing freight forwarding services and should not form part of the taxable value. The appellant cited multiple Tribunal decisions, including M/s. Bax Global India Ltd. v. C.S.T., Chennai and others, which consistently held that ocean freight charges are not subject to Service Tax under Business Support Services or Business Auxiliary Services. The Tribunal reiterated that the appellant's transactions for ocean freight are principal-to-principal transactions, not agency functions, thus not falling under the taxable services category. Consequently, the demand for Service Tax on ocean freight charges was set aside.

2. Eligibility for Notification No. 04/2004:
The second issue concerns the eligibility for the benefit of Notification No. 04/2004, which exempts certain services provided to SEZ units from Service Tax. The Department argued that the appellant was not eligible for this benefit as the services were not physically consumed within the SEZ unit. The appellant countered that the term 'consumption' should not be narrowly interpreted to mean physical consumption within the SEZ but should include services used by the SEZ unit. The appellant cited several decisions, including M/s. Vision Pro Event Management v. Commr. of C.Ex. & S.T., Chennai, which supported a broader interpretation of 'consumption' in line with the SEZ Act's intent. The Tribunal agreed, noting that the SEZ Act's provisions have an overriding effect and that the benefit of the notification cannot be denied based on a restrictive interpretation. The Tribunal concluded that the demand for Service Tax on the grounds of wrongful availing of Notification No. 04/2004 was unjustified and set it aside.

Conclusion:
Both issues were resolved in favor of the appellant. The Tribunal set aside the impugned order, ruling that the demand for Service Tax on ocean freight charges and the denial of the benefit under Notification No. 04/2004 were unsustainable. The appeals were allowed with consequential reliefs as per law.