2023 (8) TMI 852 - AT - Service Tax

Levy of Service Tax - Customs House Agents (CHA) Services - non-verification of ledger accounts and journal entries for the entire periods - It was alleged that this pattern of invoicing was adopted to suppress the actual service charges collected and to pay less service tax - extended period of limitation - HELD THAT - The Adjudicating authority ought to have verified the records for the entire period of 2006-07 and 2007-08 before concluding that service tax has been paid on examination and miscellaneous charges under the head of agency charges. Dropping the demand of service tax without actual verification of financial records is not legal and proper. However as regard the said dispute, it is found that CA certified documents are submitted by the assessee before the Ld. Commissioner - the order of the learned Commissioner dropping demand sustains. Ld. Commissioner has confirmed the Service tax demand on the ground that, the appellant in addition to the payment of service tax on agency charges was also required to pay service tax on charges for the CHA functions related to the entry or departure of conveyance or the import or exports of goods as well as service tax on the difference between the amount received from the client as reimbursable expenses and the amount spent/incurred - the view taken by the Adjudicating authority that the charges/ expenses recovered by the appellant from their clients towards, Amendment of Bills of Entry, cancellation of document charges, choking of containers, communication charges, conveyance, Craft paper charges, DEEC Charges, Delivery order charges, DEPB Charges, DFRC Charges, EOU Charges, EPCG Charges, Examination charges, Lashing charges, fumigation charges, Opening Repacking/ strap ping charges, Palletisation charges, Repacking charges, release advice charges, sundries charges, loading charges etc. as part of CHA service. There is no dispute on the facts that on agency charges which are related to CHA services appellant are paying service tax. The Hon ble Apex Court in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT held Rule 5 of Service Tax (Determination of Value) Rules, 2006 as ultra vires to Section 67 therefore, considering this settled legal position, the reimbursable expenses incurred by the CHA which is other than the CHA Agency charges cannot be taxable hence, the demand of Service Tax on this count is clearly not sustainable. Ld. Commissioner held that service provider has provided sufficient details of Cenvat Credit availed by them along with their ST-3 returns. Therefore the charges of suppressing the facts cannot sustain. When commissioner himself has held that the charge of suppression of the fact not sustain against the appellant, confirmation of demand of Cenvat credit beyond a normal period of one year by the Ld. Commissioner in the present matter legally not correct - since the Cenvat documents have not been verified by the revenue, nor the longer period of limitation has been invoked specifically in the show cause notice, the proceedings flowing from such a defective show cause notice, are neither legal nor proper. Consequently, the Cenvat credit demand is set aside. Extended period of limitation - HELD THAT - The appellant being CHA had been paying the Service Tax on the CHA charges in terms of a Board Circular read with the judgment of Hon ble Supreme Court in the case of Intercontinental Consultants. At the relevant time the issue was not free from doubt. Therefore, lot of litigations were in pipeline, on the same issue and finally it was decided by the Hon ble Supreme Court and the Board also issued a Circular specifically for the CHA service that over and above the CHA service charges on reimbursement no service tax was payable - On this undisputed fact, the appellant have rightly entertained the bonafide belief that the over and above the CHA service charges, the reimbursement expenses are not taxable. Hence there is absolutely no suppression of fact on the part of the appellant, therefore the demand for the extended period is not sustainable also on the ground of limitation. Since the issue was admittedly involved interpretation of valuation provision under Section 67 that whether reimbursement expenses are includible in the gross value of Service charge of CHA, there is no suppression of fact. Hence, the demand for the extended period is not sustainable on the ground of time bar also. Appeal of Revenue dismissed.

Summary

Issues Involved:
1. Legality of Service Tax Demand on Reimbursable Expenses
2. Admissibility of Cenvat Credit
3. Invocation of Extended Period of Limitation
4. Revenue's Appeal Against Dropped Demand

Summary:

1. Legality of Service Tax Demand on Reimbursable Expenses:
The assessee, a Customs House Agent (CHA), was accused of raising two sets of invoices'one for service agency charges and another for reimbursable expenses on which service tax was not discharged. The adjudicating authority confirmed a part of the service tax demand but dropped the rest, leading to cross appeals by both the Revenue and the assessee. The assessee argued that reimbursable expenses are not taxable as per CBIC Circular F. No. B43/1/97-TRU dated 06.06.1997, which states that such expenses should not be included in the taxable value. The Tribunal agreed, stating that reimbursable expenses are not in the nature of service and thus not subject to service tax.

2. Admissibility of Cenvat Credit:
The adjudicating authority disallowed Cenvat Credit on input services like transportation and photography, citing a lack of nexus with CHA services. The Tribunal found the show cause notice defective for not providing specific details or evidence of the invoices and quantification. Consequently, the Tribunal set aside the demand, noting that the revenue had not verified the Cenvat credit account or input service invoices.

3. Invocation of Extended Period of Limitation:
The assessee contended that the demands were barred by limitation, arguing that there was no suppression or intent to evade tax. The Tribunal agreed, noting that the issue of taxability of reimbursable expenses had been a matter of legal interpretation and litigation, reaching up to the Supreme Court. Thus, the extended period of limitation was not applicable.

4. Revenue's Appeal Against Dropped Demand:
The Revenue challenged the dropping of the service tax demand without verifying financial records. However, the Tribunal upheld the adjudicating authority's decision, noting that CA-certified documents were submitted and verified. The Tribunal also dismissed the Revenue's appeal on the ground that the amount involved was less than Rs. 50 Lakhs, as per CBIC Instruction F. No. 390/Misc/116/2017-JC dated 22.08.2019.

Conclusion:
The Tribunal allowed the assessee's appeal, granting consequential relief, and dismissed the Revenue's appeal, citing adherence to legal provisions and CBIC instructions. The judgment emphasized that reimbursable expenses are not taxable and disallowed demands based on defective show cause notices and improper invocation of extended limitation periods.