2023 (8) TMI 941 - AT - Service Tax

Demand of differential service tax with interest and penalties - amount collected as Ocean Freight charges by the appellant from their customers is more than the ocean freight charges paid to the shipping companies - Classification of services - activity of transporting of goods as Freight Forwarders or providing Business Support Service - HELD THAT - The appellant has subsequently provided a copy of the complete OIO. Annexures to the SCN were not provided. Copies of Agreements between the appellant and their customers and between them and the shipping lines / airlines have not been provided. The appellants have however clarified that they have not submitted the same as no such agreements existed. They have also filed a set of few invoices during the hearing after Revenue had pointed out the lack of the same to substantiate their assertions. However, while examining these invoices during the hearing, they were found to contain both types of invoices - None of the invoices showed bulk booking of space with the shipping lines / airlines by the appellant which was then farmed out to needy customers. Considering that these were sanitised invoices chosen by the appellant and not randomly chosen invoices by Revenue, the invoices presented during the hearing did not reveal a clear or pre-dominant pattern of advance booking of cargo space. The appellant whose activity has failed to establish his credential as a Freight Forwarder is found to satisfy the classification of Business Support Service. The appellant s averment during the hearing was that what they receive towards freight charges from the service recipients is a reimbursement of freight charges with a slight markup and subjecting it to tax would amount to double taxation - HELD THAT - The judgement of the Hon ble High Court of Delhi in the case of Intercontinental Consultants 2012 (12) TMI 150 - DELHI HIGH COURT , has now been affirmed by the Apex Court in Union of India v. M/s. Intercontinental Consultants 2018 (3) TMI 357 - SUPREME COURT , which settles the matter on reimbursements - it is found that the Hon ble High Court of Delhi, had declared Rule 5(1) of the Service Tax Valuation Rules as ultra vires of the erstwhile Section 66 and Section 67 of the Finance Act, 1994. The Apex Court while affirming the judgement of the Delhi High Court as per the statute then in force held that service tax is collected with reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, which is to be ascertained for the purpose of calculating the service tax payable thereupon. Any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such taxable service . Section 67 of the Finance Act 1994 was amended with effect from 14/05/2015 making reimbursable expenditure or cost as a part of valuation of taxable services for charging service tax. The period covered by the impugned order covers the period from 2010 to 2017 i.e. before and after the amendment to the section. It is found that the issue is of importance and merits being examined afresh by the Original Authority based on facts, documentary evidence and the law as laid out by the Apex Court. To claim exclusion of any part of the consideration from the assessable value, prior to the amendment of section 67 ibid, the terms of agreement or understanding between parties should prima facie indicate that there was an obligation upon the service receiver to incur such expenditure which was incurred by the service provider and was later reimbursed by the service receiver to service provider. The appellant needs to be given an opportunity to provide data to demonstrate that reimbursement are in line with law and of actuals, supported by sufficient evidence. Extended period of limitation - HELD THAT - The treatment of the issue of time bar has been very cryptic in the OIO. There is nothing to show that there was suppression of fact or contravention of any of the provisions of the chapter or of the rules made thereunder with intent to evade payment of service tax - the impugned order passed by the learned Commissioner (Appeals) is also not very helpful in this matter and merely states that the appellant did not declare said taxable value and assessed the service tax correctly, hence extended period under proviso to section 73(1) of the act was rightly invoked. The lack of discussion and finding that there was suppression of fact or contravention of any of the provisions of the chapter or of the rules made thereunder with intent to evade payment of service tax, is fatal and hence we find that the evocation of the extended period has not been correctly done. In the circumstances the demand is to be restricted to the normal period only as the ingredients to evoke proviso to section 73(1) was not demonstrated to be present as per both the orders mentioned. Penalties imposed, which are consequential to evoking of the extended period, are also set aside. The issue regarding the value of the taxable service for the normal period is remanded and shall be redetermined along with duty and interest by the Original Authority - Appeal disposed off.

Summary

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of service tax on freight charges.
3. Invocation of the extended period for issuing Show Cause Notices (SCNs).
4. Determination of the value for computing duty.

Summary:

I. Classification of Services Provided by the Appellant:
The Tribunal examined whether the appellant's booking of cargo space with Shipping Lines/Airlines amounts to a sale excluded from service tax or if it constitutes Business Support Service (BSS). The Tribunal concluded that the appellant's activities did not qualify as a sale under Section 4 of the Sale of Goods Act, 1930, as the space on vessels is not considered "goods" capable of being transmitted, transferred, delivered, stored, and possessed. The Tribunal found that the appellant's activities were rightly classified under BSS, as the appellant did not provide sufficient evidence to establish themselves as Freight Forwarders acting on a principal-to-principal basis.

II. Applicability of Service Tax on Freight Charges:
The appellant argued that their activities should be treated as transportation of goods, exempt from service tax under Rule 10 of the Place of Provision of Service Rules, 2012. However, the Tribunal found that the appellant failed to demonstrate that they acted as principals in booking cargo space. The Tribunal noted that the appellant's business activities included various charges for services related to BSS, and the appellant did not provide sufficient evidence to prove that they undertook legal responsibility for the transportation of goods.

III. Invocation of the Extended Period for Issuing SCNs:
The Tribunal found that the treatment of the issue of time bar was cryptic in the Order-in-Original (OIO) and the Order-in-Appeal (OIA). The Tribunal noted that there was no clear finding of willful suppression or intent to evade payment of service tax. The Tribunal concluded that the invocation of the extended period was not justified, and the demand should be restricted to the normal period only. Consequently, the penalties imposed were set aside.

IV. Determination of the Value for Computing Duty:
The Tribunal considered the appellant's argument that the freight charges received were reimbursements and subjecting them to tax would amount to double taxation. The Tribunal noted the Supreme Court's judgment in Union of India v. M/s. Intercontinental Consultants, which held that reimbursable expenses should not be included in the taxable value for service tax purposes. The Tribunal remanded the issue of determining the value of taxable services for the normal period to the Original Authority for re-examination based on the law laid out by the Supreme Court.

Conclusion:
The Tribunal modified the impugned orders, restricting the demand to the normal period and remanding the issue of the value of taxable services for re-determination by the Original Authority. The penalties imposed were set aside. The appeals were disposed of on these terms.