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2023 (11) TMI 104 - AT - Service TaxNon-payment of Service Tax - operational surplus - service charges / tax exempted - freight and brokerage - demand of Service Tax alleging that these are in the nature of consideration received for CHA services as well as Steamer agent services - extended period of limitation. Demand of Service Tax on the income earned under the head operational surplus - HELD THAT - Form the totality of facts as seen from the records and also on the basis of the submissions made, it is appreciated that while discharging the services as a CHA, the appellant collects certain charges in the nature of freight charges, port handling charges, statutory payment charges etc., from the client. So also charges in the nature of courier, fax, etc.,. The appellant not being able to quantify the expenses required in advance, has collected adhoc amount and later adjust these amounts towards the various expenses and charges incurred by them for providing the CHA services. This is in no way consideration received by the appellant from the client for providing the CHA service. In the invoices, the consideration for CHA service is mentioned as agency commission on which the appellant has discharged the Service Tax - The Department has proceeded to demand Service Tax only on the operational surplus. Again, it has to be stated that the figure as operational surplus is taken from the financial statements (profit and loss account) and not from the invoices raised by the appellant. This means it is the total operational surplus that has come into the hands of the appellant while incurring expenses and is not consideration received for services provided to a client(s). 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 has considered the issue whether reimbursable expenses or cost incurred by the service provider and charged in the course of providing the taxable service is includable in the taxable value for payment of Service Tax. The issue has been answered in favor of the assessee whereby the Hon ble Apex Court has held that such reimbursable expenditure or cost incurred by the service provider and charged is not to be included in the taxable value. After appreciation of the facts, the clarification issued by the Board as per the Trade Notice No. 39-CE/97 dated 11.06.1997 and the decision of the Hon ble Apex Court in the case of Intercontinental Consultants and Technocrats, it is opined that the demand of Service Tax on operational surplus cannot sustain and requires to be set aside. Service charges / tax exempted - HELD THAT - Trade Notice No. 39-CE/97 dated 11.06.1997 was in vogue till 2007. The period of dispute in these appeals is from 01.04.2003 to 31.03.2004. The said Trade Notice is therefore binding on the Department. However, the Ld. Counsel has been fair enough to submit that the said circular was superseded by Master Circular No. 96/7/2007-ST dated 23.08.2007 wherein it was clarified by the Department that services provided by sub-contractors is taxable even though the main contractor is discharging the tax liability - The Larger Bench of the Tribunal in the case of COMMISSIONER OF SERVICE TAX VERSUS MELANGE DEVELOPERS PVT. LTD. 2019 (6) TMI 518 - CESTAT NEW DELHI-LB had an occasion to consider the said issue as to whether the sub-contractor is liable to pay Service Tax even though the main contractor has discharged the Service Tax liability. The issue was answered in favour of Revenue and against the assessee - the Department had clarified that a sub-contracting CHA is not required to pay Service Tax, the demand raised invoking the extended period is also not sustainable under this head. Freight and brokerage - HELD THAT - In the case of COMMISSIONER OF SERVICE TAX, NEW DELHI VERSUS M/S. KARAM FREIGHT MOVERS 2017 (3) TMI 785 - CESTAT NEW DELHI , the Tribunal observed that the mark-up value collected by the assessee from the exporter is an element of profit in the transaction. The said amount is not a commission earned by the assessee and is not while acting as an agent of the exporter or shipping line and cannot be considered as a consideration. The assessee while acting as an agent on behalf of the shipping line was discharging the Service Tax as Steamer Agency services. The Tribunal took the view that the mark-up value collected by the assessee being an element of profit in the transaction cannot be subject to levy of Service Tax - In the present case also the Department does not have a case that the appellant has not discharged Service Tax on the agency commission received as a Steamer Agent or CHA. The demand is raised on the mark-up made which is the profit out of the difference in value of ocean freight collected by the shipping line and paid by the exporter / client - the demand of Service Tax on freight brokerage cannot sustain and requires to be set aside. Time Limitation - HELD THAT - Apart from a vague allegation in the Show Cause Notice that the appellant has suppressed facts with intent to evade payment of Service Tax, there is no positive act of suppression established against the appellant. Moreover, the entire figures which has been the basis for rasing the demand as per these Show Cause Notices has been collected from the financial statements of the appellant. This proves that the appellant has properly accounted all the transactions and amounts collected by them - the Service Tax on the amount received as a sub-contracting CHA was not paid by them as during the relevant time the Board had clarified that the activities of a sub-contracting CHA is not subject to levy of Service Tax - there is no suppression of facts on the side of the appellant. The appellant succeeds on limitation also. The impugned orders are set aside - Appeal allowed.
Issues Involved:
1. Demand of Service Tax on operational surplus, service charges exempted, and freight and brokerage. 2. Invocation of extended period in raising the demand. Summary: Issue 1: Demand of Service Tax on Operational Surplus The appellant, a partnership firm registered under CHA Services and Steamer Agency Services, was audited by the Chennai Commissionerate, revealing non-payment of Service Tax on operational surplus, service charges/tax exempted, and freight and brokerage. The appellant argued that operational surplus represents reimbursable expenses not subject to Service Tax. The Tribunal agreed, referencing the Trade Notice No. 39-CE/97 and the Supreme Court decision in Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd., which held that reimbursable expenses are not taxable. Thus, the demand for Service Tax on operational surplus was set aside. Issue 2: Demand on Service Charges/Tax ExemptedThe appellant provided services as a sub-contracting CHA and did not discharge Service Tax based on a Trade Notice stating that sub-contracting CHAs are not liable for Service Tax. The Tribunal noted that this Trade Notice was valid until 2007 and binding on the Department. The Larger Bench decision in Commissioner of Service Tax, New Delhi Vs. Melange Developers Private Limited confirmed that sub-contractors are liable for Service Tax only after 2007. Therefore, the demand for Service Tax on service charges/tax exempted was set aside for the period in question. Issue 3: Demand on Freight and BrokerageThe appellant received brokerage/rebate from shipping lines, which was argued to be a discount or incentive, not consideration for CHA services. The Tribunal, referencing multiple decisions including Commissioner of Service Tax, New Delhi Vs. Karam Freight Movers, held that such amounts are not subject to Service Tax as they are not consideration for services provided. Thus, the demand for Service Tax on freight and brokerage was set aside. Issue 4: Invocation of Extended PeriodThe Tribunal found no suppression of facts by the appellant, as all amounts were properly accounted for in financial statements. The appellant's actions were based on bona fide beliefs supported by Departmental clarifications. Therefore, the invocation of the extended period for raising the demand was deemed unsustainable. Conclusion:The impugned orders were set aside, and the appeals were allowed with consequential relief.
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