2023 (12) TMI 602 - AT - Service Tax

Valuation of service - inclusion of freight charges in the taxable value for C F service - invocation of extended period of limitation - penalty - HELD THAT - The facts show that in respect of C F services provided by appellant to M/s Ultra Tech Cement Ltd. the appellant had entered into two separate agreements. One for C F services and the other for providing GTA services. It is asserted by the Ld. Counsel that the appellant is a proprietary concern and when M/s. Ultra Tech Ltd informed them that they wanted a separate agreement for GTA services and that they would discharge the service tax, the appellant agreed accordingly. The letter issued by M/s Ultra Tech Ltd dated 27.06.2013 establishes that the service tax has been paid on freight charges by M/s Ultra Tech Ltd. However, they are discharging service tax only as service recipient Further it is also brought out that the appellant has collected mark up on the freight charges - Further it is also brought out that the appellant has collected mark up on the freight charges. They have also used their own trucks to provide transportation of goods. From these facts it would require to remand the matter to verify such details and to quantity the demand on such basis - there is short payment of tax as the appellant has to include the freight charges in the taxable value for the reason that appellant had provided such services as part of Clearing and Forwarding Agency services. The issue on merits is answered against the appellant and in favour of Revenue. Time Limitation - HELD THAT - Apart from the allegation that the appellant had bifurcated the contracts there is no positive act, of suppression alleged in the show cause notice. As already discussed, even though the contract is bifurcated, the appellant has not suppressed this fact from the department. The appellant had collected the freight charges by a separate invoice and this was properly accounted. So also they were under the bonafide belief that as M/s. Ultra Tech Cement Ltd was discharging the service tax under GTA, and that appellant is liable pay service tax on freight charges under C F services - appellant has made out a strong case on the ground of limitation. The show cause notice issued invoking the extended period is cannot sustain. Penalty - HELD THAT - The penalties imposed requires to be set aside invoking Section 80 of the Finance Act, 1994 as it stood during the disputed period. The impugned order is modified to the extent of the setting aside the demand and interest and penalties for the extended period. The demand of service tax and interest payable (if any) for the normal period is sustained. The penalties are entirely set aside - Appeal allowed in part.

Summary

Issues Involved:
The issues involved in the judgment are:
1. Whether the demand raised alleging that appellant had to include freight charges in the taxable value for C & F service is legal and proper.
2. Whether the demand raised invoking the extended period is sustainable or not.

Issue 1:
The appellant provided Clearing and Forwarding Agency services to M/s Ultra Tech Cements Ltd. by entering into two separate agreements for C & F services and GTA services. The appellant believed that M/s Ultra Tech would pay the service tax on freight charges separately. However, it was found that the appellant had not included the freight charges in the taxable value, resulting in short payment of service tax. The tribunal held that the freight charges should have been included in the taxable value as part of C & F services, leading to a conclusion against the appellant and in favor of Revenue.

Issue 2:
Regarding the limitation argument raised by the appellant, it was noted that the appellant bifurcated the contracts based on M/s Ultra Tech's intention to pay service tax on freight charges. The tribunal acknowledged the debatable nature of whether transportation services provided by the appellant as part of C & F services should be considered under C & F operations. While some decisions favored the assessee, others supported including freight forwarding in the taxable value for C & F services. The tribunal found that there was no evidence of suppression by the appellant and that they acted in good faith based on their understanding of the tax liability. Consequently, the tribunal set aside the demand, interest, and penalties for the extended period, while upholding the demand of service tax and interest for the normal period and entirely setting aside the penalties.

Note:
The judgment was delivered by Hon'ble Mrs. Sulekha Beevi C.S., Member (Judicial) and Hon'ble Mr. Vasa Seshagiri Rao, Member (Technical) of the Appellate Tribunal CESTAT CHENNAI.