2024 (2) TMI 1307 - AT - Service Tax

Levy of Service Tax - Business Auxiliary Service - contract with its clients to render services in relation to import of goods from abroad - activities undertaken by the appellant are covered within the ambit of Clause (vi) of Section 65(19) of the Finance Act, 1994 or not - scope of SCN - demand in the instant case is sustainable when the Show Cause Notice fails to specify under which sub-clause of Section 65(19) the demand has been raised - HELD THAT - The services provided by the OLSPs will be taxable under clause (vi) of Section 65(19) mentioned above, only if the services are provided on behalf of the Appellant to the customers of the Appellant. In the present case, the OLSPs are not acting as 'agents' of the Appellant while handling the cargo of the customers of the Appellant. The OLSPs books space on various shipping lines/airlines for the purpose of transportation of the goods from abroad to India. The contract is with the shipping line/airline and OLSPs. The shipping line/airline issues invoice in the name of the OLSPs. In case of defect, the shipping line/airline can sue only OLSPs. OLSPs in turn enter into contract with Appellant. OLSPs charge agreed fixed charges from Appellant. There is no contract between OLSPs and the customers of the Appellant. Accordingly, the OLSPs cannot be taxed under clause (vi) of the business of auxiliary service as there is no contract between the OLSPs and customers of the Appellant. The expression on behalf of the client in clause (vi) presupposes existence of three parties. The services should be provided as an agent of the principal to the customers of the principal. If the services are provided by the agent to the principal, that will be not covered in the scope of clause (vi). In the case of SAI COMPUTER CONSULTANCY VERSUS COMMISSIONER OF CENTRAL EXCISE, MEERUT-I 2011 (8) TMI 788 - CESTAT, NEW DELHI it has been held that When the client of the appellant was UP Power Corporation Ltd., it cannot be held that the appellant served clients of that Corporation on its behalf. Therefore, the appellant goes out of the ambit of sub-clause (vi) of the term business auxiliary service defined by law prevailing at the relevant time. Thus, the services rendered by the OLSPs cannot be categorized under the category of 'Business Auxiliary Services'. Hence, the demand of service tax under the Category of 'Business Auxiliary Services' in the impugned order is not sustainable. Scope of SCN - SCN has not specified any specific sub-clause of Section 65(19) under which the activities under taken by the OLSPs would fall - HELD THAT - In the impugned order, the Ld. Adjudicating authority only classified the activities undertaken by the OLSPs under the category of business auxiliary service under Section 65(19)(vi) and (vii) read with Section 65(105) (zzb) read with Section 66A of the Finance Act, 1994. Such a categorization is not available in the notice while demanding service tax under the category of 'Business Auxiliary Service'. It is a settled law that the defect in the notice cannot be cured by the observations of the adjudicating authority. Accordingly, the demand of service tax along with interest and penalty confirmed in the impugned order is not sustainable as the Show Cause Notice fails to specify under which sub-clause of Section 65(19) the demand has been raised. The demand of service tax confirmed along with interest and penalty confirmed in the impugned order under the category of 'Business Auxiliary Service' is not sustainable and accordingly, the same is set aside - Accordingly, the appeal filed by the appellant is allowed.

Summary

Issues Involved:
1. Whether the demand of service tax for the period April 2005 to 18.04.2006 is sustainable.
2. Whether the services provided by OLSPs to the Appellant are taxable under the category of "Business Auxiliary Service".
3. Whether the demand is sustainable when the Show Cause Notice fails to specify the exact sub-clause under Section 65(19).

Summary:

Issue 1: Demand of Service Tax for the Period April 2005 to 18.04.2006
The demand of service tax amounting to Rs. 2,11,90,438/- for the period April 2005 to 18.04.2006 is not sustainable. The Hon'ble Bombay High Court in Indian National Ship Owners Assn. vs. Union of India held that the recipient in India is liable to service tax for services received from abroad only from 18.4.2006 after the enactment of Section 66A of the Finance Act, 1994. This ruling was upheld by the Supreme Court. Hence, the demand for the period prior to 18.04.2006 is set aside.

Issue 2: Taxability of Services Provided by OLSPs
The services provided by OLSPs, including collecting cargo, arranging storage abroad, and customs clearance, were classified by the appellant under 'Clearing and Forwarding Agency Service'. The Department classified these services under "Business Auxiliary Service" as per Section 65(19)(vi) and (vii). The Tribunal observed that the OLSPs were not acting as agents of the Appellant to the customers of the Appellant. There was no contract between OLSPs and the customers of the Appellant, thus the services cannot be taxed under clause (vi) of "Business Auxiliary Service". The Tribunal also noted that the expression "on behalf of the client"� presupposes the existence of three parties, which was not the case here. Therefore, the demand under "Business Auxiliary Service" is not sustainable.

Issue 3: Deficiency in Show Cause Notice
The Show Cause Notice did not specify the exact sub-clause of Section 65(19) under which the demand was raised. The Tribunal held that it is a settled law that defects in the notice cannot be cured by the adjudicating authority's observations. This view is supported by the decision in Syniverse Mobile Solutions Pvt Ltd vs. Commissioner of Cus, CE & S.T, Hyderabad, where it was held that it is essential for the Show Cause Notice to clearly indicate the sub-clause under which the service tax is demanded. Hence, the demand along with interest and penalty is not sustainable due to the lack of specificity in the Show Cause Notice.

Conclusion:
The demand of service tax, interest, and penalties confirmed in the impugned order is set aside. The appeal filed by the appellant is allowed.