2024 (5) TMI 1520 - AT - Service Tax

Levy of service tax - Business Auxiliary Services (BAS) - incentives/discounts received by the appellant from airlines and shipping lines - inclusion of reimbursements received under Custom House Agent (CHA) services in the taxable value - liability to pay service tax under Goods Transport Agency (GTA) services - invocation of extended period of limitation - suppression of facts or not - demands based on the profit and loss statement are sustainable or not - Difference of opinion between two parties - matter placed before third member to give opinion as a third Member. Whether the demand of service tax on BAS and CHA services is liable to be set aside on the basis of submissions made and following the ratio of judgments / case laws submitted? or Whether the Tribunal being the last fact-finding authority is required to examine the facts written agreement / contract between the parties and in its absence remand the matter to the Original Authority for giving an opportunity to the appellant to adduce evidence as may be found necessary for determining the issue? HELD THAT - The learned Member (Technical) while remanding the matter on the ground cited supra has in fact travelled beyond the Show-Cause Notice and the Order-in- Original. The observation of the learned Member (Technical) that the appellant has not produced any contract except assertions made in their reply to the Show-Cause Notice is not tenable. It is found that both the Show-Cause Notice and the Order-in-Original does not make any mention as to non-production of the contract nor has questioned the income from airlines incentive from airlines income from sea incentive from sea due agent collected. Further it is found that the appellant has given the details of each of the income received and also had informed the Department that there is a difference in rate charged by the airline and the rate charged by the appellant from the customer. Therefore the observation that appellant had not put forth before the authorities precise data is not tenable. The Show-Cause Notice and the Order-in-Original only question the non-payment of service tax on the discounts and the reimbursement received by the appellant - when the Show-Cause Notice which is the foundation on which the Department has to build up its case is vague and lacks details it has to be held that the impugned order based on such a Show-Cause Notice is bad in law and therefore cannot be sustained. The learned Member (Judicial) has set aside the demand after relying upon the precedents decisions of the Tribunal which has consistently settled the issue regarding the sale of cargo space and reimbursement are not subject to service tax. Those precedents decisions have to be respected and followed otherwise there will be uncertainty in the administration of justice. It is also found that the CESTAT in the case EMU Line Pvt. Ltd. 2023 (6) TMI 64 - CESTAT MUMBAI has held that the service tax on incentives received from the shipping line is not taxable under Business Auxiliary Service and this decision of the Tribunal has been affirmed by the Hon ble Supreme Court therefore the said issue settled the controversies involved in the present case in favour of the appellant. The view taken by the learned Member (Judicial) is correct because the appellant has not suppressed any material fact and has provided all the details and the Show-Cause Notice has been issued on the basis of the details supplied by the appellant. Moreover it is the question of interpretation and therefore the extended period cannot be invoked as held by the learned Member (Judicial) which is correct. As regards penalty also the view taken by the learned Member (Judicial) is correct in law. Majority order - The Third Member has agreed with the view taken by Member (Judicial) holding that the demand of Service tax on Business Auxiliary Service and Custom House Agent s Services is required to be set aside. In view thereof the impugned order is modified as under (1) The demand of service tax interest thereon penalties imposed under Business Auxiliary Service is set aside entirely. (2) The demand of service tax interest thereon penalties imposed under Custom House Agent s Service is set aside entirely. (3) The demand of service tax and interest thereon on Goods Transport Agency Service is upheld. The penalties imposed are set aside entirely. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the incentives/discounts received by the appellant from airlines and shipping lines are subject to service tax under Business Auxiliary Services (BAS).
• Whether the reimbursements received under Custom House Agent (CHA) services should be included in the taxable value.
• Whether the appellant is liable for service tax under Goods Transport Agency (GTA) services.
• Whether the extended period for issuing the Show Cause Notice (SCN) is applicable due to alleged suppression of facts by the appellant.
• Whether demands based on the profit and loss statement are sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Business Auxiliary Services (BAS)

• Legal Framework and Precedents: The relevant legal framework includes Section 65(19) of the Finance Act, 1994, which defines BAS. The appellant argued that the incentives/discounts received are not for promoting the services of airlines/shipping lines and cited several precedents where similar income was not considered taxable under BAS.
• Court's Interpretation and Reasoning: The Tribunal examined whether the incentives/discounts were consideration for promoting the services of airlines/shipping lines. It was argued that the appellant's transactions were principal-to-principal and not for promoting any services.
• Key Evidence and Findings: The appellant provided evidence that discounts were part of a trading activity in cargo space and not a service. The Tribunal noted that the appellant did not produce any written contracts to substantiate their claims.
• Application of Law to Facts: The Tribunal found that the appellant's activities did not fall under BAS as defined in Section 65(19) since there was no evidence of promoting or marketing services for airlines/shipping lines.
• Treatment of Competing Arguments: The Tribunal considered the department's argument that the incentives were taxable but found the appellant's reliance on precedents persuasive.
• Conclusions: The demand of service tax on BAS was set aside as the incentives/discounts were not taxable under the given circumstances.

Custom House Agent Services (CHA)

• Legal Framework and Precedents: The legal question involved whether reimbursements should be included in the taxable value under CHA services. The Supreme Court's decision in Union of India Vs Intercontinental Consultants and Technocrats Pvt. Ltd was pivotal.
• Court's Interpretation and Reasoning: The Tribunal held that reimbursements should not be included in the taxable value as they are not part of the consideration for services rendered.
• Key Evidence and Findings: The appellant provided evidence that reimbursements were not part of their income but were merely passed through from clients.
• Application of Law to Facts: The Tribunal applied the Supreme Court's ruling to exclude reimbursements from the taxable value.
• Treatment of Competing Arguments: The department's argument for including reimbursements was rejected based on established legal principles.
• Conclusions: The demand under CHA services was set aside.

Goods Transport Agency Services (GTA)

• Legal Framework and Precedents: The appellant did not contest the demand under GTA services, acknowledging their liability.
• Court's Interpretation and Reasoning: The Tribunal upheld the demand for service tax under GTA services since it was not contested.
• Conclusions: The demand for service tax under GTA services was upheld.

Extended Period and Suppression of Facts

• Legal Framework and Precedents: The extended period for issuing the SCN was examined under the premise of suppression of facts.
• Court's Interpretation and Reasoning: The Tribunal found no evidence of suppression as the department relied on figures from the appellant's financial statements.
• Conclusions: The extended period was not applicable, and the demand was set aside on this ground.

Demands Based on Profit and Loss Statement

• Legal Framework and Precedents: The appellant argued that demands based on financial statements are unsustainable.
• Court's Interpretation and Reasoning: The Tribunal agreed, citing the decision in Firm Foundations & Housing Private Ltd., which held that demands cannot be based solely on financial statements.
• Conclusions: The demand based on the profit and loss statement was not sustainable.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "Mere sale and purchase of cargo space and earning profit in the process is not a taxable activity."
• Core Principles Established: The Tribunal reinforced that incentives/discounts not directly linked to promoting services are not taxable under BAS. Reimbursements not forming part of the consideration are not taxable under CHA services.
• Final Determinations on Each Issue: The demand under BAS and CHA services was set aside, while the demand under GTA services was upheld. The extended period for the SCN was not applicable.