2024 (8) TMI 204 - AT - Service Tax

Levy of service tax - activity of logistic/handling services carried out by the appellant for the customer in lieu of a consideration constituted service as envisaged in clause 44 of Section 65(B) of Finance Act, 1994 - HELD THAT - Post 01.07.2012, in order to qualify as a service , the activity has to satisfy three limbs of the definition of service viz., there has to be a service provided by a provider to a recipient, there has to be a monetary consideration and the service has to be provided in the taxable territory of India. Logistics/Handling charges are collected while selling of cars to the customers and not otherwise. Therefore, even if one has to consider the logistics/handling charges to be a consideration for a service, it is imperative to note that this handling activity is coupled with sale of car and would be called as bundled service as defined under section 66F of Finance Act, 1994. In this context as well, we observe that receipt of logistics/handling charges is naturally bundled with sale of cars since majority of similar service providers in the industry would receive the said amounts. Service tax is not leviable on logistics/handling charges, since sale of cars is covered under the exclusion part of service definition given under section 65B (44) of Finance Act, 1994 i.e. transfer of title in goods. Consequently, they will obviously form part of the value of the goods when they are subsequently sold and consequently sales tax/VAT would apply and not service tax. CBEC vide its Circular No. 699/15/2003-CX., dated 5-3-2003 clarified that it is envisaged appears that any activity of sales dealer at the pre-sale stage or at the time of sale will not come under the purview of service tax. This circular has clearly clarified that such pre-sale charges are not leviable to service tax, and the logistics/handling activities are all pre-sale activities and hence are not leviable to service tax. The Tribunal in INDIAN OIL CORPORATION LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, GOA 2015 (1) TMI 456 - CESTAT MUMBAI held that whatever expenses have been incurred before transfer of the goods, form part of the sale price of goods . The impugned order has observed that the said charges did not form a part of sale value of the vehicle and were collected separately. However, in this context, we note that the said charges are incurred in respect of all cars which are to be sold by the dealer. The expenses incurred in this regard are passed by the original authority to the customer and collected as part of the sale value of the car. The bifurcation of the expenses and its separate accounting in the books of accounts does not amount to provision of service. The impugned order is liable to be set aside and is accordingly set aside - Appeal allowed.

Summary

Issues Involved:
1. Whether the amounts collected as 'logistics handling expenses' by the appellant are exigible to service tax.
2. Applicability of penalties under Section 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Exigibility of Logistics Handling Expenses to Service Tax:
- Facts and Allegations: The appellant, engaged in trading Hyundai cars and related services, collected 'logistics charges' from customers for services like loading, unloading, and washing of cars. The Department alleged that these activities constituted a service under clause 44 of Section 65(B) of the Finance Act, 1994, and thus were liable for service tax. The appellant had paid a significant portion of the service tax before the issuance of the show cause notice.

- Adjudicating Authority's Decision: The adjudicating authority held that logistics services provided by the car dealer to the customer constituted a service as defined under sub-section 44 of Section 65(B) of the Finance Act, 1994, and thus were subject to service tax. However, it also noted that 97% of the tax was voluntarily paid before the show cause notice, thus reducing the penalty under Section 76 of the Finance Act.

- Appellant's Argument: The appellant argued that the logistics charges were part of pre-sale activities and should be included in the value of the goods sold, thus subject to VAT and not service tax. They cited Circular No. 699/15/2003-CX and case laws such as M/s Automotive Manufacturers Pvt. Ltd V/s CCE and M/s Indian Oil Corporation Ltd V/s CCE to support their claim.

- Department's Argument: The Department contended that the appellant did not disclose the logistics charges in their returns and did not seek any clarification from the Department, thus justifying the imposition of service tax and penalties for suppression.

- Tribunal's Analysis and Decision: The Tribunal noted that logistics charges were collected as part of the sale of cars and were pre-sale activities, thus forming part of the value of the goods sold and subject to VAT, not service tax. The Tribunal referenced several case laws, including CCE v. Seva Automotives Private Limited and Automotive Manufacturers Private Ltd v. CCE, which supported the view that handling charges related to the sale of goods are not subject to service tax. The Tribunal also highlighted that bundled services related to the sale of cars should be treated as a single service, primarily the sale of cars, which is excluded from the definition of service under Section 65B (44) of the Finance Act, 1994.

2. Applicability of Penalties under Section 78 of the Finance Act, 1994:
- Commissioner (Appeals) Decision: The Commissioner (Appeals) imposed a mandatory penalty under Section 78 of the Finance Act, 1994, on the grounds of suppression of facts.

- Appellant's Argument: The appellant argued that the penalty under Section 78 was not justified as they had already paid a significant portion of the tax voluntarily and there was no mens rea involved. They also contended that the demand should be restricted to the normal period due to the absence of any intention to evade tax.

- Tribunal's Analysis and Decision: The Tribunal found that the logistics charges were part of the sale of cars and thus not subject to service tax. Consequently, the imposition of penalties under Section 78 was not warranted. The Tribunal set aside the impugned order and allowed the appeal with consequential relief.

Conclusion:
The Tribunal concluded that logistics/handling charges collected by the appellant were part of the sale of cars and thus subject to VAT, not service tax. The penalties imposed under Section 78 of the Finance Act, 1994, were also set aside. The appeal was allowed with consequential relief.