2025 (2) TMI 482 - AT - Service Tax

Valuation of service tax - inclusion of certain charges collected by the appellants - logistics income constituted taxable service or not. Inclusion of certain charges collected by the appellants - HELD THAT - The issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd 2018 (3) TMI 357 - SUPREME COURT which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants Technocrats Pvt Ltd v UOI 2012 (12) TMI 150 - DELHI HIGH COURT wherein Rule 5(1) of the Service Tax Valuation Rules 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services in the value of such taxable services was stuck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections. The findings in the impugned order in appeal confirming the demand on port congestion charges port storage charges seal amendment charges and detention charges cannot sustain and are liable to be set aside. Levy of service tax on differential income representing logistics income - HELD THAT - This Tribunal in its decision in Tiger Logistics India Ltd v. Commissioner of Central Tax GST New Delhi 2023 (7) TMI 546 - CESTAT NEW DELHI has also after noticing a number of earlier decisions held that the demand of service tax on mark up on ocean freight is not tenable in law. In the light of the aforesaid Tribunal decisions the finding of the appellate authority holding the logistics income of the appellants as exigible to service tax and demand upheld thereon is unsustainable and liable to be set aside. Conclusion - i) The findings in the impugned order in appeal confirming the demand on port congestion charges port storage charges seal amendment charges and detention charges cannot sustain and are liable to be set aside. ii) The finding of the appellate authority holding the logistics income of the appellants as exigible to service tax and demand upheld thereon is unsustainable. Appeal allowed.

Summary

The appellants challenged the partial upholding of a service tax demand by the appellate authority. The core issues revolved around whether certain charges collected by the appellants should be included in the taxable value for service tax purposes and whether logistics income constituted taxable service.

The appellants, registered for providing Steamer Agent Service and Business Auxiliary Service, were found to have collected charges such as port congestion charges, port storage charges, seal amendment charges, and detention charges, which were not included in the gross taxable value for service tax. The adjudicating authority confirmed the service tax demand for the period April 2005 to September 2010, along with interest and penalties. The appellate authority upheld the demand, stating these charges were part of the consideration for taxable services as per Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, and that the appellants did not qualify as a pure agent under Rule 5(2).

The appellants contended that these charges were reimbursable expenses, not consideration for services rendered, and therefore not subject to service tax. They cited the Supreme Court's decision in UOI v Intercontinental Consultants and Technocrats Pvt Ltd, which struck down Rule 5(1) as ultra vires, meaning it exceeded the authority granted by Sections 66 and 67 of the Finance Act, 1994. The Supreme Court held that service tax should only be levied on the actual value of services rendered, excluding reimbursable expenses.

The Tribunal found that the appellate authority's reliance on Rule 5(1) was misplaced, as it had been invalidated by the Supreme Court. Consequently, the demand for service tax on the aforementioned charges could not be sustained and was set aside.

Regarding logistics income, the appellants argued that the income derived from the sale and purchase of cargo space was not a taxable service but a trading activity. The Tribunal had previously ruled in favor of the appellants in similar cases, determining that the mark-up on ocean freight was a profit from trading, not a service charge. The Tribunal reaffirmed this position, referencing its own decisions and other case laws, and concluded that the demand for service tax on logistics income was unsustainable.

The Tribunal set aside the demands and penalties imposed under Sections 77 and 78 of the Finance Act, 1994, as they were based on unsustainable findings. The appeal was allowed, providing the appellants with consequential relief.