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2025 (2) TMI 1109 - AT - Service TaxLevy of service tax - payments made by M/s Modern Cargo Services Private Ltd to overseas logistics agents for handling cargo at the destination - inclusion of reimbursable expenses incurred by the service provider on behalf of the recipient in the taxable value - Scope for deploying of specific contingency in Finance Act 1994 made operational by rule 2 of Service Tax Rules 1994 Taxation of Services (Provided from Outside India and Received in India) Rules 2006 and Place of Provision of Service Rules 2012 - HELD THAT - The scope for valuation by service provider is limited to rule 3 of Service Tax (Determination of Value) Rules 2006 as also rule 5 of the said Rules and the adjudicating authority could well have detailed its computation in terms of the said Rules without any contribution from the assessee. Even assuming that it was the responsibility of assessee to provide the information which appears not in the light of stipulation that disaggregation of value should be in conformity with section 67 of Finance Act 1994 the decision of the Tribunal in re Modern Cargo Systems Pvt Ltd 2022 (11) TMI 1544 - CESTAT MUMBAI on non-taxability in the light of the decision of the Hon ble Supreme Court in re Intercontinental Consultants and Technocrats Ltd 2018 (3) TMI 357 - SUPREME COURT of the domestic component puts to rest any lack of wherewithal for determination of the overseas component which alone remains in dispute. That tax liability does not arise on the service intended by section 65(105)(j) of Finance Act 1994 when rendered outside India is not controverted in the impugned order. Consequently the demand for the period upto 30th June 2012 does not sustain. It would appear that a notice issued for a period prior to 1st July 2012 in the era of taxation of enumerated services under the impression of overlap of customs house agents service and clearing and forwarding agents service on fact and law as also of impression of applicability to activity for which payment was effected to overseas entity was sought to be deployed when the boundaries of service was no longer defined and a new framework for identifying rendition eligible for exemption from tax and procurement liable to tax was established in Finance Act 1994 - The clear and unambiguous stand of the Central Government on handling of service of transportation of goods which is central to the present dispute was overlooked in fastening the liability for the period after 1st July 2012. Conclusion - i) The upholding of demand of 11, 97, 047 for the period prior to 18th April 2006 in the impugned order is blatantly in breach of the legal provisions stipulated judicially that enable levy of tax on services procured from abroad only with effect from 18th April 2006. ii) The clear and unambiguous stand of the Central Government on handling of service of transportation of goods which is central to the present dispute was overlooked in fastening the liability for the period after 1st July 2012. The impugned order is set aside to allow the appeal.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include: 1. Whether the payments made by M/s Modern Cargo Services Private Ltd to overseas logistics agents for handling cargo at the destination end are subject to service tax under the Finance Act, 1994. 2. Whether the inclusion of reimbursable expenses incurred by the service provider on behalf of the recipient in the taxable value is ultra vires. 3. The applicability of service tax on services received from outside India before and after the enactment of Section 66A of the Finance Act, 1994. 4. The treatment of services under the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, and Place of Provision of Service Rules, 2012. 5. The classification of services as 'clearing and forwarding agents service' and the implications for tax liability. ISSUE-WISE DETAILED ANALYSIS 1. Taxability of Payments to Overseas Logistics Agents: The relevant legal framework involves the Finance Act, 1994, and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. The court examined whether the payments to overseas logistics agents for handling cargo at the destination end fall under 'clearing and forwarding agents service' and are thus taxable. The adjudicating authority had concluded that these payments were part of a composite service taxable under Section 65(105)(j) of the Finance Act, 1994. However, the Tribunal found that the adjudicating authority failed to properly apply the rules and precedents, particularly regarding services performed outside India. 2. Inclusion of Reimbursable Expenses: The court referenced the Supreme Court's decision in Union of India v. Intercontinental Consultants and Technocrats Pvt Ltd, which held that reimbursable expenses incurred by the service provider on behalf of the recipient are not to be included in the taxable value. The Tribunal noted that the adjudicating authority did not adequately consider this precedent, leading to judicial indiscipline. 3. Applicability of Service Tax on Services from Outside India: The court examined the legal provisions before and after the enactment of Section 66A of the Finance Act, 1994. It was determined that service tax liability on services received from outside India could only be imposed after the enactment of Section 66A on 18th April 2006. The Tribunal found that the adjudicating authority's upholding of demand for the period prior to this enactment was in breach of legal provisions. 4. Classification under Taxation Rules: The Tribunal scrutinized the application of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, and the Place of Provision of Service Rules, 2012. The adjudicating authority's classification of the services as 'clearing and forwarding agents service' was challenged, particularly the assumption that services performed outside India were taxable. The Tribunal emphasized the need for a clear distinction between services rendered domestically and those performed abroad. 5. Classification as 'Clearing and Forwarding Agents Service': The court evaluated the classification of services under Section 65(105)(j) of the Finance Act, 1994, and the implications for tax liability. The Tribunal found that the adjudicating authority's conclusion lacked a basis in the proper application of the rules, particularly regarding the determination of the place of provision of services. SIGNIFICANT HOLDINGS The Tribunal held that the adjudicating authority's decision was flawed due to the improper application of legal provisions and precedents. Key holdings include: - "The upholding of demand of 11,97,047 for the period prior to 18th April 2006 in the impugned order is blatantly in breach of the legal provisions, stipulated judicially, that enable levy of tax on services procured from abroad only with effect from 18th April 2006." - "The adjudicating authority failed to take note of binding circulars and instructions on particular situations warranting eligibility." - "The clear, and unambiguous, stand of the Central Government on handling of service of transportation of goods, which is central to the present dispute, was overlooked in fastening the liability for the period after 1st July 2012." The final determination was that the impugned order was set aside, and the appeal was allowed, indicating that the payments to overseas logistics agents were not subject to service tax under the circumstances described.
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