2012 (12) TMI 477 - AT - Service Tax

Classification of service - Broker v/s Commission agent - demand of service tax under Business Auxiliary Service - activities of the appellants as ship brokers - period of dispute from October 2003 to September 2009 - Held that - Definition of commission agent as given in Section 65(19) during period w.e.f. 16/5/05 and as given in exemption Notification No. 13/03-ST dated 20/6/03 for the period prior to 16/5/05, the emphasis is on the commission agent acting on behalf of another person. Thus, a commission agent acts on behalf of a principal and sells or buys the goods or provides or receives the services on behalf of his principal for some commission & can also deal with the goods or services, collect payment for sale price of goods or services sold or provide guarantee for the payment or undertake any activity relating to such sale or purchase of such goods or service. A ship broker is essentially a broker, a specialist intermediaries for negotiations between ship owner and charterers who use the ship to transport some cargo or between the buyers and sellers of the ship. A ship broker bring together a ship owner who wants employment/fixture for his ship located at a particular Port and ship charterer who requires a particular type of ship at or around a particular Port to transport some cargo. They help in negotiating the terms of the charter and finalisation of charter-party agreement and also assist both the parties in compliance of the charter - party terms and full and final settlement of all the dues and claims. The ship broker also acts as an intermediary for bringing together a ship owner who wants to sell his ship and the prospective buyer and assisting in sale of the ship. The essential ingredient of a Commission agents service is acting on behalf of a principal which is missing is the case of the appellants. From the nature of their activity it is clear that brokers are purely intermediaries who do not act on behalf of either ship owner or the charterer and, therefore, they cannot be said to be commission agents & not covered by the definition of Business Auxiliary Service - in favour of assessee.

Summary

Issues Involved:
1. Classification of the service provided by the appellants.
2. Taxability of services when ship owners or charterers are located outside India.
3. Applicability of the longer limitation period under proviso to Section 73(1) of the Finance Act, 1994.

Detailed Analysis:

1. Classification of the Service Provided by the Appellants:
The appellants, acting as ship brokers, engage in various activities such as acting as intermediaries between vessel owners and charterers, assisting in negotiations, drafting legal agreements, and following up on ship and cargo movements. The primary dispute is whether these activities classify as "Business Auxiliary Service" under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. The Department contends that the appellants' activities are akin to those of a commission agent, thus taxable under the aforementioned sections. However, the appellants argue that their role as brokers does not equate to being commission agents, as they do not act on behalf of either party but merely facilitate the transaction. The Tribunal observed that the role of a broker is distinct from that of a commission agent, who acts on behalf of a principal. Since the appellants do not represent either the ship owner or the charterer, their activities do not fall under the definition of "Business Auxiliary Service."

2. Taxability of Services When Ship Owners or Charterers are Located Outside India:
The appellants argue that even if their activities were taxable as "Business Auxiliary Service," they should only be liable for service tax when both the ship owner and the charterer are located in India. In cases where either party is located outside India and payment is received in foreign currency, the service should be considered an export and thus not taxable. The Department, however, maintains that the service is taxable except when both parties are located outside India and payment is received in foreign currency. The Tribunal did not delve deeply into this issue, as the primary classification dispute was resolved in favor of the appellants.

3. Applicability of the Longer Limitation Period Under Proviso to Section 73(1) of the Finance Act, 1994:
The Department alleges that the appellants suppressed relevant information, justifying the invocation of the longer limitation period of five years under proviso to Section 73(1) of the Finance Act, 1994. The appellants counter that the Department was aware of their activities since an audit in 2007, negating any claims of suppression. Since the Tribunal concluded that the appellants' activities do not constitute "Business Auxiliary Service," it found no need to address the issue of suppression and the applicability of the longer limitation period.

Conclusion:
The Tribunal concluded that the appellants, acting as ship brokers, do not qualify as commission agents and thus their activities are not taxable under "Business Auxiliary Service" as defined in Section 65(19) of the Finance Act, 1994. Consequently, the impugned orders were set aside, the appeals filed by the appellants were allowed, and the appeals filed by the Revenue were dismissed.