2014 (6) TMI 591 - AT - Service Tax

Waiver of pre-deposit - classification of services provided by Overseas Logistics Service Providers (OLSPs) to accomplish the overseas part of the clearing and forwarding job - business auxiliary service of not - services for providing the entire clearing and freight forwarding services including collection of cargo from the customer s place, arranging for storage in the foreign land, Customs clearance, booking space with the airline and shipping lines, landing over the cargo to airlines or shipping lines for shipment and informing the Applicant regarding dispatch of cargo. The OLSPs facilitated the business of the Applicant by providing marketing information in a reciprocal manner and by creating condition in the foreign land wherefrom a support in conducting the logistic service by providing their ready infrastructure for catering the needs of client of the Applicant. Held that - services provided by the OLSPs to the Applicant were business auxiliary services because the activities of the OLSPs satisfied the categories appended under (vi) and (vii) of the definition of Business Auxiliary Service . We find that OLSPs not only provided service of clearing and forwarding on behalf of the Applicant, but they also undertook incidental or auxiliary services like collection of payment, management or supervision job. We also find that OLSPs provided a number of services to the Applicant till they intimated M/s. TKM Global regarding dispatch of cargo and in doing so, they rendered services on behalf of the Applicant. Thus, they provided the services, incidental or auxiliary, to provide such service. Their activity in relation to the functioning of the Applicant as a clearing and forwarding agent, was surely auxiliary in nature because in absence of their services, the Applicant would not be able to fulfill their responsibility as the clearing and forwarding agent. Taxability is quite evident from the admission of the Applicant themselves. However, the Applicant made an alternate plea that they are covered under Cargo Handling Service and contested a part of the demand on the ground of limitation of time. A question of limitation of time is a mixed question of fact and law, which will be considered during regular hearing of the Appeal - Applicant are directed to make a predeposit of 25% of the Service Tax amount - stay granted partly.

Summary

Issues:
- Whether the services provided by Overseas Logistics Service Providers (OLSPs) to the Applicant qualify as Business Auxiliary Service (BAS)?
- Whether the Applicant is liable to pay Service Tax on the services rendered outside India?
- Whether the demand raised against the Applicant is barred by limitation of time?
- Whether the Applicant is eligible for a waiver of pre-deposit of Service Tax and penalties?

Analysis:

Issue 1: Business Auxiliary Service (BAS) Classification
The Applicant contended that the services provided by OLSPs, primarily as clearing and forwarding agents, should not be classified as BAS. They argued that the exchange of marketing information was incidental and not the primary factor for classification. However, the Department argued that OLSPs provided various services, including clearing and forwarding, which satisfied the criteria for BAS under the Finance Act, 1994. The Tribunal found that OLSPs' activities were auxiliary in nature and essential for the Applicant's clearing and forwarding operations. The Tribunal agreed with the Department's interpretation that OLSPs' services constituted BAS, as they undertook tasks beyond mere freight forwarding, such as payment collection and supervision.

Issue 2: Liability for Service Tax on Services Rendered Outside India
The Applicant claimed that since the services were rendered outside India, no tax was payable under the Import Service Rules. However, the Department argued that the services provided by OLSPs to the Applicant, even outside India, fell under taxable categories as per the definition of BAS. The Tribunal concurred with the Department's view, emphasizing that the taxability was evident from the nature of services provided, regardless of the geographical location of the services.

Issue 3: Limitation of Time for Demand
The Applicant raised objections regarding the demand for a specific period being barred by limitation of time. The Tribunal acknowledged that the question of limitation was a mixed question of fact and law, which required further consideration during the regular hearing. However, the Tribunal agreed with the Applicant that Service Tax for a certain period prior to the introduction of Section 66A of the Finance Act, 1994, was not payable, as established in a previous court ruling. Consequently, the Tribunal directed a deduction from the total Service Tax liability for that period.

Issue 4: Waiver of Pre-deposit and Penalties
The Applicant sought a waiver of pre-deposit of Service Tax and penalties, citing financial hardship. However, the Tribunal found that the Applicant failed to substantiate their plea for financial hardship with evidence. Considering the balance of convenience, the Tribunal ruled in favor of the Department and directed the Applicant to make a pre-deposit of 25% of the Service Tax amount within a specified timeframe. Compliance with the pre-deposit would result in the waiver of the remaining dues during the pendency of the Appeal.

In conclusion, the Tribunal upheld the classification of OLSPs' services as Business Auxiliary Service, confirmed the liability for Service Tax, addressed the limitation of time for demand, and directed the Applicant to make a pre-deposit while staying the recovery of the remaining dues pending the Appeal.