2015 (2) TMI 310 - AT - Service Tax

Waiver of pre deposit - Business auxiliary service - Steamer Agent service - Export of service - Interest - Penalty u/s 78 - Receipt of brokerage - Held that - The portion of freight forwarding income retained by the appellant is not the consideration for the alleged service provided by them to Maxx but is actually a sum total of the profit margins that they make in their business of arranging freight for export goods. There is no nexus between the alleged taxable activity and the amount sought to be taxed as consideration. - The activity undertaken by the Appellant amounts to export of service and hence not taxable. During the relevant period services provided by a person situated in India and received by a person situated outside India was not taxable, if the service were to be categorized as Business Auxiliary Service. The brokerage of 2% per shipment received by the Appellants from the shipping lines is merely an incentive given by the shipping lines for choosing their company and is not contractually agreed consideration for any activity performed by the Appellants at the behest of the Shipping Lines. - Extended period cannot be invoked with respect to the period July 2003 to March 2008. - Levy of interest is not sustainable when service tax itself is not payable. - There was no intention on the part of the Appellant to suppress facts and such a case has evidently not been made out by the Department. Hence penalty under Section 78 of the Act is liable to be set aside. - The appellant had every reason to believe that neither providing services within warranty period without any consideration not being reimbursed for the defective spares replaced on behalf of the foreign entities would attract service tax. Hence the case is fit for waiver of penalty in terms of Section 80 of the Finance Act, 1994. - Stay granted.

Issues involved:
1. Taxability of service provided by the appellant to the steamer agent under business auxiliary service category.
2. Whether the service qualifies as export of service.
3. Treatment of brokerage income under business auxiliary service.
4. Liability of service tax on the service recipient.
5. Invocation of extended period for penalties.
6. Mutuality of interests in the service provided.
7. Classification of the activity as cargo handling services.
8. Exclusion of specific activities from taxation under the Finance Act, 1994.
9. Change in department's classification of the activity to Steamer Agent Service.
10. Nexus between income retained by the appellant and the alleged service provided.
11. Taxability of services provided to a person situated outside India.
12. Consideration of brokerage received from shipping lines.
13. Invocation of extended period for certain time frames.
14. Levy of interest when service tax is not payable.
15. Allegation of suppression of facts and penalty imposition.
16. Waiver of penalty under Section 80 of the Finance Act, 1994.
17. Requirement of pre-deposit and grant of stay against recovery during appeal.

Analysis:

1. The issue in question pertains to the taxability of the service provided by the appellant to the steamer agent under the business auxiliary service category. The department argues that the service provided falls under this taxable category, emphasizing the mandatory requirement of foreign exchange for the service to qualify as an export. The appellant, on the other hand, challenges this levy, stating that the deposited service tax amount should be considered sufficient towards pre-deposit, seeking a stay on further recovery.

2. The appellant contends that there is no taxable service provided when there is a mutuality of interests between the parties involved. They argue that the collaboration with another logistics provider is for mutual benefit and not as an agent, emphasizing that they do not act on behalf of the other party or receive any commission. The appellant also relies on legal precedents to support their claim regarding the nature of the business relationship.

3. Regarding the classification of the activity, the appellant asserts that it should be categorized as cargo handling services, which are specifically excluded from taxation under the Finance Act, 1994. They argue that if an activity is excluded from one taxable service, it cannot be taxed under a different category, citing relevant legal cases to support their position.

4. The appellant further argues that the income retained by them is not directly linked to the alleged service provided but represents profit margins in their business. They emphasize the lack of nexus between the taxable activity and the amount sought to be taxed, referencing a circular to support their stance.

5. In light of the debatable nature of the issues raised, the tribunal deems the deposited amount by the appellant as sufficient for the appeal to be heard. Therefore, the requirement of pre-deposit for the balance dues is waived, and a stay against recovery during the appeal process is granted, ensuring a fair hearing for both parties.

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