2018 (5) TMI 409 - AT - Service Tax

Demand of service tax - CHA service - incentives received from various airline / shipping liners @ 2% of the basic freight, in the name of brokerage - Held that - identical issue decided in the case of Lee & Muir Head Pvt. Ltd. Vs. Commissioner of Service Tax, Bangalore 2008 (10) TMI 131 - CESTAT, BANGALORE , where it was held that the brokerage commission of 2% paid for booking of export cargo cannot be taxed under the category of Business Auxiliary Services. It is also seen that the activity of the appellant as a custom house agent is to provide services to importers/exporters and the disputed activity was only a facility arranged by them to their clients. The appellant has no obligation to arrange transport of cargo through a particular shipping liner - the amount received cannot fall within the category of commission so as to be subjected to levy of service tax. Demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellants, registered as Custom House Agents, are liable to pay service tax on incentives received from airline/shipping liners?
2. Whether the activities of the appellants fall under the category of 'Customs House Agent Service' for the purpose of service tax?
3. Whether the incentives received by the appellants from shipping liners constitute commission subject to service tax?
4. Whether the appellants' activity as a Custom House Agent includes acting as a steamer agent, rendering them liable for service tax?

Analysis:
1. The case involved the appellants, registered Custom House Agents, who were accused of not discharging service tax on incentives received from airline/shipping liners. The officers recovered documents and issued show cause notices for service tax for the period 2004-2006, which were confirmed by the original authority and upheld by the Commissioner (Appeals), leading to the appeals.

2. The appellant's counsel argued that the appellants' activities, including import, export, forwarding, and consolidation, did not constitute 'Customs House Agent Service' for service tax purposes. It was contended that the incentives received from shipping liners were not commission as there was no service provider-recipient relationship, and the appellants had discharged service tax as Custom House Agents.

3. The appellant relied on various judgments and a Board Circular to support their argument that the incentives received were not taxable as commission. The Tribunal referred to the case of Lee & Muir Head Pvt. Ltd., where it was held that such incentives cannot be taxed under 'Business Auxiliary Services' as the appellants were secondary service providers for the shipping lines.

4. The AR argued that the appellants' activities fell under the definition of steamer agent service, even though they were registered as Custom House Agents. However, the Tribunal, citing the Lee & Muir Head Pvt. Ltd. case, concluded that the appellants' activity as Custom House Agents did not include acting as a steamer agent. The Tribunal set aside the demand for service tax, stating that the appellants' disputed activity was merely a facility for clients and not subject to levy of service tax.

In conclusion, the Tribunal allowed the appeals, holding that the demand for service tax on incentives received by the appellants from shipping liners was unsustainable, based on the precedent set in the Lee & Muir Head Pvt. Ltd. case. The order-in-original confirming the demand was set aside, and the appellants were granted consequential relief.