2018 (9) TMI 1719 - AT - Service Tax

Valuation - inclusion in assessable value - It is alleged that in the course of providing logistics services, they incurred various expenses under heads, viz., delivery order fees, documentation fees, LCL Charges, BL Charges, etc., and besides this, they also collected ocean / air freight from the clients, which were sought to be added to the assessable value - Classification of services. Held that - The Chennai Bench of CESTAT has addressed this very same dispute in Bax Global India Ltd. Vs. Commissioner of Service Tax, Chennai 2017 (9) TMI 1264 - CESTAT CHENNAI , where on the same issue, in appellant s own case, BAX GLOBAL INDIA LTD. Versus COMMISSIONER OF SERVICE TAX 2007 (10) TMI 132 - CESTAT, BANGALORE the Tribunal held that amount collected by CHA like cartage revenue, MSIL/JWG charges, due carrier, documentation charges etc. are for services rendered by third party and the appellant initially make payment for the activities on behalf of the client and later collected the amount from the client and that these are actually reimbursable expenses and not relating to the CHA activities. Even in respect of air freight, the Tribunal held that these charges cannot be said to be related to the activities of CHA. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of services under "Clearing and Forwarding Services" vs. "Business Support Services".
2. Inclusion of reimbursable expenses in the assessable value for service tax purposes.
3. Applicability of service tax on freight charges collected by the appellant.
4. Validity of invoking the extended period for demand under Section 73(1) of the Finance Act, 1994.
5. Imposition of interest and penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services:
The primary issue was whether the services provided by the appellant should be classified under "Clearing and Forwarding Services" or "Business Support Services". The appellant contended that their services, which included clearing export cargo and collecting documents, were correctly classified under "Clearing and Forwarding Services". The respondent argued that these services fell under "Business Support Services", specifically under "Managing Distribution and Logistics".

The Tribunal found that the respondent failed to substantiate how the appellant’s activities fell under "Business Support Services". The Tribunal referred to a previous decision in Bax Global India Ltd. vs. Commissioner of Service Tax, Chennai, which held that similar services provided by a Customs House Agent (CHA) did not fall under "Business Support Services". The Tribunal concluded that the classification under "Clearing and Forwarding Services" was appropriate.

2. Reimbursable Expenses:
The respondent sought to include various reimbursable expenses such as delivery order fees, documentation fees, LCL charges, and BL charges in the assessable value for service tax purposes. The appellant argued that these expenses were incurred on behalf of their clients and were reimbursed by the clients, thus should not be included in the taxable value.

The Tribunal cited the decision in Bax Global India Ltd., which held that amounts collected for services rendered by third parties and reimbursed by clients do not form part of the taxable value. The Tribunal agreed with this view and ruled that reimbursable expenses should not be included in the assessable value.

3. Freight Charges:
Another significant issue was whether the freight charges collected by the appellant should be subject to service tax. The appellant argued that the freight charges were paid to shippers for transporting cargo and did not constitute a service provided by them. They cited the decision in Bax Global India Ltd., which held that freight charges collected for transportation services rendered by third parties are not taxable under "Clearing and Forwarding Services".

The Tribunal agreed, stating that the freight charges were for transportation services provided by third parties (airliners or shipping lines) and not by the appellant. Therefore, these charges were not liable for service tax.

4. Extended Period for Demand:
The appellant contended that the invocation of the extended period for demand under Section 73(1) of the Finance Act, 1994, was unwarranted as all relevant facts were within the knowledge of the Department. The Tribunal found merit in this argument, referencing the decision in Bax Global India Ltd., which held that if the Department was aware of the facts, the extended period could not be invoked.

5. Interest and Penalties:
The Tribunal also addressed the imposition of interest and penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994. Given that the primary demand for service tax was set aside, the Tribunal ruled that there was no justification for imposing interest and penalties.

Conclusion:
The Tribunal set aside the impugned Order-in-Original and allowed the appeal with consequential reliefs, if any, as per law. The Tribunal's decision was based on the precedent set in Bax Global India Ltd. and similar cases, which provided a clear rationale for classifying the appellant's services under "Clearing and Forwarding Services", excluding reimbursable expenses from the taxable value, and ruling out the applicability of service tax on freight charges. The invocation of the extended period for demand and the imposition of penalties were also found to be unjustified.

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