2019 (3) TMI 187 - AT - Service Tax

Classification of services - Clearing Forwarding Agent Services or not - discount received against their own export consignment from the shipping agents - Held that - It is undisputed that appellant herein is a manufacturer and exporter of finished goods; the said finished goods are exported through containers which are procured through the shipping agents and it is a common knowledge that if the volume of exports and the containers booked are substantial, shipping agents do extend a discount to the exporter for the business generated by such shipping agents. The appellants have recorded the receipt of this amount as brokerage in their books of accounts. The orders of the lower authorities considering the amount received by the appellant as liable for tax on the category of Clearing Forwarding Agent Services is incorrect for a simple reason that appellant is a manufacturer and has utilised the services of various shipping agents for procuring containers for export of their goods. Here, the appellant has not rendered any services of clearing and forwarding to the shipping agents - demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Service tax liability on brokerage charges received from shipping agents.
2. Applicability of 'Clearing and Forwarding Agent Services' category.
3. Evidence requirement for discount extended by shipping agents.
4. Correctness of lower authorities' orders.

Analysis:

Issue 1: Service tax liability on brokerage charges
The appeal revolved around the service tax liability on brokerage charges received by the appellant from shipping agents. The appellant, engaged in manufacturing and exporting goods, received discounts from shipping agents for container bookings. The lower authorities confirmed the demands for service tax along with penalties, which led to the appeal.

Issue 2: Applicability of 'Clearing and Forwarding Agent Services' category
The lower authorities considered the amount received by the appellant as liable for tax under the category of 'Clearing & Forwarding Agent Services'. However, the appellate tribunal disagreed with this categorization. It was noted that the appellant, being a manufacturer, had not provided any clearing and forwarding services to the shipping agents. Therefore, the categorization was deemed incorrect.

Issue 3: Evidence requirement for discount by shipping agents
The appellant submitted that the discount received from shipping agents was for the volume of business generated for the agents, not for any specific services rendered. Although the appellant initially lacked evidence for this claim, a certificate from a Chartered Accountant was produced later to support the assertion. This certificate clarified that the amounts received were for the business given to the shipping agents.

Issue 4: Correctness of lower authorities' orders
Upon careful consideration of submissions and records, the tribunal found the demands raised by the lower authorities unsustainable. The tribunal emphasized that the appellant had not provided any services in relation to their exported final products. The certificate from the Chartered Accountant further supported the appellant's position, leading to the setting aside of the impugned order and allowing the appeal.

In conclusion, the tribunal ruled in favor of the appellant, setting aside the lower authorities' orders and allowing the appeal based on the lack of service provision by the appellant in relation to their exported goods.