2020 (2) TMI 1051 - AT - Service Tax

Demand of Service Tax - Cargo Handling Services - In order to establish a private siding to serve the customers, the Appellant claims to have collected interest free refundable amount from the members of the consortium. - deposits made in favour of the Appellant by the members of the consortium - difference in the rate charged by the Appellant from the members of the consortium and non-members - An agreement was also entered into between the Railways and members of the consortium containing terms and conditions. HELD THAT - The amount deposited by the co-users of the siding was an amount to be utilised for construction of the siding or to make payment to the Railways, if the co-user defaulted, in terms of the Indemnity Bond. The liability to pay the charges to the Railways was of the co-user and the Appellant only indemnifies if there is any default by making payment from the amount deposited by the co-users and in such a situation the amount of deposit will get reduced by that much amount which the Appellant has paid. The amount is not utilised for the amount of consideration to be paid by the co-user and indeed no document has been produced by the Department to show that this amount has been utilised for the said purpose. The balance sheet also shows the amount as current liability in the books of accounts of the Appellant. What is, however, contended by the learned Authorised Representative of the Department is that the deposit was towards advance for the consideration to be paid by the co-users for Cargo Handling Service . This cannot be accepted because in that case there would be no reason for the Appellant to refund the amount to the co users or pay any amount to the Railways in a case where a co-user commits any default in making the payment. The two issues, namely, payment of consideration by the co-users of the siding to the Appellant for Cargo Handling Services and the amount of freight, demurrage or other charges paid by the co-users to the Railways cannot be mixed. These are two independent issues and whatever payment has been made by the Appellant to the Railways is for the default committed by the co-users in making payment of tollage charges to the Railways and this is met from the amount of deposit in terms of the Indemnity Bond. It is payment of this amount by the Appellant to the Railways in terms of the Indemnity Bond that has led the Commissioner to hold that the amount deposited by the co-user is an advance for payment to the Railways and is not a security. This assumption by the Commissioner is mis-conceived and against the terms of the agreement. Thus, security deposit for any length of time would not automatically became a sale proceed in the hands of the company and that there is no provision in service tax law for taxing notional interest on a security deposit - the Commissioner was not justified in holding that the amount deposited by the members of the consortium with the Appellant had escaped assessment of service tax, and therefore, the Appellant should include the amount deposited by the consortium members in the gross amount for payment of service tax. Whether the Appellant had charged lower rates for Cargo Handling from consortium members who had contributed to the deposits as compared to the rates charged from the non members of the consortium? - HELD THAT - The Commissioner found from a scrutiny of the invoices raised by the Appellant that the Appellant had rendered Cargo Handling Service to independent customers at a higher rate than to the consortium members and, therefore, the actual price charged from the consortium members did not reflect the true consideration for Cargo Handling Service. The Commissioner, therefore, held that the price of ₹ 91 per metric ton charged from the non-consortium members should reflect the actual consideration in terms of Rule 3 and 4 of the 2006 Rules - This finding of the Commissioner is perverse, for even the comparison that has been drawn from the table does not reflect this position. The Appellant has in some cases charged lesser rate from the non-consortium members as against that charged from consortium members. A bare perusal of Rule 3 which is in regard to a case where value of consideration is not wholly or partly consisting of money or when such value is not ascertainable. The Commissioner was, therefore, not justified in holding that the Appellant had suppressed the taxable valued in the ST-3 returns - Demand cannot sustain - the imposition of penalty and interest is also not justified. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Demand of service tax on deposits made by consortium members.
2. Demand of service tax on the differential rate charged from consortium members and non-members for 'Cargo Handling Services'.

Detailed Analysis:

Issue 1: Demand of Service Tax on Deposits Made by Consortium Members
The Appellant, engaged in rendering "Cargo Handling Services," formed a consortium with industries for constructing a private railway siding. The consortium members deposited interest-free amounts for this construction. The Department argued that these deposits should be treated as advances for services and thus taxable. However, the Appellant contended these were refundable security deposits, not advances for services.

Key Findings:
- The Memorandum of Understanding (MOU) between the Appellant and consortium members indicated that the deposits were for constructing the railway siding and were interest-free.
- The deposits were shown as current liabilities in the Appellant's balance sheet, supporting the claim that they were refundable.
- The Commissioner’s observation that the deposits were adjusted against railway charges did not hold, as this was done under an indemnity bond, not as a service advance.
- The Tribunal referenced case laws (United Breweries Limited vs. State of Andhra Pradesh, Murli Realtors Private Limited vs. Commissioner of Central Excise, Pune-III, and M/s ATS Township Private Limited vs. Commissioner, Central GST, Noida) to support that security deposits, even if held for a long time, do not automatically become taxable as service advances.

Conclusion:
The Tribunal concluded that the deposits were indeed refundable security deposits and not advances for services. Hence, they were not subject to service tax.

Issue 2: Demand of Service Tax on Differential Rate Charged from Consortium Members and Non-Members
The Department alleged that the Appellant charged lower rates from consortium members compared to non-members for 'Cargo Handling Services,' implying that the lower rates did not reflect the true consideration for the services rendered.

Key Findings:
- The Commissioner found that the Appellant charged ?91 to ?101 per metric ton from non-members and ?51 to ?55 per metric ton from consortium members.
- The Appellant argued that rates varied based on several factors such as the nature of the commodity, type of handling required, and storage needs.
- Evidence showed that in some instances, the Appellant charged lower rates from non-members compared to consortium members, indicating that rates were determined on a case-by-case basis.
- The Tribunal found that Rules 3 and 4 of the Service Tax (Determination of Value) Rules, 2006, invoked by the Commissioner, were not applicable as they pertain to cases where consideration is not wholly in money or is unascertainable.

Conclusion:
The Tribunal held that the differential rates charged were based on various commercial factors and not an attempt to suppress taxable value. Therefore, the demand for service tax on the differential amount was unjustified.

Final Judgment:
The Tribunal set aside the impugned orders dated 5 December 2012, 12 September 2014, and 30 September 2014, confirming the demands, penalties, and interest. The appeals were allowed, and the demands were not sustained.