2021 (7) TMI 1088 - AT - Service Tax

Levy of service tax - Customs House Agent Services - business of freight forwarding wherein various activities in relation to transportation of goods in the course of import/export by sea and air undertaken - non-taxable service - non-taxable territory - Circular of the Board No. 197/7/2016-S.T dated 12/08/2016 - extended period of limitation - HELD THAT - The appellant is authorized to act as a CHA under Customs Housing Agent Licensing Regulations and has been granted a license. Further, it is found that the main revenue of the appellant comes from providing exclusive freight forwarding activity which accounts for substantial income of the appellant. Perusal of the definition of CHA as provided in the Finance Act as well as in Regulation, it is found that the scope of CHA service is restricted only to the licensed activities relating to either (a) entry or departure of conveyances at any Customs Station or (b) import or export of goods at any Customs Station. Further, it is found from the definition of CHA Services that freight forwarding is an activity outside the scope of a CHA s business, and freight forwarding is undertaken to get the goods transported from/to international boundaries to/from the Indian ports and the said activity is not in any way related to CHA s business and CHA is not required to execute these services in the course of CHA s business - further, as per Section 67 of the Finance Act, 1994 only any amount that is payable for the services provided or to be provided shall be included in consideration and any amount received is not related to the services provided cannot be included in Section 67. There are force in the submissions of the learned counsel for the appellant that in case of export freight, no service tax is payable because the said service is non-taxable service and is provided in a non-taxable territory. It is also found that with regard to export freight, the Circular of the Board No. 197/7/2016-S.T dated 12/08/2016 amply clarifies this position. Extended period of limitation - HELD THAT - The ingredients mentioned in terms of proviso to Section 73(1) has not been fulfilled by the Department and moreover in the present case, the appellant has a bona fide belief that they are not liable to pay service tax on the differential freight amount collected - the issue involved relates to interpretation of provisions of a statute and in such a situation, extended period cannot be invoked. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of service tax on freight forwarding services.
3. Inclusion of freight charges in the value of Customs House Agent (CHA) services.
4. Applicability of service tax under the Negative List Regime.
5. Invocation of the extended period for demand.

Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant, a private limited company, engaged in freight forwarding and CHA services, challenged the classification of their services. The Tribunal examined the agreements with Vodafone Essar and BPL Limited, noting that the appellant's activities included customs clearance, payment of duties, and arranging inspections. The Tribunal emphasized that freight forwarding is distinct from CHA services as defined under Section 65(35) of the Finance Act, 1994, and the Customs House Agents Licensing Regulations, 2004. The Tribunal referenced past decisions, such as Bax Global India Ltd. v. CST, Bangalore, and DHL Lemuir Logistics Pvt. Ltd. v. CST, Bangalore, which clarified that freight forwarding is not part of CHA services.

2. Applicability of Service Tax on Freight Forwarding Services:
The Tribunal highlighted that freight forwarding is an activity outside the scope of CHA services and involves the transportation of goods internationally, which is not related to CHA's business. The Tribunal referred to the definition of CHA services and concluded that the appellant's freight forwarding activities are independent and not taxable under CHA services. The Tribunal cited various decisions, including Gudwin Logistics v. CCE, Vadodara, and Agility Logistics Pvt. Ltd. v. CST, Chennai, which consistently held that freight forwarding does not form part of CHA services.

3. Inclusion of Freight Charges in the Value of CHA Services:
The Tribunal examined Section 67 of the Finance Act, 1994, which includes only amounts payable for services provided. The Tribunal found that the appellant's freight charges are independent of CHA services and cannot be included in the value of CHA services. The Tribunal also noted that freight on import goods is subject to customs duty and considered part of the value of goods under Section 14 of the Customs Act, 1962. The Tribunal referenced United Shippers Ltd. v. CCE, Thane-III, affirmed by the Supreme Court, which held that amounts forming part of the transaction value for customs duty should not be subject to service tax.

4. Applicability of Service Tax under the Negative List Regime:
The Tribunal discussed the Negative List Regime post-01/07/2012, noting that freight and freight forwarding of import/export cargo are not taxable. The Tribunal referred to Section 66D of the Finance Act, 1994, and Circular No. 197/7/2016-S.T., which clarified that import freight is outside the service tax net. The Tribunal also noted that export freight is deemed to be provided outside India and is not taxable under service tax as per Section 66C of the Finance Act, 1994. The Tribunal cited decisions such as Greenwich Meridian Logistics (India) Pvt. Ltd. v. CST, Mumbai, which held that profits from non-taxable activities cannot be subject to tax.

5. Invocation of the Extended Period for Demand:
The Tribunal addressed the invocation of the extended period under Section 73(1) of the Finance Act, 1994. The Tribunal found that the Department was aware of the appellant's activities and that the appellant had a bona fide belief that they were not liable for service tax on differential freight amounts. The Tribunal noted that the issue of service tax on freight forwarding was a matter of interpretation, and extended periods cannot be invoked in such cases. The Tribunal referenced Bax Global India Ltd. v. CST, Bangalore, which clarified the non-inclusion of freight forwarding in CHA services.

Conclusion:
The Tribunal concluded that the impugned order was not sustainable in law, setting it aside and allowing the appeal with consequential relief. The Tribunal emphasized that freight forwarding is distinct from CHA services, and the amounts related to freight forwarding cannot be included in the value of CHA services. The Tribunal also highlighted that the Negative List Regime excludes freight forwarding from service tax and that the extended period for demand was not applicable in this case.

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