2023 (8) TMI 539 - AT - Service Tax

Levy of Service tax - mark-up in freight income (ocean freight) - commission income under category of BAS - legal expenses - difference in figures in ST-3 - value shown as non-taxable in the financial data summary sheet which is taxable under BSS - difference in value in Form 26AS and ST-3 returns - extended period of limitation. Service tax on mark-up in freight income - HELD THAT - In terms of paragraph 3 of the Circular dated 12.08.2016 the demand is liable to be set aside as the destination of goods are outside India in terms of rule 10 of the Place of Provision of Service Rules 2012. For imports the transaction would be non-taxable in terms of section 66D (ii)(p) of the Finance Act. Service tax on Commission income under BAS - HELD THAT - This demand was proposed under category of BAS as defined under section 65(19) of the Finance Act but the show cause notice does not mention any of the sub-sections of 65(19) of the Finance Act. It needs to be noted the appellant was not acting as an agent on behalf of the shipping lines as it bought and sold space on its own account. Thus it cannot be said that the appellant was acting as a commission agent and thereby covered under the definition of BAS. Legal expenses and difference in figures in ST-3 returns - HELD THAT - During the audit an objection was raised with respect to non-payment of service tax on legal expenses and on difference in figures in ST-3 returns. The said payments were made by the appellant with interest before the issuance of the show cause notice. Thus the appellant was entitled to the benefit of section 73(3) of the Finance Act. The demand could not therefore have been confirmed. Demand on income shown as non-taxable in summary sheet - HELD THAT - The demand has been rightly dropped in the order dated 22.05.2018. By letters dated 01.01.2016 and 15.01.2016 the appellant was asked to provide details of the value shown as non-taxable under financial data summary sheet earned for activities covered under BSS. In the third show cause notice dated 11.04.2016 which was issued for period 2014-15 the demand was proposed on the amount under the category of BSS only. There is no mention of section 65B(44) of the Finance Act. Thus the demand was proposed under BSS which was not even in existence during the period in dispute from 2014-15. This specific submission was made by the appellant when it submitted data by letter dated 29.1.2016 but the show cause notice dated 11.04.2016 did not advert to this issue. The demand cannot therefore be sustained as it is based on obsolete provisions and under a category which ceased to exist. The non-taxable amount includes amounts like customs duty BAF CAF charges ocean freight and air freight. All these amount are paid by the appellant on behalf of the client and later on are reimbursed. Thus same cannot be taxed as they are in nature of reimbursements. Demand of service tax on difference in figure in ST-3 and Form 26AS - HELD THAT - The department has challenged the dropping of demand contending that the failed to appreciate the importance of Form 26AS in assessing the service tax liability. It has been repeatedly held that no demand can sustain merely on the basis of the difference in figures in ST-3 and Form 26AS as there is difference in the methodology in preparing both the records and Form No. 26AS is not a statutory document for determining the taxable turnover under the service tax provision. Extended period of limitation - HELD THAT - Failing to file the ST-3 returns properly infers malafide intent to evade tax and so the extended period of limitation would be invokable and interest would be recoverable and penalty imposable under section 78 of the Finance Act. It would not be necessary to examine whether the extended period of limitation could be invoked in regard to the first show cause notice dated 10.10.2014. Appeal disposed off.

Summary

Issues Involved:
1. Demand of service tax on the profit/markup of ocean freight during buying and selling of shipping space.
2. Demand of service tax on commission income from shipping lines.
3. Demand of service tax on legal expenses and on difference in reconciliation of ST-3.
4. Demand of service tax under category of business support services on the amount of custom duty, overseas ocean & air freight and other charges.
5. Demand of service tax on difference between the figures in Form 26AS and ST-3 returns.

Summary:

1. Demand of Service Tax on the Profit/Markup of Ocean Freight:
The Tribunal found that the activity of buying and selling cargo space is trading, not a service, and thus not subject to service tax. The appellant's role as a Multi-Modal Transport Operator was substantiated by their license, and they fulfilled all conditions in the Circular dated 12.08.2016. The Commissioner's finding that the appellant failed to provide evidence of acting as a multi-modal transport operator was incorrect. The demand was set aside as the destination of goods was outside India, making the transaction non-taxable under rule 10 of the Place of Provision of Service Rules, 2012.

2. Demand of Service Tax on Commission Income Under BAS:
The Tribunal held that the appellant was not acting as an agent on behalf of shipping lines but was buying and selling space on its own account. Thus, it was not covered under the definition of BAS, and the demand for service tax on commission income was not sustainable.

3. Demand of Service Tax on Legal Expenses and Difference in Figures in ST-3:
The Tribunal noted that the appellant had paid the service tax along with interest before the issuance of the show cause notice. Therefore, no penalty was imposable under Explanation (2) to section 73 (3) of the Finance Act. The demand could not be confirmed as the appellant was entitled to the benefit of section 73(3) of the Finance Act.

4. Demand of Service Tax on Income Shown as Non-Taxable in Summary Sheet (Department Appeal):
The Tribunal upheld the Commissioner's decision to drop the demand, stating that the non-taxable income included components like customs duty, overseas ocean & air freight, and other charges, which were merely reimbursements and not taxable. The demand was based on obsolete provisions and under a category that ceased to exist.

5. Demand of Service Tax on Difference in Figures in Form 26AS and ST-3 Returns (Department Appeal):
The Tribunal found that the demand could not be sustained merely on the basis of differences in figures in ST-3 and Form 26AS, as Form 26AS is not a statutory document for determining taxable turnover under service tax provisions. The Commissioner's finding that the demand was not sustainable was upheld.

Conclusion:
Service Tax Appeal Nos. 52935 of 2016 and 53001 of 2018 filed by the appellant were allowed, and the impugned orders were set aside. Service Tax Appeal No. 53022 of 2018 filed by the department was dismissed.