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TMI Blog2023 (11) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... cted adhoc amount and later adjust these amounts towards the various expenses and charges incurred by them for providing the CHA services. This is in no way consideration received by the appellant from the client for providing the CHA service. In the invoices, the consideration for CHA service is mentioned as agency commission on which the appellant has discharged the Service Tax - The Department has proceeded to demand Service Tax only on the operational surplus. Again, it has to be stated that the figure as operational surplus is taken from the financial statements (profit and loss account) and not from the invoices raised by the appellant. This means it is the total operational surplus that has come into the hands of the appellant while incurring expenses and is not consideration received for services provided to a client(s). The Hon ble Apex Court in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. [ 2018 (3) TMI 357 - SUPREME COURT] has considered the issue whether reimbursable expenses or cost incurred by the service provider and charged in the course of providing the taxable service is includable in the taxable valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e collected by the assessee being an element of profit in the transaction cannot be subject to levy of Service Tax - In the present case also the Department does not have a case that the appellant has not discharged Service Tax on the agency commission received as a Steamer Agent or CHA. The demand is raised on the mark-up made which is the profit out of the difference in value of ocean freight collected by the shipping line and paid by the exporter / client - the demand of Service Tax on freight brokerage cannot sustain and requires to be set aside. Time Limitation - HELD THAT:- Apart from a vague allegation in the Show Cause Notice that the appellant has suppressed facts with intent to evade payment of Service Tax, there is no positive act of suppression established against the appellant. Moreover, the entire figures which has been the basis for rasing the demand as per these Show Cause Notices has been collected from the financial statements of the appellant. This proves that the appellant has properly accounted all the transactions and amounts collected by them - the Service Tax on the amount received as a sub-contracting CHA was not paid by them as during the relevant tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges in the nature of expenses incurred by them for payment of statutory levies, pilotage and berth hire charges, Indian Coast light dues paid to the port authorities, cargo expenses paid to the port authorities, charges paid to transporters such as CONCOR/Railways/Private Transporters, Chartered Accountants Fee, Income Tax deductions, Brokerage paid to Export cargo, etc.,. It is alleged in the Show Cause Notice that apart from the amount that has been reimbursed by the client for meeting the costs for providing the services, the appellant has collected over and above actual charges and has reflected the same as Operational surplus in their financial statements. The demand has been raised based on such figures obtained from profit and loss account, balance sheet and income tax returns. It is explained by the Ld. counsel that such operational surplus are nothing but reimbursable expenses and not subject to levy of Service Tax for the period prior to 2015. In the regular course of business as CHA on the request of clients, the appellant incurs certain additional expenses on behalf of these clients for activities such as loading and unloading, transport charges, etc.,. These expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted from the client. The Ld. counsel argued that the demand of Service Tax raised on operational surplus cannot sustain for these reasons and the same may be set aside. 2.2.1 The second issue is with regard to the demand on service charges / tax exempted. It is submitted by the Ld. counsel that the appellant had rendered services as a sub-contracting CHA to other main CHA. During the relevant period, the Trade Notice referred above had categorically stated that the sub-contracting CHA is not required to pay the Service Tax on the bills raised by him on the main CHA. The said Trade Notice was withdrawn in 2007 only. Basing upon this circular, the appellant had not discharged the Service Tax as a sub-contracting CHA and was of the view that these services are exempted. 2.2.2 The Ld. counsel was fair enough to submit that in the case of Commissioner of Service Tax, New Delhi Vs. Melange Developers Private Limited [2020 (33) GSTL 116 (Tri. LB)], the Larger Bench of the Tribunal had occasion to examine the issue whether the sub-contractor is liable to pay Service Tax even though the main contractor has discharged the Service Tax. The issue was answered in the affirmative and aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er demand. The decision in the case of Reynolds Petro Chem Vs. Commissioner of Service Tax [2023 (68) GSTL 292] was relied by the Ld. counsel to argue that the Service Tax demand cannot be based on TDS/26 AS statement. 2.5.1 The Ld. counsel argued on the ground of limitation also. It is submitted that the first Show Cause Notice dated 08.01.2003 covers the period 09.09.1997 to 31.03.2002, in respect of Custom House Agent services as well as Steamer Agent Services. Part of the demand in this Show Cause Notice falls within the normal period. 2.5.2 The second Show Cause Notice dated 14.07.2004 has been issued for the period 01.04.2002 to 31.03.2003 for Steamer Agent Service and Custom House Agent services. The said Show Cause Notices are within the normal period. 2.5.3 The third Show Cause Notice dated 14.07.2004 covers the period 01.04.2003 to 31.03.2004 for the respective services viz., Steamer Agent Service and Custom House Agent services. These Show Cause Notices are dated 20.04.2005 and 23.12.2005. Part of the demand in these Show Cause Notices would be beyond the normal period. The Ld. counsel submitted that the appellant has not discharged the Service Tax on operationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax on such consideration and is liable to pay the Service Tax as demanded in the Show Cause Notice. The decision of the Larger Bench of the Tribunal in the case of Melange Developers Private Limited (supra) was relied by the Ld. AR. It is also pointed out that after the earlier Trade Notice, the master Circular No. 96/7/2007-ST dated 23.08.2007 was issued by the Department superceeding all the earlier circulars and clarifications. In this circular, it was clarified that a sub-contractor is liable to discharge Service Tax even though the main contractor has paid Service Tax on the very same services. 3.3 The third issue is with regard to the freight brokerage which has been received by the appellant from the shipping lines. It is submitted by the Ld. AR that no documentary evidence has been adduced by the appellant to show that these are incentives received from the shipping lines. 3.4 The appellant has suppressed these figures from the Department and therefore the invocation of extended period is also legal and proper. The Ld. AR adverted to paragraphs 7.11 to 7.13 of the Order-in-Original No. 2/2005 dated 23.12.2005 to argue that the demands confirmed are legal and proper. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s SCN No. 6/2004 Ref C.No. IV/16/653/02 STC dated 14.07.2004 Rs.5,28,088/- 4 S/109/2006 01.04.2002 to 31.03.2003 Custom House Agent Services SCN No. 7/2004 Ref C.No. IV/16/705/02 STC PT II dated 14.07.2004 Rs.3,78,981/- 5 S/212/2007 01.04.2003 to 31.03.2004 Steamer Agency Services SCN No. 7/2005 Ref C.No. IV/16/653/02 STC dated 20.04.2005 Rs.12,20,730/- 6 S/123/2007 01.04.2003 to 31.03.2004 Custom House Agent Services SCN No. 8/2005 Ref C.No. IV/16/653/2002 STC dated 23.12.2005 Rs.5,87,697/- 6.2 It can be seen from the above table that for the period from 09.09.1997 to 31.03.2002 separate Show Cause Notices have been issued to appellant in regard to CHA services and Steamer Agent services. Similarly, for the period involved from 01.04.2002 to 31.03.2003 separate Show Cause Notices dated 08.01.2003 to 14.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursed expenses. We are not able to agree with this view. In the course of providing CHA services there are several requirements to be met by the CHA for activity of import or export of goods. The charges incurred for transportation, courier, fax, communications, etc., may vary each time. The charges collected in some occasions may be in-sufficient to meet the expenses and the appellant then accounts it as operational deficit. The Department has proceeded to demand Service Tax only on the operational surplus. Again, it has to be stated that the figure as operational surplus is taken from the financial statements (profit and loss account) and not from the invoices raised by the appellant. This means it is the total operational surplus that has come into the hands of the appellant while incurring expenses and is not consideration received for services provided to a client(s). 7.1.2 The Department vide Trade Notice No. 39-CE/97 dated 11.06.1997 has clarified this situation with regard to the requirement of a CHA to collect ad hoc amounts from the client and to incur expenses for providing CHA services. In the said Trade Notice, it has been clarified that such charges collected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k collection charges, courier service charges, and miscellaneous other expenses on account of the exporter/importer. For all the above charges the CHA is ordinarily reimbursed by the importer/exporter for whom the above services are rendered. Apart from the above charges, the CHA also charges the client for his service under the head/nomenclature of agency and attendance charges or similar kind of heads which is purported to be his service charge in respect of the services rendered in relation to the import/export goods. 2.4 It is clarified that in relation to Custom House Agent the Service Tax is to be computed only on the gross service charges, by whatever head/nomenclature, billed by the custom house agent to the client. It is informed that the practice obtaining is to show the charges for service as agency commission , charges , agency and attendance charges , agency charges and some similar descriptions. The service tax will be computed only with reference to such charges. In other words, payments made by CHA on behalf of the client, such as statutory levies (cess, customs duties, port dues etc.) and various other reimbursable expenses incurred are not to be included f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited wherein it was observed as under: 27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of interpretation of statutes . Vis- -vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices as sub-contracting CHA to other CHAs. The understanding of the appellant was that they are not liable to pay Service Tax on the charges received from the main CHA as the main CHA is discharging Service Tax liability. The very same Trade Notice was referred to by the Ld. Counsel to argue that even the Department had clarified that no Service Tax is to be paid by the sub-contracting CHA. The relevant paragraph of the said Trade Notice reads as under:- 2.6 Sometimes CHAs sub-contract their work to CHAs located in other station. In such cases, it is possible that the sub-contracting CHA raises the bill on the main CHA who in turn raises the bill to the client. It has been decided that tin such cases the sub-contracting CHA will not be required to pay service tax on the bills raised by him on the main CHA. The service tax will be payable by the CHA who provides the actual service to the client and raised the bill to the client. 7.2.2 The said Trade Notice was in vogue till 2007. The period of dispute in these appeals is from 01.04.2003 to 31.03.2004. The said Trade Notice is therefore binding on the Department. However, the Ld. Counsel has been fair enough to submit that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cannot be considered as a consideration. The assessee while acting as an agent on behalf of the shipping line was discharging the Service Tax as Steamer Agency services. The Tribunal took the view that the mark-up value collected by the assessee being an element of profit in the transaction cannot be subject to levy of Service Tax. Similar view was taken by the Tribunal in the case of Commissioner of Service Tax, New Delhi Vs. M/s. Continental Carriers [2017-TIOL-3964-CESTAT-DEL] and in the case of Greenwich Meridian Logistics (I) Pvt. Ltd. vs. Commissioner of Service Tax, Mumbai [2016 (43) STR 215 (Tri. Mumbai)]. In the present case also the Department does not have a case that the appellant has not discharged Service Tax on the agency commission received as a Steamer Agent or CHA. The demand is raised on the mark-up made which is the profit out of the difference in value of ocean freight collected by the shipping line and paid by the exporter / client. The Tribunal in the case of Greenwich Meridian Logistics (I) Pvt. Ltd. (supra) held as under:- 13 . The notional surplus earned thereby arises from purchase and sale of space and not by acting for a client who has space o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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