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TMI Blog2025 (2) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... s Technocrats Pvt Ltd v UOI, [ 2012 (12) TMI 150 - DELHI HIGH COURT] , wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was struck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections - the findings and confirmation of demand under the nomenclature reimbursable expenses as made in the impugned order in original cannot sustain. Levy of service tax with respect to freight/rebate/brokerage/operational surplus as CHA service - HELD THAT:- The learned adjudicating authority has rendered a specific finding in the OIO that rebate and brokerage amount received by the appellants are not liable under CHA service. However, that does not translate into a sanction for the learned adjudicating authority to unilaterally confirm the demand on these services under business auxiliary service for the aforementioned period, without putting the appellants to notice about the adjudicating authority s said intention to do so - in any event, the finding of the adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd other services. During the course of verification of their records by the jurisdictional service tax Commissionerate officers, it was noticed that the Appellant did not discharge service tax on the entire service receipts/income accounted in their profit and loss account. Show cause notices with proposals for demand of service tax for the period 2006-07 and 2007-08 were issued which were replied to by the appellants stating that they acted as pure agent of the recipients of their service and have billed the clients only at actuals on the reimbursable expenditure which came to be adjudicated after due process of law and aggrieved by the said decision, the appellants had preferred an appeal which was then remanded for denovo adjudication in the light of Board's' Circular No.119/13/2009-ST dated 21.12.09. While the matter was pending denovo adjudication, three further periodical notices were issued and thus, in the present proceedings, five show cause notices were adjudicated by the impugned order in original. The appellants in their reply contended that they are discharging service tax on the taxable value of CHA services rendered to their clients and have not rendered any service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arging service tax on the service charges received for CHA activity and have also discharged service tax on the IATA commission received from the airline. It is submitted that as regards the demand under reimbursable expenses under CHA services, the expenses incurred like EDI charges, tourist taxi charges, inspection agency charges, courier charges etc., are reimbursed by the customers. The operational surplus is nothing but the expenses which the appellants incur on behalf of their clients which are reimbursable in nature. Since the actual quantum of expenses cannot be determined in advance, the appellants collect an adhoc amount which would be approximate to the expenses likely to be incurred on that account and it is nothing but surplus income generated and is not related to the services provided by the appellant as CHA. It is submitted that the OIO confirms levy of service tax on service charges exempted which is nothing but the amount received by the appellants from the main CHA on sub-contracting work done by the appellants and include transactions between the branches of the appellants. It is submitted that these amounts are not a consideration and levy of service tax under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of purchase of cargo slot is on principal-to-principal basis. The learned counsel submits that this activity undertaken by the appellants, is not subject to levy of service tax as it is nothing but a discount or freight margin, that is, difference between price at which the cargo space is booked with the airline and the price at which the appellants offer it to the customers. The activity is nothing but selling of cargo space and the brokerage/freight rebate/incentives is a profit earned on the freight booking and cannot be taxed as business auxiliary service. The learned counsel submits that the appellants are not the agent of the airline and is not promoting the services of the airline and the airline is not the client of the appellants. 5. The learned counsel further submits that the Department had issued SCNs for the prior period on the same issue with respect to reimbursable expenses and demand of service tax on freight/brokerage/incentive and this Tribunal vide Final Order No.40974- 40979/2023 dated 01.11.2023 had set aside the demand and allowed the appeals. The learned counsel also placed reliance on the following decisions where it has been held that brokerage and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on these as CHA service. The learned counsel submits that para 7 of the OIO finds that rebate and brokerage amount received by the appellants are not liable under CHA service whereas the said amount is liable to be charged under service tax under respective service depending on the nature of service and definition given under Finance Act. It is the submission of the learned counsel that therefore the confirmation of demand of service tax on rebate and brokerage under Business Auxiliary Service for the period 2006-07, 2007-08 and 2008-09 is liable to be set aside as it travels beyond the proposals in the SCN. The learned counsel places reliance on the decisions in SACI Allied Products Ltd v CCE, (2005) 183 ELT 225, United Telecoms Ltd 22 STR 571 and Inox Leisure Ltd v CST (2022) 60 GSTL 326 affirmed by the Hon'ble Supreme Court in (2022) 61 GSTL 342 (SC) and Final Order No.40558/2024 dated 29.05.2024 in M/s. New Era Travel & Cargo Agencies v The Commissioner of GST & Central Excise for the aforesaid proposition. 8. The learned counsel submits that without prejudice to the foregoing, the OIO at para 6.5 observes that the demand has been made based on P & L account with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d A.R. in the written submissions that the present dispute involved is from 2006 to 2011 and prior to the Hon'ble High Court, New Delhi Judgement and therefore the judgement of the Honble Tribunal, Chennai is squarely applicable. The learned A.R. submits that the appeal be dismissed. 11. We have heard both sides, perused the appeal records and the case laws cited by the appellants. 12. We find that the adjudicating authority has in the impugned order in original placed reliance on Rule 5(1) and Rule 5(2) of the Service Tax Valuation Rules,2006 read with Board's Circular dated 21.12.2009 to determine when the reimbursable charges are eligible for exclusion and thereby in confirming the demands in so far as the reimbursable expenses are concerned. We find that the issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd, 2018 (10) GSTL 401 (SC) which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client, apart from the consideration received for rendering the services on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of taxable service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited [(2015) 1 SCC 1] 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-a- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed A.R in the written submissions that the decisions of this Tribunal relied upon is squarely applicable in the present case since the period involved is from 2006 to 2009 and prior to the decision of the Delhi High Court. As observed supra, the decision of the Delhi High Court in the Intercontinental Consultants & Technocrats case was subsequently affirmed by the Honourable Supreme Court. We do not appreciate the said contention of the learned A.R. since it militates against the principles of judicial discipline that mandate adherence to the decisions of higher judicial forums. 14. It is seen that the issue of operational surplus and freight and brokerage had also come up in the appellant's own case and this Tribunal in its decision in Final Order No.40974-40979/2023 dated 01.11.2023 in the case of M/s. International Clearing & Shipping Agency v CST, held in favour of the appellant and the relevant portions of the paras therein are reproduced below: " 7.1.1. .......... The Department is of the view that since these amounts are over and above the expenses incurred, the appellant has to pay service tax and cannot be considered as reimbursable expenses. We are not able to agree wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices. In the case of Commissioner of Service Tax, New Delhi Vs. Karam Freight Movers [2017(4) GSTL 215 (Tri-Del)], the Tribunal observed that the mark-up value collected by the assesse from the exporter is an element of profit in the transaction. The said amount is not a commission earned by the assesse and is not while acting as an agent of the exporter or shipping line and cannot be considered as a consideration. The assesse 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 assesse 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in (2022) 61 GSTL 342 (SC) and Final Order No.40558/2024 dated 29.05.2024 in M/s. New Era Travel & Cargo Agencies v The Commissioner of GST & Central Excise, relied upon by the learned counsel for the appellant support the proposition that Revenue cannot sustain a demand under a ground not raised in the SCN and such confirmation of demand on a category of service different from that proposed in the SCN would tantamount to travelling beyond the show cause notice. Thus, we hold that in any event, the finding of the adjudicating authority that rebate and brokerage received by the appellants are liable to be taxed under Business Auxiliary Service for the period 2006-07, 2007-08 and 2008-09, and the consequent confirmation of demand, is liable to be set aside as such a finding travel beyond the proposals in the SCN. 18. We also find substance in the appellants' contention that neither the SCN nor the impugned Order in Original has stated under which limb of Business Auxiliary Services would the appellants' activity stand covered as an activity liable to service tax under Business Auxiliary Service so as to confirm the demand of service tax made on the appellant under this cat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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