2015 (11) TMI 906 - AT - Service Tax

Custom House Agent services classified as clearing and forwarding for service tax. Appellant successful in appeal.

The Tribunal determined that the services provided by the Custom House Agent (CHA) should be classified as clearing and forwarding services for service ... Valuation - CHA service or C & F Agent service - inclusion of reimbursement of expenses - Held that:- in Circular No.119/13/2009-ST dated 21.12.2009, CBEC had clarified the position. In fact the Trade Note is based on the circulars. In paragraph 3 of the said Circular, it was observed and reported that Board had clarified on 6.6.1997 that service tax would be charged on the service charges only and statutory levy and other reimbursable charges would not be included in the taxable value. The Board also observed that in case where there is lump sum payment towards reimbursible as well as service charges, service tax would be charged on 15% of the gross value only. In the clarification, it was stated that with the introduction of Valuation Rules for service tax, the previous circulars become invalid. The period covered by the orders before us is prior to April 2006. Therefore the guidelines issued by CBEC would be squarely applicable to the facts of this case. Appellant has taken registration as a CHA has been discharging service tax liability on that basis and the activities undertaken by the appellant are the ones which have been taken note of by the CBEC. Even in the case of clearing and forwarding agent also, the Tribunal had taken a view that reimbursement on account of loading and unloading, packing/unpacking, freight, etc., cannot be included (Apco Agencies vs. Commissioner, Calicut as reported in [2008 (1) TMI 71 - CESTAT, BANGALORE]. In the case of Gudwin Logistics vs. CCE, Vadodara: [2011 (12) TMI 262 - CESTAT, AHMEDABAD ], it was clearly held that stand taken by the Revenue that the activities similar to the one under consideration before us amounts to rendering of C & F Agent service is not correct and it was held that the services has to be classified as CHA service only - stand taken by the Revenue that services rendered by the appellant in the capacity of CHA service need reclassification as C & F agent service cannot be sustained - Decided in favour of assessee. Issues:Classification of services provided by a Custom House Agent (CHA) as clearing and forwarding services for service tax purposes.Analysis:The case involved the classification of services provided by a licensed Custom House Agent (CHA) as clearing and forwarding services for service tax liability. The appellant was providing composite services including unloading of goods, transportation, hiring of barges, warehousing, standardization, and dispatch of goods. The issue was whether the services should be categorized as CHA services or clearing and forwarding services. The show-cause notice alleged that the appellant was providing composite services beyond CHA services and demanded service tax of over &8377; 2.56 crores with penalties. The adjudication process determined that the services provided by the appellant should be classified as clearing and forwarding services based on the essential character of the composite service, as per Section 65A(b) of the Finance Act, 1994.The appellant argued that the services provided were solely CHA services, not clearing and forwarding services. They emphasized that the services rendered were within the scope of a CHA and not a C & F agent. The appellant contended that the classification should not be based on the contract or income categories in the balance sheet. They also cited legal precedents to support their position, including the decision that reimbursable expenses should not be included in the valuation of services.The Revenue vehemently argued that the activities undertaken by the appellant constituted clearing and forwarding operations, making them liable for service tax and penalties. They highlighted that the appellant cleared goods from customs, forwarded them to the principal, and had godowns for storing and transporting goods.The Tribunal analyzed the definitions of CHA and Clearing and Forwarding Agent as per the Finance Act, 1994. They referred to circulars issued by the Board clarifying the taxation of CHA services, emphasizing that service tax should be computed only on gross service charges billed to the client. The Tribunal noted that the appellant had paid service tax based on these guidelines and had followed the valuation rules for service tax.The Tribunal reviewed sample contracts provided by the appellant, which showed that the appellant was reimbursed for actual costs and received separate agency commission. They found that the appellant's activities aligned with CHA services as per the CBEC guidelines. Legal precedents were cited to support the position that reimbursement for loading, unloading, and other expenses should not be included in service tax liability.Based on the analysis, the Tribunal concluded that the Revenue's argument to reclassify the services as clearing and forwarding agent services was not sustainable. The appeal was allowed in favor of the appellant, and since the issue on merits was decided in favor of the appellant, the question of imposing penalties did not arise.