2017 (7) TMI 341 - AT - Service Tax

Tribunal rules in favor of courier service provider in tax dispute, clarifies scope of business auxiliary service

DHL Express (India) Pvt Ltd Versus Commissioner of Service Tax, Mumbai – I

The Tribunal allowed the appeals, ruling in favor of the appellant courier service provider. It held that the income credited as 'airline incentive-AE' ... Business Auxiliary services - commission received for ‘promoting or marketing the service of a client’ - Held that: - the consideration received from a recipient of service for the services rendered by the provider alone is taxable - a demand for alleged short-paid tax must be based on a finding that a specific taxable service has been provided, as agreed to be provided and on the consideration that was paid or payable by the recipient of that service to the provider of the service - appeal allowed - decided in favor of appellant. Issues:- Taxability of income credited as 'airline incentive-AE' under business auxiliary service- Interpretation of taxable service under Section 65(105) of Finance Act, 1994- Application of principles from previous Tribunal decisions- Distinction between principal-to-principal transactions and agency functions in freight chargesTaxability of Income:The judgment revolves around the taxability of income credited as 'airline incentive-AE' under the category of business auxiliary service. The appellant, a courier service provider, contested a demand of &8377; 65,81,845, arguing that the income was not related to business auxiliary service. The adjudicating authority held that the income falls under the definition of business auxiliary service as per section 65(105)(zzb) of the Finance Act, 1994, specifically related to promoting or marketing a client's service. The appellant's claim was based on the argument that they did not render services to airline operators but received services from them for their customers.Interpretation of Taxable Service:The judgment delves into the interpretation of the taxable service as defined in Section 65(105) of the Finance Act, 1994. It emphasizes that the provision of service is determined by the service provider performing an activity for which consideration is received from the recipient. The order highlighted the absence of a finding on these aspects in the impugned order, indicating a lack of clarity on the nature of the service provided and the consideration received.Application of Tribunal Precedents:The judgment references a previous Tribunal decision involving Greenwich Meridian Logistics (India) Pvt Ltd, where it was held that certain income could not be associated with business auxiliary service. The Tribunal's decision in the current case aligns with the reasoning adopted in the earlier case, emphasizing that tax liability should be based on a specific taxable service provided and the consideration paid by the recipient to the service provider.Distinction in Freight Charges Transactions:The judgment further explores the distinction between principal-to-principal transactions and agency functions in freight charges. It clarifies that the appellant's activities, such as contracting for space on vessels and ensuring safe delivery, constitute principal-to-principal transactions rather than agency functions. The freight charges paid to the shipping line and collected from client-shippers are deemed as independent transactions, emphasizing the nature of the contractual relationships involved.In conclusion, the Tribunal allowed the appeals, emphasizing that the consideration received for services rendered by the provider alone is taxable. The judgment highlights the importance of establishing a specific taxable service provided and the consideration paid by the recipient to determine tax liability accurately.