2022 (2) TMI 455 - AT - Service Tax

Tribunal allows appeal, sets aside service tax demand on ocean freight, container charges, toll taxes

M/s. TIGER LOGISTICS (INDIA) LTD. Versus Commissioner of Service Tax-II, Delhi

The tribunal partially allowed the appeal, setting aside the demand for service tax on markup on ocean freight, container detention charges, and toll ... Levy of service tax - markup/differential of ocean freight - detention charges - toll tax - demand beyond the period of five years from the date of SCN - period October 2009 to March 2010 - time limitation - penalties - HELD THAT:- If a service is not rendered at all, no service tax can be levied regardless of the fact that an amount has been received. Similarly, if the service so rendered does not squarely fall within the definition of ‘taxable service‘ under section 65 (105), no service tax can be levied. Even if it is doubtful whether the service is taxable or not, the benefit of doubt in respect of the charging section goes in favour of the assessee and against the revenue. The third important element is the consideration for the service. Any amount received must be for the service and it cannot be for some other purpose. For instance, if any amount is received towards any compensation, such amount cannot be taxed. Differential in ocean freight - HELD THAT:- The appellant buys space on ships from the Shipping Line and the Shipping Line issues a Master Bill of Lading in favour of the appellant. In turn, it sells the space to its customers and issues a House Bill of Lading to each of them. The first leg is the contract between the Shipping line and the appellant. The second leg is the contract between the appellant and its customers - In the appellant‘s case, if the space on the ships which it bought cannot be sold to its customers fully, or due to market conditions, or is compelled to sell at lower than purchase price, the appellant incurs loss. In a contrary situation, it gains profits. This activity is a business in itself on account of the appellant and cannot be called a service at all. Neither can the profit earned from such business be termed consideration for service - the appellant is not liable to pay service tax. Container detention charges - HELD THAT:- There is a difference between ‘consideration under the contract‘ which is what each party to the contract does in return to the other party doing its part of the contract and ‘compensation under the contract‘ which is a penalty for breach of contract by either frustrating the contract through non-performance or by not performing as per the conditions in it. This compensation can take the form of unliquidated damages where the court awards the compensation or liquidated damages where the compensation for breach of contract or its conditions is pre-decided and incorporated in it. The liquidated damages are not the purpose of the contract but are in terrorem to provide a strong incentive against breaching its conditions - the demand of service tax on container detention charges is unsustainable and is liable to be set aside. Issuance of SCN, once duty on the taxable services is paid in terms of Section 73(3) of the Act - waiver of penalties invoking section 80 - demand for the period beyond the normal period, invoking extended period of limitation - Whether the elements of (a) fraud or (b) collusion or (c) willful misstatement or (d) suppression of facts or (e) contravention of act or rules made thereunder with intent to evade payment of duty are present in this case? - HELD THAT:- If the elements of (a) fraud or (b) collusion or (c) willful misstatement or (d) suppression of facts or (e) contravention of act or rules made thereunder with intent to evade payment of duty, are found, then the penalty under section 78 must be sustained and the appellant will be covered under section 73(4) and will not be covered under section 73 (3) which states if the service tax is paid along with the interest no SCN should be issued. The appellant will also not be eligible to be considered for waiver of penalties under Section 80. The findings of the Commissioner in the impugned order regarding the presence of any of the elements necessary for invoking extended period of limitation, holding that Section 73(3) would not apply and imposing penalty under Section 78 are contained in paragraphs 167 and 174 of the impugned order. Since in their ST-3 returns the appellants have not disclosed the service tax leviable on the disputed amounts and these came to light during the investigation from the data provided by the appellant, the Commissioner concluded that there was suppression of facts by the appellant. The only allegation of these elements held against the appellant in the impugned order is that of ‘suppression of facts‘ and the reason for this is that they have not disclosed the full value of the taxable services in their ST-3 returns. It is also accepted in the impugned order that these services were all duly recorded by the appellant. It is now well established legal principle that ‘suppression of facts‘ is not mere omission. It must be a deliberate act with mens rea to suppress and thereby evade. The facts brought out in the impugned order do not demonstrate the mens rea - Insofar as the appellant did not dispute the demands of service tax, it paid the same along with interest even before the SCN was issued. In our considered view, this case is covered squarely by section 73(3) and no SCN should have been issued to that extent. The appellant, having paid the service tax on those services which it rendered even before the SCN was issued and having argued that no SCN should have been issued to it as per Section 73(3), now in the synopsis submitted before us, has sought refund of the service tax paid. This prayer cannot be accepted for more than one reason. Once it is held that section 73(3) applies and no SCN should have been issued demanding the service tax, the basis for forming such a view, viz., payment of service tax with interest cannot now be reversed. Secondly, if service tax is payable, the charge of tax continues to exist. In this case, once the service tax, admittedly due, has been paid, albeit late and on that basis we have accepted the plea of the appellant that section 73(3) applies and no SCN should have been issued at all, the appellant cannot claim refund of the service tax paid. This would also apply to any service tax paid beyond the period of five years - the appellant had, through its conduct during the investigation by providing all the information and paying the service tax with interest to the extent it had not disputed, has made out a case for seeking waiver of penalty invoking section 80. The penalty imposed under section 77(1) and 77(2) on the Act is set aside. The appeal is partly allowed. Issues Involved:1. Service tax on markup/differential of ocean freight, detention charges, and toll tax.2. Demand beyond the period of five years from the date of SCN.3. Penalties under Sections 77 and 78.Detailed Analysis:1. Service Tax on Markup/Differential of Ocean Freight:The appellant, a multi-modal goods transporter, booked cargo space on ships and resold it to customers. The differential between the purchase and sale price of this space was demanded as service tax under the category of Business Support Service (BSS) up to 30.6.2012 and under section 66B read with section 66D from 1.7.2012. The tribunal observed that this activity is a business in itself and cannot be called a service. The profit earned from such business cannot be termed consideration for service. The tribunal followed precedents set by various benches, concluding that no service tax is leviable on this amount.2. Service Tax on Container Detention Charges and Toll Tax:The tribunal noted that container detention charges are penal rents charged by the shipping lines for containers held beyond the free period, and toll tax is a reimbursement from customers. Both these charges do not constitute a service element. The tribunal referred to CBEC Circular No. 121/2/2020-ST and the South Eastern Coalfields case, which clarified that such charges are not exigible to service tax. Thus, the demand of service tax on these charges was set aside.3. Invocation of Extended Period of Limitation:The tribunal examined whether the elements of fraud, collusion, willful misstatement, suppression of facts, or contravention of any provisions with intent to evade payment of duty were present. The Commissioner had concluded that there was suppression of facts because the appellant did not disclose the full value of taxable services in their ST-3 returns. However, the tribunal found that mere omission does not constitute suppression with intent to evade payment of duty. The appellant had recorded all transactions and provided full facts during the investigation. Therefore, the tribunal held that the extended period of limitation was not applicable, and the case was covered by section 73(3), meaning no SCN should have been issued.4. Demand for the Period October 2009 to March 2010 Beyond the Extended Period of Limitation:The tribunal noted that even in cases of fraud or suppression, demands can only be raised within five years. Therefore, the demand for this period was set aside.5. Penalties Under Sections 77 & 78:The tribunal found that the appellant had paid the service tax along with interest before the SCN was issued, which should have prevented the issuance of the SCN under section 73(3). The tribunal also noted that the suppression of facts was not proved, and the appellant had made out a case for waiver of penalties under section 80. Consequently, penalties under sections 77(1) and 77(2) were set aside.6. Prayer for Refund of Service Tax Paid:The tribunal rejected the appellant's prayer for a refund of the service tax already paid, stating that once the service tax is paid, the charge of tax continues to exist, and the limitation period only affects the remedy available to the Revenue, not the underlying liability.Conclusion:The tribunal allowed the appeal in part, setting aside the demand of service tax on markup on ocean freight, container detention charges, and toll taxes. It accepted the appellant's plea that the service tax paid along with interest was covered by section 73(3) and invalidated the SCN to that extent. Penalties under sections 77 and 78 were set aside, but the plea for a refund of the service tax already paid was rejected. The impugned order was modified accordingly.