2022 (8) TMI 1255 - AT - Service Tax

Interpretation of Tax Law on Service Charges Excludes Additional Payment

C.C.E. & S.T. -Surat-II Versus Essar Bulk Terminal Limited

The Tribunal interpreted Section 67 of the Finance Act, 1994 in a case concerning the inclusion of 'facility charges' in taxable services provided. It ... Valuation - cargo handling and port services - inclusion of facility charges in the assessable value - presumption of the Revenue is that the respondent have not recovered facility charges from M/s ESTIL whereas they recovered said charges in case of other customers - when facility charges charged by the respondent from other customers but not from M/s ESTIL, the same is included in gross value of service provided by them to M/s ESTIL or not? - time limitation - suppression of facts or not - HELD THAT:- On the plain reading of Section 67 of the Finance Act, 1994, it is clear that only the actual consideration for the services provided by the service provider to the service recipient shall alone be chargeable to service tax unless there is any extra consideration flowing from service recipient to the service provider. In the present case, neither it is a case of extra consideration flowing from the service recipient to the service provider nor there is any proof of such extra consideration, therefore the gross amount charged by respondent to M/s ESTIL being sole consideration will alone be liable to Service tax and no any other notional amount will be added on assumption and presumption basis. It is found from the agreement entered into between Respondent and M/s ESTIL that it was evident that the charges for cargo handling and port services were negotiated rates, on the understanding that 25 million MT of cargo would be handled from 2012-13 onwards and that there would be a 3% escalation on the agreed base rate. The agreement inter alia envisaged that M/s EBTIL would maintain a minimum of 10-meter draft, in the channel leading to the bulk terminal and that if that draft was increased from 10 to 12 meters it would be entitled to a fee escalation of Rs. 21/per MT in respect of the raw materials handled by the respondent - there are no force in the department’s contention that respondent has not included the value of “facility charges” in the related taxable service charges. Time Limitation - suppression of facts or not - HELD THAT:- The respondent have correctly made full and true disclosure of the value consideration of the service provided by them. There is no column in the ST-3 return form to declare any notional value which is not the part of the consideration. The contract was submitted to the department from time to time which contains all terms and condition of service provided by the respondent to the service recipient M/s ESTIL. Therefore there is absolutely no suppression of fact on the part of the respondent - the demand proposed in the show cause notice is not sustainable on limitation also. Appeal dismissed - decided against appellant. Issues:- Interpretation of Section 67 of the Finance Act, 1994 regarding the inclusion of 'facility charges' in the value of taxable services provided by the respondent to M/s ESTIL.- Whether the demand for service tax is sustainable based on the grounds of revenue neutrality and limitation.Analysis:Issue 1: Interpretation of Section 67 of the Finance Act, 1994The case involved a dispute regarding the inclusion of 'facility charges' in the value of taxable services provided by the respondent to M/s ESTIL. The Revenue contended that the 'facility charges' were not included in the uniform rate agreed between the parties, leading to short payment of service tax. The Revenue argued that Section 67 of the Finance Act, 1994 mandates the assessment of service tax based on the value of taxable services provided. However, the respondent argued that the charges for cargo handling and port services were part of a negotiated rate, which already accounted for the 'facility charges.' The Tribunal held that unless there is extra consideration flowing from the service recipient to the service provider, only the actual consideration for the services provided should be chargeable to service tax. The Tribunal relied on previous decisions to support its interpretation of Section 67 and concluded that the impugned order dropping the demand for service tax was sustainable on merit.Issue 2: Revenue Neutrality and LimitationThe respondent raised additional grounds in their cross-objection, arguing that the demand for service tax was not sustainable due to revenue neutrality and limitation. They contended that M/s ESTIL, being a group company, was entitled to credit for the service tax paid, making the matter revenue neutral. Additionally, they argued that the demand was time-barred as all relevant facts were known to the department through audits and submissions of agreements. The Tribunal found that the respondent had made full and true disclosures in their statutory returns and there was no suppression of facts regarding the service charges. Therefore, the demand for service tax was deemed not sustainable on limitation grounds as well. The Tribunal dismissed the appeals filed by the Revenue based on these findings.In conclusion, the Tribunal upheld the impugned order, finding no infirmity in the decision. The appeals by the Revenue were dismissed, and the cross-objection was disposed of accordingly.