2024 (3) TMI 985 - AT - Service Tax

Manufacturer wins appeal against service tax demand for retaining freight charges in principal-to-principal sales transactions

CESTAT NEW DELHI set aside service tax demand on manufacturer who retained portion of freight charges while arranging transportation for buyers. The ... Levy of service tax - Business Auxiliary Service - arranging the transportation for delivery of goods manufactured by them to their clients/buyers so as to facilitate those buyers, have generated some income by retaining some part of the freight charges as were received from their buyers while making payments to the transporters - HELD THAT:- SCN alleged the said amount to be a consideration for rendering a Business Auxiliary Service. The order under challenge has held the said amount to be a brokerage or commission. This particular perusal is sufficient to hold that Commissioner (Appeals) has gone beyond the scope of show cause notice which is not at all permissible. Confirming a demand on a different count which was not brought to the notice of the assessee/appellant before confirmation of the service tax amounts to confirmation of tax under new categories and the same is not legally permissible as it was held by this Tribunal in the case of M/S BALAJI CONTRACTOR VERSUS COMMISSIONER OF CENTRAL EXCISE JAIPUR-II [2017 (3) TMI 181 - CESTAT NEW DELHI]. Hon’ble Supreme Court also in the case of COMMISSIONER OF CUSTOMS, MUMBAI VERSUS TOYO ENGINEERING INDIA LIMITED [2006 (8) TMI 184 - SUPREME COURT] has held that the department cannot travel beyond the scope of show cause notice. These observations are sufficient to set aside the order under challenge. The buyer of goods manufactured by appellant cannot be held to be the service recipient, he being the party to contract of sale/purchase order. There is no contract between appellant and the transporter. No question of later being the service recipient at all arises. Thus there is no activity of appellant which may be called as Business Auxiliary Service. No question arises of providing Business Auxiliary Service as is alleged in show cause notice by the appellant to the said buyer. The mere activity of sale cannot be called as taxable service. Earning profit in the said arrangement therefore cannot come under the service tax net. Thus, the findings of Commissioner are otherwise not sustainable. The transaction in question is between principal manufacturer to principal buyer. The freight charges are in addition to the value of the goods. The surplus is earned by the appellant by not acting as a service provider to the transporter nor to the buyer. The order under challenge is hereby set aside - Appeal allowed. Issues Involved:The issue involved in this case is whether the appellant's activity of collecting excess amount from buyers for transportation and delivery of goods constitutes Business Auxiliary Activity and is liable for service tax.Summary:Issue 1: Allegation of Business Auxiliary Activity and Service Tax LiabilityThe appellant, engaged in manufacturing various products, was alleged to have collected excess amounts from buyers for transportation and delivery of goods, which the department considered as falling under Business Auxiliary Activity. A Show Cause Notice proposing service tax, interest, and penalties was issued. The Commissioner (Appeals) confirmed the tax liability, leading to the appeal before the Tribunal.Details:- The appellant was accused of arranging transportation for goods delivery, collecting excess freight charges from buyers, and retaining a portion of it.- The Show Cause Notice alleged this activity to be Business Auxiliary Service, leading to the proposed tax liability.- The Commissioner (Appeals) upheld the tax liability, prompting the appellant's appeal to the Tribunal.Issue 2: Scope of Show Cause Notice and Tax LiabilityThe appellant argued that the tax liability was confirmed on grounds different from those in the Show Cause Notice, which exceeded the notice's scope. Citing relevant legal decisions, the appellant contended that the tax confirmation was beyond the permissible scope.Details:- The appellant claimed that the tax liability was confirmed on different grounds not mentioned in the Show Cause Notice.- Legal decisions were cited to support the argument that confirming tax under new categories not informed in the notice is impermissible.Issue 3: Interpretation of Service Tax LiabilityThe Tribunal analyzed whether the appellant's collection of excess freight charges constituted a taxable service, considering the definition of 'service' under the Finance Act. The Tribunal concluded that the activity did not fall under Business Auxiliary Service and set aside the order confirming tax liability.Details:- The Tribunal examined the definition of 'service' under the Finance Act to determine tax liability.- It was concluded that the appellant's activity did not meet the criteria for Business Auxiliary Service, as alleged in the Show Cause Notice.- Legal precedents were cited to support the decision to set aside the tax liability confirmation.Conclusion:The Tribunal set aside the order confirming the tax liability, ruling in favor of the appellant. The appeal was allowed, and the order was pronounced in the open court on 20.03.2024.