2025 (6) TMI 182 - AT - Service Tax

Mail distribution activities don't qualify as taxable mailing services under Section 65(63a) Finance Act 1994

CESTAT Bangalore held that appellant's mail distribution activities did not constitute 'Mailing List Compilation and Mailing Service' under Section ... Taxability - amount received by the appellant towards distribution of mail received from their overseas group company to addressees in India - Mailing List Compilation and Mailing Service or not - service tax on reimbursable expenses received by the appellant during the said period - short payment of duty by the Department in comparison with ST-3 returns for the period 2005-06 and 2006-07 with their balance sheet - extended period of limitation. The amount received towards distribution of mail received from their group company to the addressees in India would fall under the taxable category of ‘Mailing List Compilation and Mailing Service’ as defined under Section 65(63a) of the Finance Act, 1994 for the period from 01.04.2005 to 31.03.2010 - HELD THAT:- On receiving the blank packets in the event a person carries out the activity of addressing, stuffing, metering or mailing for and on behalf of the client, then only it would fall under the scope of Mailing List Compilation and Mailing Service. Thus, mere segregating and delivering documents to the addresses already affixed on the packages cannot be considered to fall within the scope of the ‘Mailing List Compilation and Mailing Service’. The learned Commissioner while confirming the demand under the taxable category of Mailing List Compilation and Mailing Service also reasoned that the services provided by the appellant is a commercial service; hence, would fall within the scope of the said definition being the service rendered to a client, which is in the nature of commercial. However, besides being a commercial activity, the activities should fall under the scope of taxable entry as defined under Section 65(63a) of the Finance Act, 1994. On merit, since the activity carried out by the appellant does not fall within the scope of ‘Mailing List Compilation and Mailing Services’ as defined under Section 65(63a) of the Finance Act, 1994, the demand on this count cannot be sustained. Consequently, the alternate argument advanced by the appellant that the services rendered is an export service becomes academic; hence not delved into. Service tax of Rs. 29,60,509/- is payable on reimbursable expenses for the period 01.04.2005 to 31.03.2010 - HELD THAT:- The issue is covered by the judgment of the Hon’ble Supreme Court in the case of UOI Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. [2018 (3) TMI 357 - SUPREME COURT] wherein the Hon’ble Apex Court observed that Rule 5(1) of the Valuation Rules, 2006 which sought to include reimbursable expenses within the scope of value of taxable service, being contrary to the principle of Section 67 of the Finance Act, 1994 as was existed prior to 2014; hence ultra vires. Thus, demand on this account cannot be sustained. Service tax short-paid amounting to Rs.10,60,195/- is recoverable consequent to the reconciliation of the taxable value shown in the ST-3 returns and their balance sheet for the period 2005-06 and 2006-07 - HELD THAT:- The appellant though said that such demand cannot be sustained without examining the correctness of the figures mentioned in each of the demand; however, furnished the reconciliation statement of the same which has not been considered by the Commissioner. Prima facie, there are merit in the contention of the advocate for the appellant that even though such reconciliation statement has been submitted however not analysed by the Commissioner and the demand was confirmed observing that the appellant had not followed the procedure declaring the taxable value mentioned in the ST-3 returns and balance sheet. Therefore, the said findings without verification of the reconciliation statement cannot be sustained. Invocation of extended period of limitation - HELD THAT:- The appellant has been filing the ST-3 returns specifying all the facts relevant and subjected to audit from time to time. In these circumstances, invocation of extended period of limitation in absence of misdeclaration or suppression of fact cannot be sustained. Conclusion - i) The appellant's activities did not amount to 'Mailing List Compilation and Mailing Service' under Section 65(63a), thereby negating the service tax demand on that count. The demand on reimbursable expenses was also set aside based on binding Supreme Court precedent. ii) The short payment demand was remanded for fresh adjudication with directions to consider reconciliation submitted by the appellant, restricting any demand to the normal limitation period. iii) The penalty and extended period invocation were disallowed due to lack of suppression or fraud. The impugned order is modified and the demands relating to service tax on ‘Mailing List Compilation and Mailing Services’ and reimbursement amount received are set aside. For re-computation of demands relating to reconciliation of the figure shown in ST-3 returns and the balance sheet, the matter is remanded to the adjudicating authority - appeal disposed off by way of remand. The core legal questions considered by the Tribunal are:(i) Whether the amount received by the appellant towards distribution of mail received from their overseas group company to addressees in India falls under the taxable category of 'Mailing List Compilation and Mailing Service' as defined under Section 65(63a) of the Finance Act, 1994 for the period from 01.04.2005 to 31.03.2010;(ii) Whether service tax is payable on reimbursable expenses received by the appellant during the said period;(iii) Whether the short payment of service tax amounting to Rs.10,60,195/- as alleged by the Department, based on reconciliation of ST-3 returns and balance sheet for the years 2005-06 and 2006-07, is recoverable;(iv) Whether the extended period of limitation can be invoked for recovery of service tax demand.Issue-wise Detailed Analysis:1. Applicability of 'Mailing List Compilation and Mailing Service' Taxable CategoryThe relevant legal framework is Section 65(63a) of the Finance Act, 1994, which defines 'Mailing List Compilation and Mailing Service' to mean any service in relation to:(i) Compiling and providing list of name, address and any other information from any source; or(ii) Sending document, information, goods or any other material in a packet, by whatever name called, by addressing, stuffing, sealing, metering or mailing, for or on behalf of the client.The appellant argued that their activity did not satisfy clause (ii) as they merely received already addressed, stuffed, and sealed mail from their overseas parent company and segregated and delivered the same to addressees in India. There was no activity of addressing, stuffing, sealing, metering, or mailing undertaken by them. The appellant contended that mere segregation and delivery of mail does not fall within the scope of the taxable service.The Department contended that the appellant's activities fell squarely within the taxable category as commercial services rendered to a client, and thus liable to service tax.The Tribunal interpreted the definition literally, emphasizing that to qualify under clause (ii), the service provider must perform activities such as addressing, stuffing, sealing, metering, or mailing on behalf of the client. Mere segregation and delivery of mail already prepared by the client does not meet these criteria. The Tribunal noted that the appellant's role was limited to receiving the mail at the port/airport, segregating, and delivering it to the addresses already affixed on the packets, which does not amount to 'Mailing List Compilation and Mailing Service' as defined.The Tribunal rejected the Commissioner's reasoning that the service was commercial and thus taxable, clarifying that commercial nature alone is insufficient without fitting within the statutory definition. Consequently, the demand for service tax on this count was held unsustainable.The Tribunal did not delve into the appellant's alternate argument regarding export of service since the primary demand itself was rejected on merit.2. Levy of Service Tax on Reimbursable ExpensesThe appellant received various reimbursements from RD India towards customs clearance, out-of-pocket expenses, and other charges, which were not included in taxable value. The Department contended that these amounts should attract service tax as they were part of the taxable value.The Tribunal relied on the Supreme Court's ruling in UOI Vs. Intercontinental Consultants and Technocrats Pvt. Ltd., which held that Rule 5(1) of the Service Tax Valuation Rules, 2006, which sought to include reimbursed expenses in taxable value, was ultra vires and contrary to the Finance Act, 1994 as it existed prior to 2014. The Apex Court clarified that reimbursements are not liable to service tax unless the service provider acts as a 'Pure Agent' satisfying conditions under Rule 5(2).Since the appellant was not shown to be a pure agent and the reimbursements were genuine out-of-pocket expenses, the Tribunal held that no service tax was payable on such reimbursements for the period in question. Thus, the demand on this account was set aside.3. Recovery of Alleged Short Payment of Service Tax Based on ST-3 Returns and Balance Sheet ReconciliationThe Department alleged short payment of service tax amounting to Rs.10,60,195/- for 2005-06 and 2006-07, based on discrepancies between ST-3 returns and balance sheet figures. The appellant submitted a detailed reconciliation statement along with challans evidencing payment of service tax on actual income, asserting that the ST-3 returns were prepared manually and did not reflect the true figures.The Commissioner confirmed the demand without considering the reconciliation submitted by the appellant.The Tribunal found merit in the appellant's contention that the reconciliation statement was not analyzed or verified by the Commissioner before confirming the demand. It held that such findings without proper examination cannot be sustained. The matter was remanded to the adjudicating authority for re-computation and verification of the reconciliation, with the direction that any demand arising should be restricted to the normal period of limitation.4. Invocation of Extended Period of LimitationThe Department invoked the extended period of limitation for recovery of service tax, alleging suppression of facts by the appellant.The appellant contended that all facts were disclosed in periodical ST-3 returns, which were subject to audit, and there was no suppression or misdeclaration warranting extended limitation.The Tribunal observed that since the appellant had filed returns specifying relevant facts and was subject to audit, invocation of extended limitation period without evidence of suppression or fraud was not justified. Thus, the extended period was held inapplicable.Significant Holdings:'A literal interpretation of the said expression would make it further clear that to fall under the scope of mailing list compilation and mailing services, mere segregation of the documents at the airport and dispatching / delivering the same to the addressees in India would not come within the scope of the said definition as the service provider in addition to sending the documents on behalf of the client would also be required to do a host of activities like stuffing, sealing etc.''Rule 5(1) of the Valuation Rules, 2006 which sought to include reimbursable expenses within the scope of value of taxable service, being contrary to the principle of Section 67 of the Finance Act, 1994 as was existed prior to 2014; hence ultra vires.''Invocation of extended period of limitation in absence of misdeclaration or suppression of fact cannot be sustained.'The Tribunal conclusively held that the appellant's activities did not amount to 'Mailing List Compilation and Mailing Service' under Section 65(63a), thereby negating the service tax demand on that count. The demand on reimbursable expenses was also set aside based on binding Supreme Court precedent. The short payment demand was remanded for fresh adjudication with directions to consider reconciliation submitted by the appellant, restricting any demand to the normal limitation period. The penalty and extended period invocation were disallowed due to lack of suppression or fraud.