2025 (6) TMI 186 - AT - Service Tax

Service tax on transit insurance, transport, weighbridge and delayed payment charges rejected; penalties and extended limitation set aside.

The tribunal held that amounts collected as transit insurance cannot be subjected twice--once by inclusion in assessable value for central excise and ... Invocation of extended period of limitation - insurance income - business auxiliary services or not - Income from Transportation - Income from weigh bridge - Amounts received on account of delayed payments - penalties. Insurance income - business auxiliary services or not - HELD THAT:- The same amount collected by the appellant (as representing transit insurance) cannot be charged to central excise duty by including this amount in the assessable value and again be treated as a service to charge service tax on it. The demand of service tax on this amount cannot be sustained. Income from Transportation - HELD THAT:- The same activity of transportation cannot be treated as GTA service to charge service tax under reverse charge and also as BAS to charge service tax on forward charge basis. Since the appellant had paid service tax under reverse charge under GTA, no service tax on transportation can be charged treating it as BAS (upto 1.7.2012) and as service (after 1.7.2012). The demand on this count cannot be sustained. Income from weigh bridge - HELD THAT:- The learned counsel for the appellant agreed upon that providing a weigh bridge does not amount to providing Business support service as held in Shivam Marine [2024 (10) TMI 1258 - CESTAT AHMEDABAD]. The demand on this count cannot be sustained. Amounts received on account of delayed payments - HELD THAT:- After 1.7.2012, certain services were named ‘Declared Services’ under section 66E of the Finance Act. These are certainly to be treated as taxable services and service tax has to be collected. Clause (e) of this section includes ‘an agreement to refrain from an act or to tolerate an act’. It has been held by this Tribunal in a catena of orders that this clause would apply only if there is an agreement to tolerate an act, i.e., if the purpose of the agreement was to tolerate an act. If the purpose of the agreement is not tolerate an act but any amount is paid as compensation for default (such as delayed payments in this case), such amounts cannot be called as amounts collected to tolerate an act under section 66E (e) of the Finance Act. Therefore, the demand on this count also cannot be sustained. Penalties - HELD THAT:- The entire demand of service tax in the OIO upheld by the impugned order deserves to be set aside. Consequently, the demand of service tax and the imposition of penalties also need to be set aside. Conclusion - i) The demand of service tax on insurance income was not sustainable. ii) The demand of service tax on transportation income was unsustainable. iii) The service tax demand on weigh bridge income was not sustainable. iv) The demand of service tax on delayed payment charges was unsustainable. v) The extended period of limitation and penalties imposed were set aside along with the service tax demand. The impugned order is set aside - Appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were:Whether the amount received by the appellant as 'insurance income'-the difference between insurance premiums collected from buyers and premiums paid to insurance companies-constitutes a taxable service under the category of Business Auxiliary Service (BAS) or any other service under the Finance Act, 1994;Whether the transportation charges collected by the appellant, who engaged a Goods Transport Agency (GTA) for actual transportation and paid service tax under reverse charge on GTA services, can be additionally taxed as BAS or any other service;Whether the amounts collected for providing weigh bridge services fall under the taxable category of Business Support Service;Whether amounts received on account of delayed payments by buyers constitute a declared service under section 66E(e) of the Finance Act, attracting service tax liability;Whether the extended period of limitation under the proviso to section 73(1) of the Finance Act was rightly invoked for demand of service tax along with interest and penalties under sections 75, 77, and 78 of the Finance Act.2. ISSUE-WISE DETAILED ANALYSISInsurance IncomeRelevant legal framework and precedents: The Finance Act, 1994, particularly provisions relating to Business Auxiliary Services (BAS) and the negative list regime effective from 1.7.2012, were considered. The appellant's contention involved the principle against double taxation, specifically that the amount collected as insurance premium was already included in the assessable value for Central Excise duty and thus cannot be taxed again as a service.Court's interpretation and reasoning: The Tribunal observed that the appellant collected charges from buyers for transit insurance and paid a lesser premium to insurance companies, recording the difference as 'insurance income'. The Revenue classified this as BAS prior to 1.7.2012 and as a taxable service thereafter. The appellant argued that this difference was merely profit and not a service, and that taxing it again would amount to double taxation since Central Excise duty was paid on the total amount including insurance charges.Key evidence and findings: The appellant's audited balance sheets showed income from insurance and the amounts collected. The appellant's evidence that Central Excise duty was paid on the entire amount including insurance charges was not disputed.Application of law to facts: The Tribunal held that the same amount included in the assessable value for Central Excise duty cannot be subjected to service tax again. This principle against double taxation was decisive.Treatment of competing arguments: The Revenue's argument that the amount falls under BAS or taxable service was rejected in view of the double taxation principle and the nature of the amount as profit rather than a service fee.Conclusion: The demand of service tax on insurance income was not sustainable.Income from TransportationRelevant legal framework and precedents: The Finance Act's provisions relating to Business Auxiliary Services and Goods Transport Agency (GTA) services, including reverse charge mechanisms, were examined.Court's interpretation and reasoning: The appellant charged customers for transportation but outsourced the actual transportation to a GTA, on whose services the appellant paid service tax under reverse charge. The Revenue sought to tax the transportation charges again as BAS or other taxable service.Key evidence and findings: The appellant's payment of service tax under reverse charge on GTA services was documented and undisputed.Application of law to facts: The Tribunal reasoned that the same transportation activity cannot be taxed twice: once under reverse charge on GTA services and again as BAS or other service on forward charges. This would amount to double taxation.Treatment of competing arguments: The Revenue's contention to impose service tax on transportation charges in addition to reverse charge tax was rejected.Conclusion: The demand of service tax on transportation income was unsustainable.Income from Weigh BridgeRelevant legal framework and precedents: The Tribunal referred to a precedent where providing weigh bridge services was held not to constitute a Business Support Service.Court's interpretation and reasoning: The appellant collected charges for weigh bridge services. The Revenue sought to tax these under BAS.Key evidence and findings: The Tribunal relied on the precedent that weigh bridge provision does not amount to BAS.Application of law to facts: Applying the precedent, the Tribunal concluded that weigh bridge services are not taxable as BAS.Treatment of competing arguments: The Revenue's demand was rejected based on binding precedent.Conclusion: The service tax demand on weigh bridge income was not sustainable.Amounts Received on Account of Delayed PaymentsRelevant legal framework and precedents: Section 66E(e) of the Finance Act defines 'Declared Services' including 'an agreement to refrain from an act or to tolerate an act'. The Tribunal's earlier decisions interpreted this clause narrowly.Court's interpretation and reasoning: The Revenue contended that amounts received for delayed payments fall under declared services attracting service tax. The appellant argued these amounts were compensation or interest for delay, not consideration for tolerating an act.Key evidence and findings: The amounts received were identified as charges for delayed payments, not as payments to tolerate any act.Application of law to facts: The Tribunal held that the declared service under section 66E(e) applies only when the agreement's purpose is to tolerate an act. Compensation for default or delay does not fall within this category.Treatment of competing arguments: The Revenue's broad interpretation was rejected in favor of a purposive and restrictive construction of section 66E(e).Conclusion: The demand of service tax on delayed payment charges was unsustainable.Invocation of Extended Period of Limitation and PenaltiesRelevant legal framework: Proviso to section 73(1) of the Finance Act allows extended period of limitation in cases of fraud or willful misstatement. Sections 75, 77, and 78 deal with interest and penalties.Court's interpretation and reasoning: Since the demand of service tax itself was unsustainable on all counts, the foundation for invoking extended limitation and imposing penalties was absent.Conclusion: The extended period of limitation and penalties imposed were set aside along with the service tax demand.3. SIGNIFICANT HOLDINGS'We agree with the learned counsel for the appellant that the same amount collected by the appellant (as representing transit insurance) cannot be charged to central excise duty by including this amount in the assessable value and again be treated as a service to charge service tax on it. The demand of service tax on this amount cannot be sustained.''We agree with the learned counsel that the same activity of transportation cannot be treated as GTA service to charge service tax under reverse charge and also as BAS to charge service tax on forward charge basis.''We agree with the learned counsel for the appellant that providing a weigh bridge does not amount to providing Business support service as held in Shivam Marine.''Clause (e) of section 66E would apply only if there is an agreement to tolerate an act. If the purpose of the agreement is not to tolerate an act but any amount is paid as compensation for default (such as delayed payments in this case), such amounts cannot be called as amounts collected to tolerate an act under section 66E (e) of the Finance Act.'Core principles established include the prohibition of double taxation by not taxing the same amount under Central Excise and Service Tax, the exclusivity of reverse charge mechanism for GTA services preventing double levy, the non-taxability of weigh bridge services as BAS, and the narrow interpretation of declared services under section 66E(e) to exclude compensation for delayed payments.Final determinations on each issue were that the service tax demands and penalties were unsustainable and were set aside, allowing the appellant's appeal in entirety.