2025 (7) TMI 71 - AT - Service Tax

Delivery charges collected by manufacturer not liable to service tax as they form part of sale price subject to VAT

CESTAT Kolkata held that delivery charges collected by appellant during April 2007-March 2012 were not liable to service tax as they formed part of sale ... Levy of service tax - delivery charges collected by the appellant - period from April 2007 to March 2012 - Cargo Handling Agency service - Extended period of limitation. Levy of service tax - delivery charges collected by the appellant - period from April 2007 to March 2012 - HELD THAT:- In a transaction of sale of goods, where the cost of transportation for delivery of the goods to the customer formed part of the sale price attracting central sales tax/VAT, the said transaction cannot be subjected to levy of service tax, by treating any part of the sale price as consideration for rendering any service. It is a settled position of law that the levy of service tax and sales tax/VAT are mutually exclusive. Thus, the submission of the appellant that no service tax was payable on the 'delivery charges' collected by the appellant as VAT was paid on the said 'delivery charges' agreed upon. In the instant case, it is found that the delivery of the liquid gas at the customers’ premises was in terms of the contracts for sale which stipulated such delivery of the goods to the customer's premises. Thus, the delivery of liquid gas to the customers was integral to the contracts for sale and collection and delivery charges, though separately mentioned in the invoices, formed part of the consideration for sale of the goods and formed part of the sale price for the purpose of payment of sales tax/VAT, which the appellant duly discharged. It is also observed that that the agreements entered into by the appellant with their customers with regard to liquid gas stipulated that the appellant shall supply the goods into the storage tank installed at the customers’ premises and the quantity delivered shall be measured and recorded on the delivery note. It is not in dispute that the central excise invoices were issued after the liquid gas was delivered at the customers’ premises for the quantity actually delivered - the goods under transportation remained the appellant’s property and there was no transfer of property in the goods to the customers till such time as the same were delivered to the customers in their storage tank. Therefore, the transfer of property to the customers was indeed only in respect of the quantity delivered as per measurement recorded at their premises. Cargo Handling Agency service - HELD THAT:- The appellant were not a 'Cargo Handling Agency' and did not render any cargo handling service. Section 65(105)(zr) provides for taxation of service provided by a cargo handling agency in relation cargo handling services, which has been defined in section 65(23). The appellant have stressed that they are a manufacturer of gases and not a cargo handling agency. It is clear that the manufactured gas when despatched from the appellant’s factory for delivery and sale to its customers is not “freight” or “cargo” in the hands of a “cargo handling agency”. Thus, the role of the appellant is only that of a manufacturer, delivering and selling its goods to its customers for the agreed sale price, in terms of the contracts for sale. Extended period of limitation - HELD THAT:- The invocation of the extended period of limitation is not justified. In this case, the conditions precedent for the invocation of the extended period of limitation do not exist. In the instant case, the appellant had a bona fide belief that the collection and delivery charges formed part of sale price of the gas on which it had paid sales tax/VAT and were not chargeable to service tax. It is well settled that the extended period of limitation cannot be invoked when an assessee has acted on the basis of its bona fide belief as regards the legal position. Hence, the Show Cause-Cum-Demand Notice dated October 19, 2012 is clearly barred by limitation for the period up to March, 2011. The demand of service tax confirmed, along with interest, in the impugned order is not sustainable. Since the demand itself is not sustainable, the question of imposing penalty does not arise. The impugned order is set aside - appeal allowed. 1. ISSUES PRESENTED and CONSIDERED- Whether the collection and delivery charges levied by the appellant on customers for transportation of gases constitute consideration for cargo handling services liable to service tax or form part of the sale price of goods attracting sales tax/VAT exclusively.- Whether the appellant qualifies as a 'Cargo Handling Agency' under the relevant statutory provisions for service tax liability.- Whether service tax can be levied on charges that have already been subjected to sales tax/VAT, considering the principle of mutual exclusivity of these levies.- Whether the extended period of limitation for recovery of service tax can be invoked against the appellant on the ground of wilful suppression and intent to evade tax.- Whether penalties under Sections 77 and 78 of the Finance Act, 1994 are justified in the facts and circumstances of the case.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Nature of Collection and Delivery Charges - Service Taxable Service or Part of Sale PriceRs.Legal Framework and Precedents: The dispute centers on whether the collection and delivery charges are consideration for cargo handling services liable to service tax or part of the sale price of goods subject to sales tax/VAT. The Supreme Court's decisions in Commissioner v. Roofit Industries Ltd. and Commissioner v. Emco Ltd. held that where sale is effected upon delivery at the buyer's premises, transportation cost up to that point forms part of the assessable value for central excise duty, implying integration of delivery charges with sale price. Conversely, Commissioner v. Ispat Industries Ltd. distinguished these rulings by holding that for ex-works sales, transportation cost does not form part of assessable value. The Board's Circular No. 1065/4/2018-CX clarified that the principle in Roofit and Emco applies where ownership and risk remain with the seller until delivery.Furthermore, the principle of mutual exclusivity between service tax and VAT was affirmed by the Supreme Court in Imagic Creative Pvt. Ltd. v Commissioner, which held that payment of service tax and VAT are mutually exclusive and cannot be levied on the same transaction.Court's Interpretation and Reasoning: The Tribunal analyzed the contractual terms governing the sale of liquid gases, noting that delivery at the customer's premises was integral to the contract and that the quantity delivered was measured and recorded at the customer's storage tanks. The appellant retained ownership and risk during transit, transferring property only upon delivery. The collection and delivery charges, though separately invoiced, formed part of the sale price on which sales tax/VAT was duly paid.The Tribunal emphasized that since the delivery charges were part of the sale consideration and sales tax/VAT was paid thereon, the same charges cannot be subjected to service tax. It relied on the settled legal position that service tax and VAT are mutually exclusive and cannot be levied on the same transaction or consideration.Key Evidence and Findings: The agreements stipulating delivery into customer storage tanks, measurement of delivered quantity, issuance of excise invoices post-delivery, and payment of sales tax/VAT on collection and delivery charges were critical. The appellant's role as manufacturer and seller, rather than a service provider, was underscored.Application of Law to Facts: Applying the principle of mutual exclusivity and the contractual facts, the Tribunal concluded that the delivery charges are part of the sale price and not consideration for a separate service liable to service tax.Treatment of Competing Arguments: The Revenue contended that the appellant provided cargo handling services including loading, transportation in cryogenic tankers, and unloading, which warranted service tax. The Tribunal rejected this, finding that the appellant's activities were integral to sale and not separate cargo handling services.Conclusions: The collection and delivery charges are part of the sale price of goods, attracting sales tax/VAT exclusively, and are not liable to service tax.Issue 2: Whether the Appellant is a 'Cargo Handling Agency' under Service Tax LawLegal Framework: Section 65(105)(zr) of the Finance Act defines 'cargo handling agency' and Section 65(23) defines 'cargo handling services'. The Board's Circular F. No. B11/1/2002-TRU dated August 1, 2002 clarifies that cargo handling services involve activities such as packing, unpacking, loading, and unloading goods meant for transportation by various modes, typically provided by specialized agencies.Court's Interpretation and Reasoning: The Tribunal found that the appellant is a manufacturer of gases and not engaged in cargo handling business. The goods dispatched are not 'freight' or 'cargo' in the hands of a cargo handling agency but are goods sold to customers. The appellant's role was limited to delivering goods to complete the sale transaction, not providing cargo handling services.Application of Law to Facts: Since the appellant did not undertake packing, loading, unloading as a cargo handling agency but merely delivered goods as part of sale contracts, the service tax levy under cargo handling agency category was not sustainable.Conclusions: The appellant is not a cargo handling agency and did not provide cargo handling services; hence, service tax under this category cannot be imposed.Issue 3: Mutual Exclusivity of Service Tax and Sales Tax/VATLegal Framework and Precedents: The Supreme Court in Imagic Creative Pvt. Ltd. v Commissioner held that payment of service tax and VAT are mutually exclusive and cannot be levied on the same transaction. The Madras High Court in Rajeswari Colour Lab v. Commissioner of Commercial Taxes followed this principle.Court's Interpretation and Reasoning: The Tribunal reiterated that since the collection and delivery charges formed part of the sale price of goods on which sales tax/VAT was paid, service tax cannot be levied on the same charges. It emphasized that treating delivery charges as consideration for a separate service would violate the principle of mutual exclusivity.Conclusions: Service tax and sales tax/VAT are mutually exclusive; hence, no service tax is leviable on delivery charges subjected to sales tax/VAT.Issue 4: Invocation of Extended Period of LimitationLegal Framework: The extended period of limitation under the Finance Act can be invoked where there is wilful suppression of facts or intent to evade tax. However, bona fide belief regarding legal position precludes invocation of extended limitation.Court's Interpretation and Reasoning: The Tribunal noted that the appellant had a bona fide belief that the collection and delivery charges were part of sale price and not liable to service tax, supported by payment of sales tax/VAT. There was no evidence of wilful suppression or intent to evade tax. Hence, invocation of extended limitation period was not justified.Conclusions: The show cause notice dated October 19, 2012 is barred by limitation for the period up to March 2011.Issue 5: Penalties under Sections 77 and 78 of the Finance ActCourt's Reasoning and Conclusions: Since the demand of service tax itself was held unsustainable, the Tribunal concluded that imposition of penalties under Sections 77 and 78 was unwarranted.3. SIGNIFICANT HOLDINGS'In a transaction of sale of goods, where the cost of transportation for delivery of the goods to the customer formed part of the sale price attracting central sales tax/VAT, the said transaction cannot be subjected to levy of service tax, by treating any part of the sale price as consideration for rendering any service.''It is a settled position of law that the levy of service tax and sales tax/VAT are mutually exclusive.''A manufacturer delivering goods to its customer to complete the sale cannot be considered to be engaged in the business of cargo handling service.''The conditions precedent for invocation of the extended period of limitation do not exist where the assessee has acted on the basis of bona fide belief as regards the legal position.''Since the demand of service tax is not sustainable, the question of imposing penalty does not arise.'