TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 1051
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.... to 31 June, 2012. 3. Service Tax Appeal No. 50131 of 2015 has been filed to assail the order dated 30 September, 2014 passed by the Commissioner confirming the demand of Rs. 79,26,946/- towards service tax with penalty and interest for the period 1 July, 2012 to 31 March, 2013. 4. The reasoning and findings recorded by the Commissioner in all the aforesaid three impugned orders are identical and, therefore, all the three appeals are being decided by this common order. 5. Two issues arise for consideration in these three appeals. The first is with regard to the demand of service tax on deposits made in favour of the Appellant by the members of the consortium. The second is with regard to the demand of service tax on the difference in the rate charged by the Appellant from the members of the consortium and non-members for providing 'Cargo Handling Services', since the case of the Department is that a lesser rate has been charged from the members of the consortium. 6. The Appellant is engaged in rendering "Cargo Handling Services" defined under section 65(23) of the Finance Act, 1994 the Act. It is a taxable service under section 65 (105) (zr) of the Act. The Appellant claims tha....
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....ion. Applications were, therefore, submitted to the Railway Administration for approving the members of the consortium as co-users of the siding and approval was granted by the Railways. 9. The Appellant also signed Indemnity Bonds with the Railway Administration to bind itself for the faithful performance of the terms and conditions of the siding agreement entered into between the Appellant and the Co-users and one such Indemnity Bond dated 14 October, 2008 between the Appellant and the Railway Administration in connection with a co-user M/s Bhagwati Power & Steel Private Limited Bhagwati Power is reproduced below: INDEMNITY BOND "We M/s Vimla Infrastructure (India)Pvt Ltd. having our registered office at Nehru Nagar, Dhamatri Road, Raipur (CG) hereinafter referred to as the "Owner" which expression shall include our heirs, successors and assigns to furnish this Indemnity Bond in favour of the President of India acting through the Chief Commercial Manager, South East Central Railway Bilaspur, hereinafter referred to as Railway Administration. 2. Whereas the Railway Administration has permitted us to allow a co-user M/s Bhagwati Power & Steel Pvt Ltd. to handle rail traffic f....
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....al. After 7 days of receiving the payment against the invoices raised, No other claim shall be entertained by the either party. 4 TAX TDS will be deducted from your bills as per Income Tax Act 5 SERVICE TAX We will pay Service Tax as per Govt. rules, subject to submission of cenvatable documents. 6 OTHER 1) Your company will follow all the rules, terms and conditions imposed by SECR authorities relevant to railway siding from time to time. 2) Take care of any other requirements/formalities of Railways, which may be required and ensure evacuation of rake in perfect manner from the Railway siding 3) Your company shall arrange tools and tackles being used for aforesaid work at your own cost. 4) You will be held solely responsible for any accident of your men, machine, tools and tackles etc., during execution of the job awarded to you. 7 STATUTORY COMPLAINCE Your company will comply and take care of all laws of the land, for the work in you scope, and shall indemnify the company in toto. In case of any claim, due to your failure, on the company, it shall be passed to you. 8 ARBITRATION All disputes or difference....
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....s are not the sole consideration against the cargo handling services provided by Noticee during the period year 2007-08 to 2010-11. Further, the money value of the cost of services, the Railway dues, maintenance etc., is required to be included in the price shown in the Bills raised to the said related customers (members of the consortium as well as equity holders)." 13. The Show Cause Notice also deals with another aspect, namely, that the Appellant had charged more amount from independent customers for providing 'Cargo Handling Services' than from the members of the consortium. Thus, the amount charged from the members was not the gross amount charged. Rule 4 of the Service Tax (Determination of Value) Rules, 2006 2006 Rules was, therefore, required to be invoked to ascertain the correct taxable value. 14. The Appellant filed replies to the aforesaid three Show Cause Notices and denied the allegations contained in the Show Cause Notices. It pointed out that the amount collected by the Appellant from consortium members was interest free and was a refundable security deposit and not an advance for any service and that no service tax could be demanded on the differential value cha....
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.... submissions: (i) The amount collected by the Appellant from the consortium members is in fact an interest free refundable security deposit and is not towards any advance for a service. It is, therefore, not taxable. Elaborating this submission, learned Counsel pointed out that the object of the consortium was to construct a railway siding for the use of the consortium members for which the members pooled their resources to the extent of Rs. 15,31,01,000/- at the time of joining the consortium. This amount was refundable and even as per the balancesheet of the Appellant for the relevant periods, the amount collected by the Appellant as deposit has been shown as current liability, which fact clearly demonstrates that the amount received by the Appellant was refundable; (ii) Apart from using the Security deposit for construction of the siding, the refundable security deposit could be utilised, in terms of the Indemnity Bond, to pay an amount to the Railways if the co-user committed a default in payment of railway tollage liability; (iii) Service tax is levied when service is provided or to be provided but in the present case no service was provided by the Appellant to the conso....
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....ned Counsel for the Appellant and the learned Authorised Representative of the Department have been considered. 19. As noted above, the Appellant is engaged in rendering 'Cargo Handling Services'. In order to establish a private siding to serve the customers, the Appellant claims to have collected interest free refundable amount from the members of the consortium. For this purpose, the Appellant entered into an agreement with the Railways to construct a siding at Silyari as per the terms and conditions set forth in the agreement. In terms of the aforesaid agreement dated 19 March, 2007, the siding cannot be utilised by any person without the prior written permission of the Railway Administration. Applications were, therefore, submitted to the Railway Administration for approving the members of the consortium as co-users of the siding and approval was granted by the Railways. An agreement was also entered into between the Railways and members of the consortium containing terms and conditions. One such agreement entered into between the Railway Administration and Bhagwati Power contains the following conditions: "1. The placement and withdrawal of Wagons for the other user will be....
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....een the siding owner and the Railway Administration. The Appellant also agreed to indemnify the Railway Administration unconditionally against all proceedings, claims, demands, expenses, loses and liabilities of the co-user of the siding. Bhagwati Power also affirmed that the Indemnity Bond shall remain valid and subsisting even after the completion of the transaction by the co-user and that the Railway Administration would be entitled to seek its enforcement at any time in case of any eventuality enumerated in the Bond during the period of transaction. 21. Thus, if a co-user was to make any default in payment to the Railway Administration in regard to tollage liabilities such as freight, demurrage charges, siding charges and other charges accruing due to use of railway siding by the co-user, the same would be indemnified by the Appellant in terms of the Indemnity Bond. 22. In connection with the aforesaid indemnity, on record is a communication dated 3 August, 2009 sent by the Senior Division Commercial Manager of the Railways to the Joint Commercial Manager. It mentions that since the eight demand drafts submitted by Baldev Alloys had been dishonoured by the Bank, railway freig....
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....sited as an advance for making payment of freight, demurrage and other charges to the Railways, and therefore, would be a taxable service. 27. The MOU clearly mentions that Gopal Sponge will invest a sum of Rs. 50 lakhs for construction of the proposed railway siding at Silyari and that the said sum would be interest free. The issue, therefore, is whether this amount of Rs. 50 lakhs should be treated as interest free refundable security or as an advance made by the co-user of the siding for payment of freight charges, demurrage charges or other charges to the Railways. The irresistible conclusion that follows from a reading of the MOU is that the amount has been deposited by Gopal Sponge with the Appellant for construction of the proposed Railway Siding and not for payment of any freight, demurrages or other charges payable by Gopal Sponge to the Railways. The fact that the understanding mentions that the sum is interest free clearly means that it is a refundable amount because otherwise there was no reason to mention that it would be interest free. It also uses the word invest meaning thereby that this amount has been deposited by Gopal Sponge with the Appellant for the construct....
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....0 29800000 Total Security Deposit As On- 31.03.2017 0 0 29800000 Total Security Deposit As On- 31.03.2018 5500000 0 35300000 Total RECD./REFUNDED/BALANCE 142901000 107601000 35300000 30. Learned Counsel for the Appellant submitted that against the security amount of Rs. 14.29 crores that was deposited, an amount of Rs. 10.76 crores was refunded and the balance amount of security at the end of the Financial Year 2018 is Rs. 3.53 crores. Learned Counsel, on instructions from the Appellant, has also stated that the only amount paid to the Railways to indemnify a co-user is Rs. 28,56,000/- and in no other case the Appellant was called upon to indemnify the co-users. 31. It is, therefore, clear that the amount deposited by the co-users of the siding was an amount to be utilised for construction of the siding or to make payment to the Railways, if the co-user defaulted, in terms of the Indemnity Bond. The liability to pay the charges to the Railways was of the co-user and the Appellant only indemnifies if there is any default by making payment from the amount deposited by the co-users and in such a situation the amount of deposit will get reduced by ....
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....nt by treating them as trading receipts. That, however, will not convert the deposits which were not received initially as price into sale proceeds of the tins in which the biscuits were supplied or the bottles in which the beer was sold." 35. In Murli Realtors Private Limited Others. Vs Commissioner of Cental Excise, Pune-III 2015(37) STR 618 (Tri.-Mumbai), a Division Bench of the Mumbai Tribunal made the following observations with regard to the security deposit towards the renting of immovable property and the observations are as follow: "6.1 Section 67 of the Act, reproduced in para 4.1 above, clearly provides that only the consideration received in money for the service rendered is leviable to Service Tax. The consideration for renting of the immovable property is the amount agreed upon between the parties and on this amount the appellant is discharging Service Tax liability. The security deposit is taken for a different purpose altogether. It is to provide for a security in case of default in rent by the lessee or default in payment of utility charges or for damages, if any, caused to the leased property. Thus, the security deposit serves a different purpose altogether and....
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....f no such termination has taken place till date, the amount would not be refunded. As long as the provisions for refund of the said amount in the agreement itself is there, it has to be considered that the said amount is refundable and was towards security deposits and was not for the purpose of providing any services, so as to levy tax on the same." 37. It is, therefore, clear from the aforesaid decisions that a security deposit for any length of time would not automatically became a sale proceed in the hands of the company and that there is no provision in service tax law for taxing notional interest on a security deposit. 38. Such being the position, the Commissioner was not justified in holding that the amount deposited by the members of the consortium with the Appellant had escaped assessment of service tax, and therefore, the Appellant should include the amount deposited by the consortium members in the gross amount for payment of service tax. 39. The second issue that was examined by the Commissioner is as to whether the Appellant had charged lower rates for Cargo Handling from consortium members who had contributed to the deposits as compared to the rates charged from th....