AI Drafter 
TaxTMI 
TaxTMI 
2023 (11) TMI 104
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.... financial years from 1997-2004, it revealed that the appellant has not discharged Service Tax on (i) operational surplus, (ii) service charges / tax exempted and (iii) freight and brokerage. A Show Cause Notice was issued proposing to demand the Service Tax on the above amounts alleging that these are in the nature of consideration received for CHA services as well as Steamer agent services. Separate Show Cause Notices for the same period were issued in regard to CHA services / Steamer agency services. After due process of law, the original authority vide separate orders confirmed the demand, interest and imposed penalties. Aggrieved by such order, the appellant preferred appeals before the Commissioner (Appeals) who upheld the same. Hence, these appeals. 2.1.1 The Ld. Counsel Ms. Radhika Chandrasekar appeared and argued for the appellant. The Ld. Counsel adverted to paragraph 7.0 of the findings in appeal No. 212/2007 and submitted that the allegation of the Department is that the appellant has not paid Service Tax on the following heads. a) Operational surplus. b) Service charges / Tax exempted. c) Freight and Brokerage, etc.,. 2.1.2 The Show Cau....
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....aler on transportation by collecting equalized freight in excess of freight actually incurred was held to be not includable in the assessable value. The decision though rendered under excise law, the view taken by the Court is applicable to the present situation where the appellant makes a very small profit after equalisation of various expenses. The appellant had collected amounts from the clients to meet expenses of providing the CHA service and later some amount would arise as surplus after incurring the expenses. These amounts are reflected as operational surplus in the financial statements. Being expenses reimbursed, the Department cannot demand Service Tax. 2.1.3 The Ld. counsel relied upon the decision in the case of Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd.[2018-TIOL-76-SC-ST] to argue that the Hon'ble Apex Court has categorically held that Service Tax cannot be levied on reimbursable expenses. 2.1.4 The Trade Notice No. 39-CE/97 dated 11.06.1997 was relied by the Ld. counsel to explain that the Department has issued clarification with regard to the nature of expenses that is usually incurred by CHA / Steamer Agents etc., while discharg....
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....ment alleging that they fall under CHA services / Steamer Agent services. The decisions in the cases of Commissioner of Service Tax Vs. AVR Cargo [2018-TIOL-2097], Commissioner of Service Tax Vs. Karam Freight Movers [2017 (4) GSTL 215], Commissioner of Service Tax Vs. Continental Carriers [2017-TIOL-3964] and Greenwich Meridian Logistics (I) Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai [2016 (43) STR 215] was relied by the Ld. counsel to argue that the demand of Service Tax on such freight brokerage received from the shipping lines is not subject to levy of Service Tax under CHA services / Steamer Agent services. 2.4 The Ld. counsel submitted that the entire demand has been raised by taking the figures in the profit and loss account and comparing the same with the ST-3 returns filed by the appellant. The decision of the Hon'ble High Court of Madras in the case of Firm Foundations & Housing Pvt. Ltd. Vs. P.R. CST [2018 (16) GSTL 209] W.P. No. 21799/2017 and W.M.P No. 22810/217 decided on 06.04.2018 was relied by the Ld. counsel to submit that the income reported and reflected in the profit and loss account is irrelevant for the purposes of determination of taxable value. Th....
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....e Trade circular had clarified that the sub-contracting CHA is not required to pay Service Tax. The appellant did not discharge Service Tax on the brokerage for the reason that these are incentives / discount received from the shipping line and is not consideration for providing CHA services / Steamer Agent services. The Ld. counsel prayed that the appeals may be allowed. 3.1 The Ld. Authorised Representative O.M. Reena appeared and argued for the Department. The Ld. AR submitted that from the Show Cause Notice itself it can be seen that reimbursable expenses have been excluded for raising the demand. Only the actual amounts which have been received by the appellant from the client for the expenses incurred have been included for raising the demand. The appellant has mentioned 'operational surplus' in their financial statements. This is the amount collected from the client over and above the actual expenses incurred by them. For this reason, the said operational surplus is subject to levy of Service Tax and cannot be excluded in the nature of reimbursable expenses. 3.2 The second issue is with regard to the demand of Service Tax under 'exempted service' (sub-contracting CHA).....
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....artment was of the view that the appellant though has discharged Service Tax on Agency commission / Service charges they have not paid Service Tax on 'operational surplus'. The Show Cause Notices have been issued separately on CHA services and Steamer Agent services on these amounts. The details of the Show Cause Notice and the period involved is furnished by the appellant as below:- Sl. No. Appeal No. Period Classification of Service SCN No. Reimbursable Amount Issue 1 S/81/2005 09.09.1997 to 31.03.2002 Custom House Agent Services C.No. IV/16/653/02 dated 08.01.2003 Rs.7,46,872/- Demand of Service Tax on operational surplus, service charges exempted and freight and rebate / brokerage. The demands are raised by comparing the ST-3 returns vis-à-vis the income reflected in the balance sheet 2 S/82/2005 09.09.1997 to 31.03.2002 Steamer Agency Services Rs.31,27,201/- 3 S/108/2006 01.04.2002 to 31.03.2003 Steamer Agency Services SCN No. 6/2004 ....
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.... CHA services. Form the totality of facts as seen from the records and also on the basis of the submissions made we are able to appreciate that while discharging the services as a CHA, the appellant collects certain charges in the nature of freight charges, port handling charges, statutory payment charges etc., from the client. So also charges in the nature of courier, fax, etc.,. The appellant not being able to quantify the expenses required in advance, has collected adhoc amount and later adjust these amounts towards the various expenses and charges incurred by them for providing the CHA services. This is in no way consideration received by the appellant from the client for providing the CHA service. In the invoices, the consideration for CHA service is mentioned as agency commission on which the appellant has discharged the Service Tax. The Department is of the view that since these amounts are over and above the expenses incurred, the appellant has to pay Service Tax and cannot be considered as reimbursed expenses. We are not able to agree with this view. In the course of providing CHA services there are several requirements to be met by the CHA for activity of import or export....
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....axable service. 2.3 The service rendered by the custom house agent are not merely limited to the clearing of the import and export consignment. The CHA also renders the service of loading/unloading of import or export goods from/at the premises of the exporter/importer, the packing weighment, measurements of the export goods, the transportation of the export goods to the customs station or the import goods from the customs station to the importer's premises, carrying out of various statutory and other formalities such as payment of expenses on account of octroi, destuffing/pelletisation terminal handling, fumigation, drawback/DEEC processing, survey/amendment fees, dock fees, repairing and examination charges, landing and container charges, statutory labour charges, testing fees, drug control formalities, sorting/making/stamping/sealing on behalf of the exporter/importer. The Custom House Agent also incurs various other expenses such as crane/fork- lift charges, taxi charges, photostat and fax charges, bank collection charges, courier service charges, and miscellaneous other expenses on account of the exporter/importer. For all the above charges the CHA is ordinarily r....
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.... in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the learned counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited wherein it was observed as under: ....
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.... disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later." 7.1.4 After appreciation of the facts, the clarification issued by the Board as per the Trade Notice and the decision of the Hon'ble Apex Court in the case of Intercontinental Consultants and Technocrats Pvt. (supra), we are of the opinion that the demand of Service Tax on operational surplus cannot sustain and requires to be set aside. Ordered accordingly. 7.2.1 The second issue is with regard to service charges / tax exempted. The Ld. Counsel submitted that the appellant has provided services as sub-contracting CHA to other CHAs. The understanding of the appellant was that they are not liable to pay Service Tax on the cha....
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....this head. Ordered accordingly. 7.4.1 The third issue is the demand raised on freight and brokerage, etc.,. The Ld. Counsel submitted that the appellant receives a brokerage / rebate from the shipping line on the ocean freight that they have to pay to the shipping lines. It is in the form of the discounts or incentives paid to the CHA and such amount is not a consideration for providing any CHA services. In fact, the appellant does not provide any CHA service to the shipping line. They act as an agent on behalf of the importer / exporter. So the incentive or the discount received by the appellant from the shipping line cannot be treated as a consideration received for CHA services. In the case of Commissioner of Service Tax, New Delhi Vs. Karam Freight Movers [2017 (4) GSTL 215 (Tri. Del.)], the Tribunal observed that the mark-up value collected by the assessee from the exporter is an element of profit in the transaction. The said amount is not a commission earned by the assessee and is not while acting as an agent of the exporter or shipping line and cannot be considered as a consideration. The assessee while acting as an agent on behalf of the shipping line was discharging the....