2024 (1) TMI 397

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....ate. 1.2 It is the case of the Revenue that a scrutiny of the invoices raised by the assessee revealed that the assessee had raised bills by splitting the amounts under various heads like service charges, loading and unloading charges, application charges, customs, examination charges, conveyance expenses, warehouse rent, CFS charge, PHO charges, shipping company charges, etc., but however, they had paid Service Tax only on the service charges. The exclusion of various operational expenses from the gross receipt appeared to be against the provisions of section 67 of the Finance Act 1994 read with Rule 5(1) & (2) of the Service Tax (Determination of Value) Rules, 2006. (Hereinafter referred to as 'Rules'). It appears, upon being pointed out, that the assessee remitted Service Tax of Rs.78,86,127/-, but however, did not provide supporting documents in respect of other charges, in order to satisfy the conditions of pure agent. The Revenue also appears to have noticed that the assessee had not filed its S.T.-3 Return for more than three years despite the fact of having collected Service Tax from their customers without even remitting the entire Service Tax collected. 2.1 The abov....

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....e charges for their services and discharge Service Tax for other activities/services, the amount reimbursed by the importers/exporters were paid to the actual service providers, who are only liable to pay Service Tax. 4.2 It was further pleaded by the assessee that a CHA would mean a person licensed under regulations, either temporarily or otherwise, under Section 146(2) of the Customs Act, 1962 and that taxable service would mean any service provided to a client by a CHA in relation to entry or departure of conveyances or the import or export of goods; the associated service availed on behalf of the importer/exporter for completion of the clearance of import/export cargo could not be treated as a taxable service rendered by the CHA. 4.3 With regard to the valuation, it appears that the assessee contended that only the charges received by the CHA would amount to 'gross value' in terms of Section 67(1) of the Finance Act, 1994 and not the amount received by other service providers by the importers/exporters through the CHA and that Service Tax on other charges like CFS charges, Insurance charges, PHO inspection charges, PQFS charges, CCTL charges, shipping & freight charges an....

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....hird party shall primarily be on the exporter/importer and not on the assessee (ii) the expenses shall be supported with documentary evidence and (iii) there is no mark up or margin and thus, the question as to whether a particular reimbursement of expense qualifies for exclusion has to be decided based on the facts and circumstances of each case and the statute does not provide for any blanket exclusion of all reimbursed expenses, as claimed by the assessee. It has also been emphasized by the adjudicating authority at paragraph 7.7 of the impugned order that even if any one of the conditions specified under Rule 5(2) ibid. is not satisfied, then the assessee ceases to be a pure agent and in the present case, the assessee did not furnish any supporting documents to prove their case.  7. It is against this order and the demands raised against the assessee that the present appeals have been filed before this forum. 8. Heard Smt. J. Ragini, Ld. Advocate for the appellant and Smt. Anandalakshmi Ganeshram, Ld. Assistant Commissioner for the Revenue.  9.1 The Ld. Advocate would contend at the outset that the entire demands proposed and confirmed in the Order-in-Origina....

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....ant the benefit of cum-tax valuation on the incentive received by the appellant from the shipping lines, had gone beyond the mandate of the law; moreover, the Commissioner did not even bother to consider or look into any of the documents placed before him or even before the SIR while passing the impugned order and hence, the impugned order suffers from grave miscarriage of justice. 9.7 She would thus request for setting aside of the impugned order and the demands confirmed therein. 10.1 On the other hand, the Ld. Assistant Commissioner relied on the findings of the Commissioner. She would also contend that the appellant did not file its S.T.-3 Returns for various periods, it also did not respond to many letters issued by the Department; in terms of Rule 5(1), if any expenditure or cost is incurred by the service provider in the course of providing taxable service, all such cost/expenditure shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging Service Tax and hence, the Commissioner was very much correct in determining the taxable value.  10.2 She would further rely on the jud....

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....crats Pvt. Ltd. (supra) dated 30-11-2012, examined the contention of the petitioner that Rule 5(1), in as much as it provides that all expenditure or costs incurred by the service provider in the course of providing the taxable service shall be treated as consideration for the taxable service and shall be included in the value for the purpose of charging service tax goes beyond the mandate of Section 67 merits acceptance. The Hon'ble High Court had no hesitation in ruling that Rule 5(1) which provides for inclusion of the expenditure or costs incurred by the service provider in the course of providing the taxable service in the value for the purpose of charging service tax is ultra vires Sections 66 and 67 and travels much beyond the scope of those sections. To that extent it has to be struck down as bad in law. Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 did not come up for consideration and was not quashed. Therefore, the conditions stated in the said Rule with respect to the expenditure or costs incurred by the service provider as a pure agent in relation to expenses reimbursed would be relevant. Rule 5(2) states as under: "5. Inclusion in or exclu....

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....im exclusion of expenses incurred as pure agent, they would have to satisfy the conditions mentioned in the Rule as listed above. Merely stating that the charges were paid by them to service providers who do not issue any bills/ receipts and accordingly they had correctly discharged their service tax burden, will not come to their help. The Hon'ble Supreme Court in Khedut Sahakari Ginning and Pressing Society v. State of Gujarat [(1971) 3 SCC 480] has placed emphasis on the need to closely scrutinize the documents between the parties. The judgment opined that:  "5. Whether a particular agreement is an agency agreement or an agreement of sale depends upon the terms of the agreement. For deciding that question, the terms of the agreement have got to be examined. The true nature of a transaction evidenced by a written agreement has to be ascertained from the covenants and not merely from what the parties choose to call it. The terms of the agreement must be carefully scrutinised in the light of the surrounding circumstances."  (Emphasis added) 13.2 We find that the primary objection raised by the learned Commissioner in the impugned order is that the appellant....