TaxTMI 
TaxTMI 
2026 (3) TMI 979
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.... collects ocean freight and local charges like terminal handling charges, documentation charges. They also avail Cenvat credit on such charges and pay service tax on the invoice amount raised on their customers. On perusal of balance sheets and invoices, it was noticed that the Appellant collected ocean freight charges higher than the actual amounts charged by the shipping lines/steamer agents. The Appellant informed vide letters dated 19.03.2014 and 23.03.2015 that they did not collect service tax on Ocean Air Freight as freight was exempted under Service Tax Law, Verification of the invoices raised by the Appellant during the relevant period revealed that the freight invoices have been raised by the Airlines/ Sea Liners on the Appellant and not on the Appellant's customers. It appeared that all the expenditure incurred by the Appellant including Ocean Freight are for performing logistics service and hence the Appellant were liable to pay service tax on the gross amount including various reimbursable expenditures. 3. The Department was further of the view that the Appellant was rendering service within the meaning of Section 65B(44) of the Finance Act, 1994 (the Act) inasmu....
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..../-. It was also noticed that the Appellant had collected Rs.20,73,64,340/- for the period from April, 2014 to March, 2015 and the service tax thereon came to Rs 2,56,30,208/-. Hence alleging contravention of various provisions of the Act the following show cause notices were issued to the Appellant proposing to demand the differential Service tax amount under Section 73(1) of the Act along with interest amount at the appropriate rate under Section 75 of the Act besides proposal to impose penalties under Sections 76 & 77 of the Act, as detailed under: Sl. No. SCN/SOD No. & date Taxable Value (Rs.) ST amount payable (Rs.) 1. 46/2015 dated 10.04.2015 12,80,36,988 1,58,25,373 2. 12/2016-ST-I dated 22.02.2016 20,73,64,140 2,56,30,208 6. Shri. S. Janakiraman, learned advocate, appearing on behalf of the appellant contended as under: a) Both the appeals challenged Service Tax demand on the "Ocean Freight charged by the appellants on the exporters for the relevant periods for the sale of cargo space in containers. b) The appellant's transactions with the Shipping Lines for procuring cargo space in containers were on Principal t....
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....lly were covered under negative list of services under Section 66D of the Finance Act, 1994. m) The issue involved in the appeal is no longer res integra as it has been affirmatively held in a number of cases decided by various Benches of CESTAT that the difference between the purchase price and selling price of cargo space is nothing but profit or loss which cannot be subjected to service tax. The cases listed inter alia include the appellant's own case covering the immediately preceding period. 1. Seaport Lines (P) Ltd Vs Commissioner GST & Central Excise, Chennai - Final Order No:42304-42305/2021 dated 7.09.2021 (Tri. Che) 2. Marinetrans India (P) Ltd Vs CST, Hyd 2020 (33) GSTL 241 (Tri. Hyd) 3. TVS Dynamic Global Freight Services Ltd Vs Commissioner GST & CE, Chennai - Final Order No: 42355 to 42358 & 42034 to 42036/2019 dt 04.03.2020 4. Nilja Shipping (P) Ltd, Commissioner of Central Excise, Chennai II - ST Appeal No. 362 of 2012 dt 10.02.2020 5. Tiger Logistics India Ltd Vs Commissioner of Central Tax, Delhi Order dated 12.7.23 in Appeal No. 51621-51622 of 2022 6. Haiko Logistics India (P) Ltd Vs Commissioner of S....
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....pport services" and not under "Business Auxiliary Services" as contended by the appellant. It is also contended that as per Section 67(3) of the Finance Act, 1994, the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. Read with Rule 67(1)(i) of the Finance Act, 1994 in this case, which prescribes that where the provision of service is for a consideration in money, it would be the gross amount charged by the service provider for such service provided, it has to include all elements charged towards the taxable service including those amounts represented as 'ocean freight'. Reliance is placed on the judgement in the case of M/s. Progeon Global Forwarding P Ltd reported in 2023 (8) TMI 941 - CESTAT CHENNAI., wherein it has been held that the appellant whose activity has failed to establish his credential as a freight forwarder is found to satisfy the classification of Business Support Service. This judgement is squarely applicable to the present case. 9. In Rejoinder, it is submitted that the appellant has been duly registered with the Directorate General of Shipping a....
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....ring a loss by taking the attendant risk. That it has been held in various decisions of the Division Bench including the one delivered in the case of M/s. Maintrans India Private Limited Vs CST, Hyderabad reported in 2020 (33) GSTL 241(Tri. Hyd) that "buying and selling space on ships does not amount to rendering a service and any profit or income earned through such transactions would not be liable to service tax". As a matter of fact, the ratio of the said decision stood quoted by the Single Member of Hon'ble CESTAT, Chennai in Para 4.1. vide its Final Order No: 42304-42305/2021 passed in Appellant's own case relating to the immediate preceding period. The contentions of the Appellant as to its role as "intermediary", needs to be seen in the context of averments and true nature of relationship subsisting between the parties inter se in the procurement and supply of space, whether the transactions between the parties involved were on principal-to-principal basis or otherwise by acting as an agent for others. Tax liability cannot be ascribed to by picking out words in isolation and nature of transaction as revealed in the documents which alone would matter. It would be necessary to....
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....monstrated before the adjudicating authority in the earlier proceedings and the impugned appeals concerns two SCN's of periodic nature. In view of clear-cut decisions on subject rendered by Division Bench of Hon'ble CESTAT in several cases and the Single Member's Order concerning the appellants own case relating to the earlier periods, the issue has attained finality in the appellant's favour. 13. We have heard both sides, perused the appeal records and the citations submitted. 14. The only issue that arises for our consideration is whether the demand of service tax on the appellant on the allegation that the ocean freight collected from its customers is includible in the taxable value for the services rendered by the appellant, is tenable. 15. The undisputed facts are that the Appellant is registered with the Department as a service provider of Business Auxiliary Service and Goods Transport Service. There is no dispute that the Appellant is not discharging the applicable service tax for the services rendered by the Appellant under the above categories. The SCN No.46/2015 dated 10.04.2015 alleges that the nature of the activity of the Appellant includes coordinating with i....
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....charges are being reimbursed by the customer of the Appellant. However, since the freight collected is in excess of the actuals, it is the view of the Department that the Appellant cannot be treated as a pure agent under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 and that apart the Department has also formed a view that the Appellant had incurred the expenses towards procurement of input services for providing taxable service and made payment to the third parties as recipient of service and therefore on that count too, the Appellant is not a pure agent under Rule 5(2) ibid and the expenditure on this count is includible in the taxable value. The OIO has gone on to hold that the Appellant merely acts as an intermediary and organizes the transportation of goods across the oceans and therefore the representation of the charge as 'ocean freight' that too with a markup is a misrepresentation of their service to their clients. That as per Section 67(3) of the Act, the gross amount charged shall include any amount received towards the taxable service before, during or after provision of such service and therefore the entire amount of consideration received towards g....
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....n 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act. 22. Section 66 of the Act is the charging Section which reads as under: "there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in subclauses of Section 65 and collected in such manner as may be prescribed." 23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the 'value of taxable services'. Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. 24. In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In ....
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....eving the purpose behind the provisions of the Act, as held in Taj Mahal Hotel : "the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect." 29. In the present case, the aforesaid view gets strengthened from the manner 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 ....
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.... 29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new 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." 30. As a result, we do not find any merit in any of those appeals which are accordingly dismissed." (emphasis supplied) 18. Thus, the law of the land as laid down by the Apex Court in its decision in Union of India v Intercontinental Consultants and Techn....
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....g categorisation of its services as "Business Support Service". However, nothing has been brought on record to show that the Department has acted upon the request when it was made and had agreed to the Appellant's contention, and amended the Registration Certificate issued to the Appellant. Evidently, the request was not acceded to and the letter never given effect to and the Appellant continued to remit service tax under the category of Business Auxiliary Service for which it was registered. The said letter was never relied upon in the show cause notice. It is a settled principle in law that reliance cannot be made on a document behind the Appellant's back without putting the Appellant to notice of such intention to rely on a document. Neither can the SCN which has been issued in the present form, be subsequently improved upon. The decisions of the Hon'ble Apex Court in CCE Nagpur v. Ballarpur Industries Ltd, 2007 (215) ELT 489 (SC), and Dhakeshwari Cotton Mills v CIT, West Bengal, 1955 SCR (1) 941, refers in this regard. It is a settled position in law that the principles of natural justice have to be complied at every stage and violation at the initial stage can't be cured throu....
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....nal has already analysed the nature of such transaction of collection of Ocean Freight with markup by the assessee/appellant therein who was a multimodal transporter, as is the case of the Appellant herein, in the case of M/s. Geodis Overseas Private Limited v Commissioner of Service Tax, Chennai, 2022 (6) TMI 1085CESTAT CHENNAI, relied upon by the Appellant. The relevant portions are as under: "8.1 The first issue is whether the charges collected by the appellant from its customers in the nature of ocean freight are subject to levy of Service Tax under Business Support Services. 8.2 This issue has been considered in various decisions of the Tribunal wherein the Tribunal has held that ocean freight charges are not subject to levy of Service Tax under Business Support Services or Business Auxiliary Services. The relevant discussion in the case of M/s. Greenwich Meridian Logistics (I) Pvt. Ltd. (supra) is reproduced as under: "10. The original authority has proceeded on the assumption that there is only one payment and, that too, for freight charged by the shipping line. He has rejected the possibility of trading in space or slots on vessels by holding that....
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....ine or steamer agent with the risk of non-usage of the procured space devolving on the appellant. By no stretch is this assumption of risk within the scope of agency function. Ergo, it is nothing but a principal to- principal transaction and the freight charges are consideration for space procured from shipping line. Correspondingly, allotment of procured space to shippers at negotiated rates within the total consideration in a multi-modal transportation contract with a consignor is another distinct principal-to principal transaction. We, therefore, find that freight is paid to the shipping line and freight is collected from client-shippers in two independent transactions. 13. The notional surplus earned thereby arises from purchase and sale of space and not by acting for a client who has space or slot on a vessel. Section 65(19) of Finance Act, 1994 will not address these independent principal-to-principal transactions of the appellant and, with the space so purchased being allocable only by the appellant, the shipping line fails in description as client whose services are promoted or marketed. 14. We, therefore, find no justification for sustaining of the demand....