Custom, Excise & Service Tax Tribunal
Pharmalinks Agency (I) Pvt. Ltd vs Pune Iii on 25 July, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: ST/61/2009
[Arising out of Order-in-Original No: 15/P-III/STC/COMMR/2008-09 dated 23/12/2008 passed by the Commissioner of Central Excise, Pune III.]
For approval and signature:
Honble Shri P.R. Chandrasekharan, Member (Technical)
Honble Shri Ramesh Nair, Member (Judicial)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Pharmalinks Agency (I) Pvt. Ltd.
Appellant
Vs
Commissioner of Central Excise
Pune III
Respondent
Appearance:
Shri Sushant Murthy, Advocate for the appellant Shri D. Nagvenkar, Addl. Commissioner (AR) for the respondent CORAM:
Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Ramesh Nair, Member (Judicial) Date of hearing: 25/07/2014 Date of decision: 19/08/2014 ORDER NO: ____________________________ Per: P.R. Chandrasekharan:
The appeal is directed against Order-in-Original No: 15/P-III/STC/COMMR/2008-09 dated 23/12/2008 passed by the Commissioner of Central Excise, Pune III.
2. Vide the impugned order, the learned adjudicating authority has confirmed a service tax demand of ` 58,91,811/- along with interest thereon against the appellant, M/s. Pharmalinks Agency (I) Pvt. Ltd. and also imposing equivalent amount of penalty under Section 78 of the Finance Act, 1994. Aggrieved of the same the appellant is before us.
2.1. M/s. Pharmalinks Agency (I) Pvt. Ltd. entered into a C&F agency agreement and also a warehousing service agreement with M/s. Abbot India Ltd. The warehousing agreement was for storage of goods and the clearing and forward agency agreement was for the purpose of handling, carrying forwarding and shipping of the products. Service tax liability was discharged on the warehousing rent and also on the C&F agency charges. In addition to the above, the appellants made certain payments on behalf of the service recipient byway of freight charges, octroi, sales tax and licensing fees, courier charges and telephone charges, electricity charges, DFC unloading charges and statutory charges, packing material, octroi, etc., Genset and cool room expenses and they got reimbursement of the expenses incurred from M/s. Abbot India Ltd. The department was of the view that these reimbursements are also liable service tax under the category of C&F Agency Services and accordingly issued a show cause notice dated 27/09/2006 for the period from 01/04/2004 to 31/03/2005. The said notice was adjudicated vide the impugned order and demands were confirmed and penalties imposed. Aggrieved of the same the appellant is before us.
3. The learned counsel for the appellant submits that bulk of the demand pertains to reimbursements towards freight received by the appellant. M/s. Abbot India Ltd. had entered into a separate agreement with various transporters for transportation of goods from Pune to various destinations. As per these agreements, they were required to pay the transporters the transportation charges. However, the appellant were paying these charges on actual basis based on the transporters bills and they were reimbursed these charges by M/s. Abbot India Ltd. Thus, the appellant was acting as a pure agent for payment of transportation charges and, therefore, these reimbursements towards freight cannot be considered as part of consideration received for C&F Agency services.
3.1. Similarly, the appellant also incurred octroi, sales tax and licence fees on behalf of M/s. Abbot India Ltd. which they got reimbursed. These payments are statutory in nature and the payments have been made on behalf of M/s. Abbot India Ltd. and therefore, these charges do not form part of the consideration received for rendering C&F Agency services.
3.2. As regards the DFC unloading charges, the expenses are incurred for transportation of the goods from the premises of the loan licensee of Abbot India Ltd to the appellants warehouse and this has no relation with C&F agency agreement entered into between Abbot India Ltd. and the appellant and, therefore, these charges are also not includable.
3.3. With regard to the electricity charges, the activity of supplying electricity is not a taxable service and therefore, the question of payment of service tax would not arise at all.
3.4. As regards the stationery charges, it is submitted that these are expenses incurred for and on behalf of Abbot India Ltd. and, therefore, no service tax is leviable on this account also.
3.5. As regards the courier, fax and telephone charges, it is submitted that these charges are reimbursements claimed on highly purified insulin courier charges and these expenses are incurred on behalf of Abbot India Ltd. and hence this cannot form part of the taxable value.
3.6. Reliance is placed by the appellant on the decision of this Tribunal in appellants own case reported in 2010 (20) STR 348 wherein at the interim stage stay was granted. Reliance is also placed on the decision of the Larger Bench of this Tribunal in the case of Sri Bhagavathy Traders vs. Commissioner of Central Excise 2011 (24) STR 290 wherein it was held that only when the service recipient has an obligation, legally or contractually to pay certain amount to a third party and the said amount is paid by the service provider on behalf of service recipient, the question of reimbursing the expenses incurred on behalf of the recipient shall arise. Accordingly, it was held that the question of levying service tax by including reimbursements in the assessable value would not arise. Similarly, in the case of J. Walter Thompson vs. Commissioner of Central Excise, Mumbai 2014 (33) STR 525 it was held that the issue whether the reimbursable expenses to be included in the assessable value of service was settled by the larger bench of this Tribunal in the case of Sri Bhagavathy Traders (supra) and prior to that there were divergent views. In these circumstances, the demand beyond the period of normal limitation is not sustainable. Accordingly, it is prayed that the impugned demand be set aside and the appeal allowed.
4. The learned Additional Commissioner (AR) appearing for the Revenue reiterates the findings of the adjudicating authority. He relies on the decision of the Tribunal in the case of Naresh Kumar & Co. Pvt. Ltd. vs. Commissioner of Central Excise, Kolkata 2008 (11) STR 578 wherein it was held that if an expenditure is indispensable and inevitably incurred to provide a service, such cost should essentially form part of cost of service itself and shall contribute to value of taxable service. In the present case, the expenditure incurred by the appellant is inevitable expenditure in rendering C&F agency service and, therefore, the demands are sustainable.
5. We have carefully considered the submissions made by both the sides.
5.1. As regards the demand of service tax on freight charges, we notice that the service recipient had entered into a separate agreement with the transporter for transporting of goods from Pune to various destinations and in terms of the agreement it was the service recipients obligation to discharge the freight expenses. The appellant only paid these expenses and got them reimbursed from M/s. Abbot India Ltd. Thus, they were acting as a pure agent as the transportation was undertaken not as part of C&F agency functions but independently of the said function and, therefore, the question of including the expenditure incurred on freight in the consideration received is clearly unsustainable in law.
5.2. Similarly, as regards the reimbursement towards statutory levies such as octroi, we have seen the invoices and it is clear from these invoices that the statutory levies are on the service recipient, and the appellant has paid these charges and got it reimbursed from the service recipient. Here also, the appellant has acted as a pure agent and, therefore, these costs are also not includable for the purpose of levy of service tax.
5.3. As regards DFC unloading charges, the said charges are for transportation of the goods from the premises of the loan-licensee of Abbot India Ltd to the appellants warehouse and it has no relation with the C&F agency agreement between the appellant and M/s. Abbot India Ltd. Therefore, the question of adding these charges as part of the consideration received will not sustain.
5.4. This leaves the three other charges, namely, courier, fax and telephone charges amounting to ` 12,09,946/-; electricity charges amounting to ` 10,36,873/- and stationary and related charges amounting to ` 27,59,503/-. These charges have been incurred by the appellant as part of the C&F agency function which they have undertaken and are towards running of the office or providing cold storage facilities or for issuing various documents in relation to C&F agency functions. It is also noticed that the electricity charges are reimbursed only for a quantity of 3000 units per month and in respect of such electricity charges over and above 3000 units the appellant have to bear the cost. Therefore, it cannot be said that the electricity charges are not part of cost for providing the service. Therefore, in respect of these three charges, the consideration received by the appellant have to be added to the taxable value of the service and the service tax levied accordingly. The appellant also would be liable to pay interest on the service tax liability attributable to these charges.
5.5. Since the matter involves interpretation of statutes, imposition of penalty is not warranted. Thus, the appeal is partly allowed and the matter is remitted back to the adjudicating authority only for the purpose of quantification of service tax liability in respect of courier, fax and telephone charges, electricity charges and stationary charges, packing material; Genset and cool room expenses. On the service tax so quantified, the appellant shall also be liable to pay interest. On the freight charges, octroi, sales tax, licence fees and DFC unloading charges since the appellant has rendered services as a pure agent, reimbursements made in this regard will not be liable to service tax.
5.6. Thus, the appeal is partly allowed in the above terms.
(Pronounced in Court on 19/08/2014) (Ramesh Nair) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as 2