Custom, Excise & Service Tax Tribunal
India Infrastructure & Logistics ... vs Delhi East on 3 September, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
New Delhi
PRINCIPAL BENCH - COURT NO. 4
Service Tax Appeal No. 50068 Of 2019
[Arising out of Order-in-Appeal No. 153/ST/DLH/2018 dated 08.10.2018 passed by
the Commissioner (Appeals) of Central Tax, Goods and Service Tax, New Delhi]
M/s India Infrastructure & Logistics
Private Limited : Assessee(s)
th
1017-1022, 10 Floor, Jasola, DLF Tower, Delhi
Versus
Commissioner of Central Goods, Service : Revenue (s)
Tax, Central Excise-Delhi East
C.R. Building, I.P. Estate, New Delhi
With
Service Tax Appeal No. 50311 Of 2019
[Arising out of Order-in-Appeal No. 153/ST/DLH/2018 dated 08.10.2018 passed by
the Commissioner (Appeals) of Central Tax, Goods and Service Tax, New Delhi]
Commissioner of Central Goods, Service : Revenue (s)
Tax, Central Excise-Delhi East
C.R. Building, I.P. Estate, New Delhi
Versus
M/s India Infrastructure & Logistics
Private Limited : Assessee (s)
1017-1022, 10th Floor, Jasola, DLF Tower, Delhi
APPEARANCE:
Shri Sanjeev Nair, Advocate for the Assessee
Ms. Jayakumari, Authorized Representative for the Department
CORAM :
HON'BLE DR. RACHNA GUPTA, MEMBER (JUDICIAL)
HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL)
FINAL ORDER No. 58498-58499/2024
Date of Hearing:31.07.2024
Date of Decision:03.09.2024
2
Service Tax Appeal No. 50068 of 2019
Service Tax Appeal No. 50311 of 2019
HEMAMBIKA R. PRIYA
The present 2 appeals have been filed viz., by M/s India
Infrastructure & Logistics Private Limited (hereinafter referred as
assessee-appellant) in Service Tax Appeal No. 50068 of 2019, and the
Service Tax Appeal No. 50311 of 2019 by the department to assail the
Order-in-Appeal No. 153/ST/DLH/2018 dated 08.10.2018 passed by
the Commissioner (Appeals), New Delhi wherein the Commissioner
(Appeals) has dropped the demand of Rs. 1,32,87,944/- on corporate
guarantee and confirmed the demand of Rs.. 11,74,493/- in respect of
additional charges/mark-up received on freight income.
2. The brief facts of the case are that the assessee-appellant is
engaged in the business of rail freight and transportation services, for
transporting goods of its customers both domestically and for export
and imports. The Appellant also provides end to end connectivity of
goods to be imported or exported, and thus carries out international
transportation of goods by booking space on liner ships.
2.1 During the course of audit in Appeal No. ST/50068/2019 for the
period April 2011 to March 2015, certain discrepancies were
communicated and accordingly the SCN dated 15.10.2015 came to be
issued on inter-alia following grounds:-
(i) The differential ocean freight charged by the Appellant is taxable
under Business Auxiliary Services BAS i.e. different between the
payment made to the liner and payment received from the customers,
by alleging that the same is commission / remuneration / additional
3
Service Tax Appeal No. 50068 of 2019
Service Tax Appeal No. 50311 of 2019
consideration / margin received by the Appellant for provision of
service agent of its customers.
(iii) Notional Commission on Corporate Guarantee executed by Rs.
14 Crores.
2.2 The show cause notice dated 15.10.2015 was adjudicated by
Order-in-Original dated 02.02.2018, which, inter-alia, upheld the
demand on freight mark-up income and notional income on issue of
corporate guarantee for the period post 2012 as proposed in the show
cause notice.
2.3 Aggrieved by the said order, the appellant filed an appeal before
the Commissioner (Appeals), who confirmed the demand pertaining to
the freight mark-up income and dropped the demand pertaining to
Corporate Guarantee.
2.4 Hence, the present 2 appeals have been filed before the
Tribunal.
3. Learned Counsel appearing for the assessee submitted as under
case wise:-
Service Tax Appeal No. 50068 of 2019
3.1 Learned Counsel for the appellant submitted that the impugned
Order seeks to tax the services provided by the Appellant under the
head "Business Auxiliary Services" (BAS) on the ground that it
involved "the procurement of goods and services, which are inputs for
the client" and in order to qualify a service as a BAS, a relation of
agency between the provider and the recipient needs to be evidenced.
He further submitted that there is not one instance of an agency
relationship between the assessee-appellant and its customers. The
4
Service Tax Appeal No. 50068 of 2019
Service Tax Appeal No. 50311 of 2019
appellant does not act on behalf of the liner or its customers; nor does
it have the power to effect contractual relationship between the liner
and its customer. In fact, the Appellant's customer in the first place
does not have any contractual relationship with the liner and also, no
invoice for provision of ocean transportation service is issued by the
liner directly to the customer. The appellant himself is the principal
service provider and is responsible for the execution of the contracts.
3.2 Further, the learned counsel submitted that the transaction
between the customer and appellant and the appellant and liner are
two distinct transactions and the contractual relation between the
parties in both the cases is on a principal-to-principal basis and no
element of agency is involved. Therefore the transaction will not come
within the ambit of Business Auxillary Service (BAS) as defined under
the Finance Act, 1994. In support of his submission, the Ld. Counsel
relied upon the following decisions:-
Commissioner Of Service Tax, New Delhi vs. Karam Freight
Movers 2017 (4) G.S.T.L. 215 (Tri. Del.)
M/s. Nilja Shipping Pvt. Ltd. vs. The Commissioner of Central
Excise, Chennai II -2020 (3) TMI 752-CESTAT CHENNAI
Surya Shipping vs. Commissioner of Central Excise & ST,
Rajkot-2020 (2) TMI 282-CESTAT AHMEDABAD.
3.3 In addition, the learned counsel also placed reliance on the CBEC
Circular No. 197/7/2016 dated 12.08.2016 which clarifies the
guidelines to determine whether in offering freight services, the
service provider acts are a principal or agent. For a provider to qualify
as a principal provider, he needs to:
(i) negotiate terms of the freight with the liner company,
5
Service Tax Appeal No. 50068 of 2019
Service Tax Appeal No. 50311 of 2019
(ii) have the invoice raised on itself, and
(iii) take all legal responsibilities and risks for the
transportation of goods
3.4 In view of above, the learned counsel submitted that the
appellant does not provide a Business Auxiliary Service to its
customers. He contended that the issue was no longer res-integra as
this Tribunal on identical issue in case of CGST, Delhi vs. Pristine
Logistics and Infra Projects Pvt. Ltd. [2024 (5) TMI 1401 - CESTAT
NEW DELHI], TIGER LOGISTICS (INDIA) LTD. vs. Commissioner of
Service Tax-II, Delhi [2022 (2) TMI 455 CESTAT NEW DELHI] and
Console Shipping Services India Pvt. Ltd. vs. CST [2023 (5) TMI 192-
CESTAT NEW DELHI] have held that no service tax can be demanded
on mark-up on ocean freight income.
3.5 In respect of the Department's appeal (ST/50311/2019), learned
counsel submitted that the appeal for an amount of Rs. 1,45,57,873/-
for the period April 2010 to March 2015 is incorrect as the impugned
order had dropped demand only to the extent of Rs. 66,53,744/- for
the period July 2012 to June 2014, whereas the demand of Rs.
66,33,200 pertaining for the period April 2010 to June 2012 had
already been dropped by the Adjudicating Authority vide Order-in-
Original dated 02.02.2018. No appeal was filed before Ld.
Commissioner (Appeals) against the said order dated 02.02.2018 by
the Department. The balance demand of Rs. 12,72,326/ has been
confirmed in the impugned order and is challenged in a separate
Appeal by the Respondent-assessee. Thus, the present appeal to the
6
Service Tax Appeal No. 50068 of 2019 Service Tax Appeal No. 50311 of 2019 extent it seeks to challenge demand of Rs. 79,04,129/-is liable to be set aside.
3.6 The learned counsel also submitted that the Commissioner (Appeals) had dropped the service tax demand on notional commission for the period upto 30.06.2012 on the ground that no consideration flowed from Respondent- assessee to Neptune Orient Liner. W.e.f. 01.07.2012, provisions of Finance Act, 1994 had undergone change and only those activities which qualify as 'service' under Section 658(44) of the Act, were liable for service tax. On a perusal of the definition of service, an activity should be carried out by one person for another, and such activity shall be carried out for a consideration. Thus, the learned counsel contended that where an activity is done without any consideration, same cannot qualify as 'service' and hence cannot levy service tax. He relied on Para 2.2.2 of the Education Guide which specifically states that any activity which is carried out without consideration is outside the ambit of service tax. In the present case, it is an admitted fact that Neptune Orient Liner has neither charged or recovered any amount from the Respondent-assessee for providing corporate guarantee to the Bank. This fact has been accepted in the SCN dated 15.10.2015, Order-in-Original dated 02.02.2018 and in the impugned order. Since no consideration has been received by NOL from the Respondent-assessee, the said activity cannot be termed as 'service'. He submitted that the issue was no more res integra as this Tribunal on identical issue have held that corporate guarantees without consideration is not subject to service tax. In support of his submission, ld. Counsel relied upon the following decisions:- 7
Service Tax Appeal No. 50068 of 2019 Service Tax Appeal No. 50311 of 2019 Commissioner of CGST, Delhi vs. Pristine Logistics and Infra Projects Pvt. Ltd. 2024 (5) TMI 1401 CESTAT NEW DELHI Commr. CE & ST, Delhi vs. Air Liquide North India Pvt. Ltd. 2024 (5) TMI 327-CESTAT NEW DELHI Commr. CE & ST, Delhi vs. Pharmax Corporation Ltd. 2024 (3) TMI 1179 CESTAT NEW DELHI Pr. Commr of Central Tax, New Delhi vs. Sindhu Trade Linkers 2023 (11) TMI 890- CESTAT NEW DELHI Commissioner of CGST & Central Excise Mumbai East Versus Edelweiss Financial Services Ltd - 2022 (2) TMI 1359- CESTAT MUMBAI - affirmed by the Hon'ble Supreme Court in Commissioner of CGST And Central Excise Versus M/s Edelweiss Financial Services Ltd.- 2023 (4) TMI 170-SC Order IIFL Holding Ltd. vs. Commr of CGST, Mumbai 2024 (2) TMI 967-CESTAT MUMBAI Ultratech Cement Ltd. vs. Commissioner of CGST, & Cx. Mumbai East 2023 (10) TMI 1363-CESTAT MUMBAI 3.7 Learned counsel further submitted that the provision of corporate guarantee by M/s NOL is without any consideration. In the absence of any consideration, valuation of the service cannot be done.
He stated that the valuation of services under Rule 3 of the Valuation Rules is the only mechanism under which services are valued. The said provision does not refer to any other legislation to guide the valuation process, and hence, reference to Safe Harbour Rules under the Income Tax Act, in assessing 'Notional Charges' on corporate guarantee is bad in law. He also admitted that under Rule 7 of the Point of Taxation Rules, 2011, a service received from an associated enterprise outsite India would be subject to service tax when the books of accounts of the recipient is debited with regard to the receipt of the said service. In the present case, no debit had been made in the account of the 8 Service Tax Appeal No. 50068 of 2019 Service Tax Appeal No. 50311 of 2019 appellant with regard to the corporate guarantee, nor was any commission paid.
3.8 Further, the learned counsel stated that even if service tax was leviable in the present transaction, the assessee would have been liable to discharge it under reverse charge mechanism. After such discharge, the same amount would be available to the Appellant as CENVAT credit, and hence the entire transaction is revenue neutral. In support, learned counsel relied upon the following case laws:-
Jet Airways (1) Ltd. vs. CST, Mumbai 2016 (44) STR 465 affirmed by Supreme Court in 2017 (7) GSTL J35 (SC) Sarovar Hotels Pvt. Ltd. vs. CST, Mumbai 2018 (10) GSTL 72 (Tri.-Mumbai)
4. Learned Authorized Representative for the Department reiterated the ground of appeal and also submitted that in case of M/s Olam Agro India Limited [2014(33) STR 251 (Tri.-Del)], affirmed by Hon'ble High Court of Delhi [2014(33) STR (234)], has observed that Corporate Guarantee was provided by the corporate entity to facilitate lending to the noticee and such corporate guarantee constitutes a service provided by the noticee for facilitating its business. The assessee-appellant's contention that the corporate guarantees were actionable claim for the point of view of the bankers and financial institutions and therefore, not covered under service, are not tenable. 4.1 Corporate Guarantee given by M/S Neptune Orient Lines Limited, Singapore, UK has benefited the assessee-appellant in two ways; firstly in the form of lower rate of interest for their borrowing cost and in the form of zero cost for the Corporate Guarantee to be provided to 9 Service Tax Appeal No. 50068 of 2019 Service Tax Appeal No. 50311 of 2019 the lender. Even though, the accruing benefit was not monetary in nature, such non-monetary consideration is squarely covered under Section 67(1) ii) of Finance Act, 1994. Therefore, in view of the same, the value has to be determined in term of Service Tax (Determination of Value) Rules, 2006. The Adjudicating authority has rightly classified the services provided on behalf of the assessee-appellant as corporate guarantee w.e.f. 01.07.2012 under "service" as defined under section 65(44) of the Act, as same is neither covered in the exclusion clauses, nor in the negative list enumerated in section 66D of Finance Act, 1994 and notice is liable to pay service tax on the same w.e.f. 01.07.2012. In the light of above submissions made, it is prayed that the above assessee's appeal may please be dismissed and the Revenue's appeal may please be allowed.
5. We have heard the learned counsel for the appellant and the Learned Authorized Representative for the Department. We note that both the issues before us are no more res integra. 5.1 The issue of taxability of providing Corporate Guarantee without any consideration was dealt at length by this Tribunal in the case of Commissioner of CGST & Central Excise Vs Edelweiss Financial Services Ltd wherein it was held that any activity must, for the purpose of taxability under Finance Act, 1994, not only, in relation to another, reveal a 'provider', but also the flow of 'consideration' for rendering of the service. In the absence of any of these two elements, taxability under section 66B of Finance Act, 1994 will not arise. It was held that there is no consideration insofar as 'Corporate Guarantee' issued by respondent on behalf of their subsidiary companies is 10 Service Tax Appeal No. 50068 of 2019 Service Tax Appeal No. 50311 of 2019 concerned. This decision of the Tribunal was upheld by the Supreme Court. The relevant paras of the decision of the Supreme Court is reproduced hereinafter:
"3. The challenge here is to the concurrent finding in favour of the assessee recorded by the Principal Commissioner GST which was upheld by the CEST Tribunal, through the impugned order on 16.02.2022. The learned counsel would submit that this case is similar to Civil Appeal No. 428/2020 @ Diary No.42703/2019 (Commissioner of Service Tax Audit II Delhi IV Vs. M/S DLF Cyber City2 Developers Ltd.). and therefore the matter should be admitted and tagged with the pending case.
4. Responding to the above, Mr. Bharat Rai Chandani, learned counsel for the assessee on caveat would read Section 65 (12) of the Finance Act, 1994 to point out that issuance of corporate guarantee to a group company without consideration would not fall within banking and other financial services and is therefore not taxable service. He would also read Section 65B (44) of the Finance Act 1994 to point out that the definition of service would indicate that it relates to only such service which is rendered for valuable consideration.
5. The counsel would next advert to paragraph 3.1.12 of the Commissioner's order where the following was recorded:-
"further, the consideration can be of two types viz., monetary consideration and non-monetary consideration. In the present case, the Assessee has argued that they have not received any consideration. In such case it's for the department to prove 11 Service Tax Appeal No. 50068 of 2019 Service Tax Appeal No. 50311 of 2019 that the Assessee's claim is wrong. It is observed that nowhere in the Show Cause Notice, attempt has been made to prove that the Assessee received either monetary or nonmonetary consideration in any form. It is not alleged or proved in the Show Cause Notice as to how the Assessee got any benefit from their3 subsidiaries in monetary or non-monetary terms for the Corporate Guarantees issued. Missing this vital point, valuation of the consideration using provisions of Section 67(1) of the Finance Act, 1994 become a futile exercise."
6. Mr. Rai Chandani then read paragraphs 8 and 9 of the judgment of the Tribunal, which are extracted below:
"8. The criticality of 'consideration' for determination of service, as defined in section 65B(44) of Finance Act, 1994, for the disputed period after introduction of 'negative list' regime of taxation has been rightly construed by the adjudicating authority. Any activity must, for the purpose of taxability under Finance Act, 1994, not only, in relation to another, reveal a 'provider', but also the flow of 'consideration' for rendering of the service. In the absence of any of these two elements, taxability under Section 66B of Finance Act, 1994 will not arise. It is clear that there is no consideration insofar as 'corporate guarantee' issued by respondent on behalf of their subsidiary companies is concerned.
9. The reliance placed by Learned Authorised Representative on the 'non-monetary benefits' which may, if at all, be of 12 Service Tax Appeal No. 50068 of 2019 Service Tax Appeal No. 50311 of 2019 relevance for determination of assessable value under section 67 of Finance Act, 1994 does not extend to ascertainment of 'service' as defined in section 65B(44) of Finance Act, 1994. 'Consideration' is the recompense for the 'contractual' undertaking that authorizes levy while 'assessable value' is4 a determination for computing the measure of the levy and the latter must follow the former."
7. The above would suggest that this was a case where the assessee had not received any consideration while providing corporate guarantee to its group companies. No effort was made on behalf of the Revenue to assail the above finding or to demonstrate that issuance of corporate guarantee to group companies without consideration would be a taxable service. In these circumstances, in view of such conclusive finding of both forums, we see no reason to admit this case basing upon the pending Civil Appeal No. 428 @ Diary No.42703/2019, particularly when it has not been demonstrated that the factual matrix of the pending case is identical to the present one.
8. In consequence, the Civil Appeal stands dismissed.
9. Pending application(s), if any, stand closed." 5.2 The issue on taxability of service tax on profit/mark up is no more res integra as the same has been decided in catena of decisions, the latest being the judgment in the case of M/s Tiger Logistics (India) Ltd., vs Commissioner of Service Tax-II, Delhi 2022(2)TMI 455-CESTAT NEW DELHI. The relevant paras of the aforesaid judgment is reproduced hereinafter:- 13
Service Tax Appeal No. 50068 of 2019 Service Tax Appeal No. 50311 of 2019 "9. As far as the differential in ocean freight is concerned, the appellant buys space on ships from the Shipping Line and the Shipping Line issues a Master Bill of Lading in favour of the appellant. In turn, it sells the space to its customers and issues a House Bill of Lading to each of them. The first leg is the contract between the Shipping line and the appellant. The second leg is the contract between the appellant and its customers. Evidently, anyone who trades in any merchandise or service buys low and sells high and the margin is his profit. To earn this profit, he also takes the risk of being unable to sell. In the appellant's case, if the space on the ships which it bought cannot be sold to its customers fully, or due to market conditions, or is compelled to sell at lower than purchase price, the appellant incurs loss. In a contrary situation, it gains profits. This activity is a business in itself on account of the appellant and cannot be called a service at all. Neither can the profit earned from such business be termed consideration for service. Respectfully following Satkar Logistics, Nilja Shipping Pvt. Ltd., Surya Shipping and ITC Freight Services, we hold that the appellant is not liable to pay service tax." 5.3 The Tribunal in an earlier decision the case of M/s Greenwich Meridian Logistics (India) Pvt Ltd., vs Commissioner of Service Tax, Mumbai 2016(4) TMI-547-CESTAT MUMBAI held as follows:
"12. The appellant takes responsibility for safety of goods and issues a document of title which is a multi-modal bill of lading and commits to delivery at the consignee's end. To ensure such safe 14 Service Tax Appeal No. 50068 of 2019 Service Tax Appeal No. 50311 of 2019 delivery, appellant contracts with carriers, by land, sea or air, without diluting its contractual responsibility to the consignor. Such contracting does not involve a transaction between the shipper and the carrier and the shipper is not privy to the minutiae of such contract for carriage. The appellant often, even in the absence of shippers, contract for space or slots in vessels in anticipation of demand and as a distinct business activity. Such a contract forecloses the allotment of such space by the shipping line 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.15
Service Tax Appeal No. 50068 of 2019 Service Tax Appeal No. 50311 of 2019
14. We, therefore, find no justification for sustaining of the demand and, accordingly, set aside the impugned order. Demands, with interest thereon, and penalties in both orders are set aside. Cross-objections filed by the department are also disposed of."
6. In view of the above settled legal position, we allow Appeal No. ST/50068/2019 filed by the assessee appellant and dismiss the Appeal No. ST/50311/2019 filed by the Department.
(Order pronounced in the open Court on 03.09.2024) (DR. RACHNA GUPTA) MEMBER (JUDICIAL) (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) G.Y.