Custom, Excise & Service Tax Tribunal
Coromandel Shipping Agencies Pvt Ltd vs Visakhapatnam-Ii on 30 October, 2018
(1) Appeals No. ST/42/2009
ST/43/2009
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench
Court - I
APPEAs No. ST/42/2009 & ST/43/2009
(Arising out of Orders-in-Original No. 43/2008 (PVR), dated 30.09.2008 and 47/2008
(PVR), dated 22.10.2008 passed by CCCE (Appeals), Visakhapatnam-II)
COROMANDEL SHIPPING AGENCIES .. APPELLANT
PVT. LTD.
Vs.
CCCE&ST, Visakhapatnam-II .. RESPONDENT
Appearance Shri Hari Radhakrishnan, Advocate for the Appellant. Shri Arun Kumar, Dy. Commissioner/AR for the Respondent. Coram:
Hon'ble Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL) Hon'ble Mr. P.V. SUBBA RAO, MEMBER (TECHNICAL) Date of Hearing: 09.10.2018 Date of Decision: 30.10.2018 FINAL ORDER No. A/31355-31356/2018 [Order per: Mr. P.V. Subba Rao]
1. These two appeals pertain to the same issue in respect of same appellant and hence are being disposed of together.
(2) Appeals No. ST/42/2009 ST/43/2009
2. Appeal No. ST/42/2009 pertains to the period 1999-2000, 2002-03 and 2006-07, while appeal No. ST/43/2009 pertains to the period 01.02.2007 to 31.03.2007. Appellant is registered as "Custom House Agent" and has been providing services of Custom House Agency and Steamer Agency. They were issued a show cause notice on 17.05.2007 alleging that some services rendered by them were to be classified as 'Cargo Handling Service' for the period 16.08.2002 to 30.06.2003 as 'port service' for the period from 01.07.2003 on the following grounds.
a. In addition to rendering their services as Custom House Agency, they were rendering the services relating to handling of chemicals such as packing and palletisation of chemical storage, transportation and obtaining permission from the Port and Customs authorities for entry of cargo into deep water port by use of their clients in offshore operations of oil exploration.
b. They were also rendering the services relating to handling of import and export cargo, unloading of cargo from vessel into barges and unloading of barges and loading the cargo into trucks/rail rakes and despatching to different destinations etc.
3. A show cause notice was issued alleging that the above activities would fall under the category of Cargo Handling service and were liable to (3) Appeals No. ST/42/2009 ST/43/2009 service tax. Further, w.e.f. 01.07.2003, the show cause notice proposed to classify these services as 'Port Service" inasmuch as the cargo handling service is provided within the port premises. After following due process of law, lower authorities confirmed the service tax demand along with interest and imposed penalties under sections 76 & 77 of Finance Act, 1994. Aggrieved by this impugned order, the present appeal has been filed by appellant.
4. Ld. Counsel for the appellant submits that their primary function is Custom House Agent and being the person on the spot, they also render other services which are associated with the custom house work to their clients. They have been charging them separately an amount for these additional services by raising invoices but these services are being rendered with the help of other operators. The amount which they are charging from their clients is the amount which they paid to the other operators. In other words, these were the expenses which are in the nature of pay through. They were not gaining anything from these services. He would take us some of the invoices to show that the amounts which they charged from their clients were equal to the amounts which they have paid to their operators. In other words, they are reimbursable expenses which they recovered from their clients and are not services which they have rendered. He further submits that the CBEC have themselves recognised the nature of Custom House Agents goes beyond the facilitation of work in the Custom House. The Circular F.No. B43/1/97-TRU, dated 06.06.1997 in para 2.3, the role of Custom House Agents has been discussed as below:
(4) Appeals No. ST/42/2009
ST/43/2009
2.3 The services 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, measurement 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 / marking / 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 reimbursed by the importer / exporter for whom the above services are rendered. Apart from the above charges, the CHA also charges the client for his service under the head / nomenclature of 'agency and attendance charges' or similar kind of heads which is purported to be his service charge in respect of the services rendered in relation to the import / export goods.
5. He would thus argue that the role of Custom House Agents includes providing other necessary facilities to their parties and these cannot be considered as cargo handling services or port services (after 01.07.2003). Ld. Counsel further argued that the Commissioner has relied upon the provisions of Rule 5 of the Service Tax (Determination of Value) Rules, 2006, according to which the reimbursable expenses also need to be (5) Appeals No. ST/42/2009 ST/43/2009 included in the value of taxable services rendered. Rule 5 of the Service Tax (Determination of Value) Rules, 2006 reads as follows:
"5.Inclusion in or exclusion from value of certain expenditure or costs.-
(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs 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 on the said service..
Explanation. - For the removal of doubts, it is hereby clarified that for 3 .the value of the telecommunication service shall be the gross amount paid by the person to whom telecommunication service is actually provided. (2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-
(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured
(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;
(iii) the recipient of service is liable to make payment to the third party;
(iv) the recipient of service authorises the service provider to make payment on his behalf;
(6) Appeals No. ST/42/2009
ST/43/2009
(v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;
(vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;
(vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party;
and
(viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account. Explanation1.-For the purposes of sub- rule (2), "pure agent"
means a person who-
(a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;
(b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;
(c) does not use such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or services.
Explanation2.- For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is (7) Appeals No. ST/42/2009 ST/43/2009 immaterial that the details of individual components of the total consideration is indicated separately in the invoice. Illustration 1.- X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent Illustration 2.- In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service provider to the recipient of service. Illustration 3.- A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. Value of the taxable service for charging service tax is what A pays to B. (8) Appeals No. ST/42/2009 ST/43/2009 Illustration 4. - Company X provides a taxable service of rent- a-cab by providing chauffeurdriven cars for overseas visitors. The chauffeur is given a lump sum amount to cover his food and overnight accommodation and any other incidental expenses such as parking fees by the Company X during the tour. At the end of the tour, the chauffeur returns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X."
6. Thus, this rule holds that any expenditure or costs incurred by the service provider in the course of providing taxable services are also includible in the assessable value for determining the service tax. However, this rule has been held to be ultra-vires by Hon'ble Supreme Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. as reported in [2018(10) GSTL 401 (S.C)]. Therefore, the expenses incurred by them towards providing these services which were reimbursed by their clients cannot be included for the purpose of computing service tax even under the head of Custom House Agency services.' Therefore the demand needs to be set aside.
7. Ld. DR submits that the appellant has been rendering custom house agency services as well as other services i.e. cargo handling services (and port services from 1.7.2003). He was licensed as Custom House Agent but these other services are liable to be taxed as per Service Tax Act.
(9) Appeals No. ST/42/2009
ST/43/2009
Therefore, the demands were correctly confirmed by the lower authorities and the appeal needs to be rejected.
8. We have considered the arguments on both sides and perused the records. The two short points to be decided are a) whether the services of packing, palletisation, storage, transportation, handling of import and export cargo etc. undertaken by the appellant are classifiable as 'cargo handling services' / 'Port Services' (from 01.07.2003) or whether they should be considered as a part of Custom Handling Agency services being rendered by the appellant. (b) if these are considered as part of Custom House Agency services, whether the amounts which they have collected on account of the aforesaid services should be treated as reimbursable expenses and hence not included in the assessable value or whether these amounts should be included in the assessable value for the purpose of service tax in respect of the Custom House Agency services rendered by the appellant. Consequently, whether the demands are sustainable and whether penalties are imposable under sections 77 & 78 of the Finance Act, 1994.
9. It is true that the services which they rendered with respect to handling of cargo and processing etc. are classifiable as cargo handling services if they had rendered them in isolation. However, Custom House Agent himself also renders these services in addition to the services under CHA Regulations 1984. It has been recognised by the CBEC that all these (10) Appeals No. ST/42/2009 ST/43/2009 activities are part of the CHA activities. If these activities are considered as part of CHA services, then the amount charged by them should form part of the assessable value for the CHA services. However, in this case, the appellant claims that he has rendered the services through other agencies and they have only collected the amounts from their clients to the extent their service providers charged from them. In other words, they have not charged anything extra for these services over and above what their service providers have charged them. As per Rule 5 of the Service Tax (Determination of Value) Rules, 2006, any expenditure costs incurred by the service provider should be treated as consideration. However, this rule has been run down by Hon'ble Supreme Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. (supra) and therefore reimbursable expenses cannot be included in the value of the taxable services rendered by the appellant. However, it needs to be ascertained whether the amounts they have collected from their clients are the same as they were charged by the service providers. Otherwise, the remaining amount becomes the consideration for their services as Custom House Agency and needs to be included in the value of taxable services and service tax to be recomputed.
10. In view of the above, we find that the services rendered by the appellant during the course of Custom House Agency services in the form of handling of cargo etc. do not form a separate taxable service falling under Custom House Agency services or Port Services. It is a composite service rendered by the Custom House Agent. The amounts charged by (11) Appeals No. ST/42/2009 ST/43/2009 them from their clients do not get included in the value of taxable services rendered to the extent that they are reimbursable expenses. This is a fact to be verified from the invoices and accounts. We, therefore find it a fit case to remand the matter back to the original authority for the sole purpose of computing the duty liability after deducting the value of reimbursable expenses from the invoices.
11. Appeal is allowed by way of remand and the matter is remitted to the original authority for the purpose of computing the differential service tax, if any. Penalties imposed under sections 77 & 78 are set aside.
12. Appeals are disposed of as indicated herein above.
(Pronounced in open Court on 30.10.2018)
(P.VENKATA SUBBA RAO) (M.V. RAVINDRAN)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
vrg