Custom, Excise & Service Tax Tribunal
New Era Travel And Cargo Agencies vs Service Tax - on 29 May, 2024
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE
TRIBUNAL,
SOUTH ZONAL BENCH, CHENNAI
COURT HALL No.iit
SERVICE TAX APPEAL No.406 Of 2012
fArising out of Order-in-Original No.21/2012 dated 29.93.2012 passed by Commissioner
of Central Excise, Chennai ~ If Commissionerata, MHU Complex, Nandanam, Chennai
660 035)
M/s.New Era Travel & Cargo Agencies, c. ADpellant
No. 398/ {627}, Mount Road,
Chennai 600 006,
Versus
The Commissioner of GST & Central Excise . MEsSpandent
Chennai Narth Commissionerate
NO.25/1, Mahatma Gandhi Road,
Nungambakkam,
Chennai 600 034,
APPEARANCE:
Ms. Radhika Chandrasekar, Advocate
For the Appellant
Shri N. Sathyanarayanan, Asst.Commissioner (AR)
For the Respondent
CORAM :
HON'BLE MS. SULEKHA BEEVI ¢.S., MEMBER (JUDICIAL)
HON BLE MR. M. AJIT KUMAR,MEMBER (TECHNICAL)
DATE OF HEARING : 16.10.2023
DATE OF DECISION :
awe ty NN sow: RY Naroees s ~
. my ee oe ENS es ENS I Pe oe ES sy So toy aed
L pT t& Mappa} OG RDE F. Nee TEOO Pry Bogs hy. VS Vien,
FINAL ORDER No. OS OS (aoe 2k
Service Tax Appeal No.406 Of 2012
ORDER:Per Ms. SULEKHA BEEVI, C.S. Brief facts are that, based on intelligence that the appellant was not discharging the service tax liability properly for the taxable services rendered by them, the Survey, Intelligence and Research Branch (SIR), Service Tax Commissionerate, Chennai, initiated investigation and called for details from the Appellant. Documents were scrutinized. The Appellant, vide letter dated 20.01.2010, 28.01.2010 and 02.02.2010, furnished the following details:
(a) "Income from Airlines & Incentive from Airlines" consists of discount on the rate per kg which they receive from the airlines and also 5% TATA commission received from the airlines. The same is reflected in their Profit and Loss Account under the heading "Rebate on Airway Bill".
No service tax was paid on these amounts collected. The discount is passed on to their clients and the same is reflected in the expenses side of their Balance sheet. No service tax was paid on this commission amount.
(b) "Incentive from Sea" consists of Commission received for the clearance of sea shipments from other agents. No service tax was paid on this income.
(c)"Due Agent Collected" consists of the Due Agent amount mentioned in Airway Bill. It consists of charges like CHA, Airport handling, loading, unloading, Terminal! Charges payable to IAAI. Regarding these receipts, they stated that the service tax other than CHA charges was paid during the course of investigation.
(d)"Agency Charges Coilected" consists of Custom House Clearing Charges for which service tax had been charged and paid.
L Service Tax Appeal No.406 Of 2012
(e)'Cargo Forwarding Income" consists of other charges like airport handling, custom house agency charges, import clearing charges, loading charges, transport charges, and other charges.
2, . It appeared to the department from the above details that the
- appellant has not discharged service tax under Business Auxiliary Services and Goods and Transport Agency Services. It was also noted that the appellant short paid the service tax in respect of Custom House Agency Services. The department was of the view that the discounts/incentives received by appellant from airlines and shipping lines is a consideration received for promotion of air cargo service and sea transportation service. The activity would thus fall under Business Auxillary Services (BAS). The appellant had not discharged service tax on the incentives/discounts received by them. So also they did not discharge service tax under GTA services, under reverse charge. A show Cause Notice dated 20.04.2010 issued to the Appellant for the period 2004- 2005 to 2008-2009 proposing to demand service tax on the discount/incentive, received by the appellant under Business Auxiliary Services, the short paid service tax under CHA services and GTA services. | After due process of law, the original authority confirmed the demand with interest and imposed penalties. Aggrieved, by such Order, the appellant is now before the Tribunal. |
3. The Learned Counsel Ms. Radhika Chandrasekar appeared and argued for the Appeliant. It is submitted by the Jearned counsel that the demand under Business Auxiliary Services is raised on the incentives/discounts received by the appellant for buying and selling of \--
Service Tax Appea! No.406 Of 2012 cargo space in Airlines/Ships. Being an IATA Agent, the appellant has received Agency commission at 5% and the appellant has discharged service tax on this commission. The same has been noted by the department and no demand has been raised on the commission received.
3.1
(i) The Appellant is a service provider under the category of Custom House Agent Service and Cargo Handling Service and has discharged service tax correctly on the consideration received.
(ji) Being an IATA agent the Appellant books cargo space with various airlines and receives 5% commission. Service tax has been paid on this commission.
(iii) The airline also gives discount/incentive on the freight charges which is a profit earned on purchase and sale of cargo space. Buying and selling of space in airlines does not amount to marketing or promoting the services of airline.
(iv} It is a principal to principal transaction without the knowledge of the shipper. Mere sale and purchase of cargo space and earning profit in the process is not a taxable activity.
(v)The Appellant retains a portion of the discount and the rest is passed on to the customer, namely, the shipper.
(vi) There is no finding in the. impugned order with reference to the taxability on discount except for observing that any consideration for service by whatever nomenciature by which it is called is liable for tax. © (vil) The airline with whom the cargo space is booked is not the client of the Appellant and therefore, the discount is not subject to service tax. The Appellant relies upon the following decisions where in it has been held that freight difference i.e., discount/incentive given by the airline/shipper line is not taxable:
\-
Service Tax Appeal No.406 Of 2012
(a) Commissioner of Service Tax Vs AVR Cargo (2018) TIOL 2097
(b) Freight Systems India Pvt Ltd. Vs Commissioner of GST & Central Excise (2018) TIOL 3395
(c) Commissioner of Service Tax Vs Karam Freight Movers (2017) 4 GSTL 215
(d) Sindhu Cargo Services Ltd. Vs Commissioner of Service Tax (2019) 24 GSTL 664
(e) Commissioner of Service Tax Vs Continental Carriers (2017) TIOL 3964
(f) Greenwich Meridian Logistics (I) Pvt Ltd. Vs Commissioner of Service Tax, Mumbai (2016) 43 STR 245
(g) DHL Lemur Logistics Pvt Ltd. Vs Commissioner of Service Tax, Bangalore (2010) 17 STR 266
(h) Lee & Muir Head Pvt Ltd. Vs Commissioner of Service Tax, Bangalore (2009) 14 STR 348
(i) Airogo Travels Final Order No.43487/2017 dated 19.12.2017 3.2 Demand under CHA Services The appellant, as a CHA has incurred various expenses which is reimbursed by the client. The expenses reimbursed cannot form part of taxable value in terms of Rule 5(1) as it cannot form part of the gross value as under Section 67 of the Finance Act, 1944. This position of law is laid down by the Supreme Court in the case of Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Lid (2018) 19 GSTL 401, There is absolutely no finding in the impugned order with reference to the taxability of reimbursements.
3.3. Demand of service tax under GTA services The Order in Origina} has confirmed the levy on the ground that, as per Balance sheet, the Appellant has incurred expenditure towaras freight s-
Service Tax Appeal No.406 Of 2012 and cartage charges and has not obtained registration. However, the appellant is not contesting this demand in this appeai.
3.4 It was also argued by the learned counsel that the various demands cannot sustain, as the department has taken the figures from the Profit and Loss account to arrive at the taxable value. There were several errors _ in quantification of the demand, which was pointed out by the appellant to the adjudicating authority. The discussions made in para 17.0 of the impugned order, would establish this.
3.5 The Learned Counsel further argued on the grounds of limitation. For the period 2004-2005 & 2008-2009, the Show Cause Notice has been issued on 20.04.2010. There is nothing brought forth in the SCN that the
- appellant has suppressed facts with intent to evade payment of service tax. The demand under Business Auxiliary Services (BAS) is. made on the incentives received, which has been properly accounted. The appellant | did not discharge service tax on incentives received from airlines/shipping lines. There are several decisions in favour of assessee holding that the incentives cannot be subject to levy of service tax. In regard to CHA services, the allegation of short payment is only on the reimbursabie expenses. Further, these amounts were also accounted and not hidden or suppressed by the appellant. The appellant did not discharge service tax on GTA services as they were not aware that being a recipient, they have to discharge service tax. However, the amounts were properly accounted and not suppressed. The SCN issued invoking the extended period therefore, may be set aside.
< a Service Tax Appeal No.406 Of 2012
4. The Learned AR Shri Sathya Narayanan appeared and argued for the department and supported the findings in the impugned order.
5. Heard both sides.
6. The demand of service tax is made under Business Auxiliary Services, --
Custom House Agency Services and Goods Transport Agency Services.
6.1 It is not disputed that the appellant who is an IATA agent has discharged service tax on the agency commission received by them. The SCN does not raise demand on the agency commission received by the appellant. It is seen that the demand for service tax under Business Auxiliary Services is raised on the discounts/incentives received from Airlines and Shipping lines. In para 5.1.2 of the order, the adjudicating authority has observed as under:
"In the instant case, the assessee realized various amounts under the heads viz, income from airlines, incentive from airlines, income from sea, incentive from sea, due agent collected, etc, and the same are received by the assessee for promotion and marketing of air cargo transportation service and sea cargo transportation service. It appears that the above income are classifiable under Business Auxiliary Service in terms of Section 65(19) (ii) and (vii) of the Act."
6.2 From the above it can be seen that according to department the incentives received from airlines and shipping lines is a consideration received for promotion and marketing of air cargo transportation and sea cargo transportation and falls under Sub clause (ii) and (vii) of Section 65(19) which defines Business Auxiliary Services. For better understanding, the definition of Business Auxiliary Services under Section 65 (19) is reproduced as under:
s-
Service Tax Appeal No.406 Of 2012 "Business Auxiliary Service means any service in relation to, -
(i) promotion or marketing or sale of goods produced or provided by or belonging te the client; or fii) promotion or marketing of services provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
(v) production or processing of goods for, or on behalf of the client; or
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development, of prospective customer or vendor, public relation services, management or supervision, and | includes Services as a commission agent...... .
Explanation: (a) 'Commission agent' means any person who acts on behaif another person and causes sale or purchase of goods or provision or receipt of services, fora consideration. dnd includes any person who while acting on behalf Of another person -- | {i) deals with goods or services or documents of title to such goods or services; or {ii) collects payment of sale price of such goods or services; or (iit) guarantees for collection or payment for such goods or services; fiv) undertakes any. activities relating to such sale or purchase of such | goods or services;"
6.3. It is thus the case of the department that the airlines and shipping lines are clients of the appellant and the incentives received is a. consideration for promotion or marketing of services provided by the client. The Learned Counsel! has countered these allegations by submitting that the appellant does not do any activity of promotion or J-
Service Tax Appeal No.406 Of 2012 marketing of the airlines or the shipping lines. These airlines or shipping lines are not client of the appellant.
6.4 On appreciation of facts, it can be seen that the appellant books the cargo space on various airlines/shipping lines and pay freight for the same. The appellant collects the freight from the shippers for the space and transportation of the cargo. In some occasions, the total amount paid to the airline/shipping line may be less than the amount the appellant. receives as freight charges from their client (importer/exporter}, The appeliant thus receives a markup. In some cases, when the appellant fs unable to sell the total space or the freight charges collected from the client is less, appellant may incur loss. It is thus trading of cargo space, where there may be profit or loss to appellant. The airline/shipping line can never be considered as a client of the appellant as under Clause (ii) of Section 65(19). The client of the appellant is the importer/exporter or shipper. Thus it can be seen that the appellant does not render any activity of promoting or marketing the transportation of cargo by airlines or shipping lines. The discount/incentive received cannot be treated as a consideration for providing any service to airline or shipping lines. Tne very same issue was considered by the Tribunal in the case of Tiger Logistics India Limited Vs Commissioner, CT & GST 2022 (03) GSTL 337. The relevant paras are reproduced as under:
"4. The submissions of the appellant with respect to the above are as follows : Service tax on mark-up/differential of ocean freight
(a) The appellant is a multi-modal goods transporter under the Multi-modal Goods Transport Act, 1993 and is registered with the Directorate General of Shipping. It provides (i) Customs clearance service; (ii) Transportation service;
and (iii) Freight forwarding service.
10Service Tax Appeal Na.406 Of 2012
(b) It books cargo space on ships with the shipping lines and in turn, sells it to its customers. The Shipping line issues a Master Bill of Lading in its name and in turn, it issues House Bills of Lading to its customers.
fc) The appellant pays the Shipping line for the entire space booked and the customers pay the appellant for the space which they purchase from the appellant.
(dq) The total amount paid to the Shipping line can be less than what the appellant receives from selling the space or more than that. The price at which it sells space to its customers depends on market conditions. Thus, there could be loss if the appellant is unable to sell the total space it purchased from the shipping line or has to sell at a lower price or profit in a contrary condition.
(e} The demand of Service tax is on the differential between the purchase and sale price (or the mark-up) of the ocean freight under the category of Business Support Service (BSS) up to 30-6-2012 and under Section 66B read with Section 66D from 1-7-2012.
() The demand in the SCN was of Rs. 2,17,22,185/- which was reduced to Rs. 1,93,79,692/- allowing cum-tax benefit.
(g) No service tax is leviable on this amount as it is only a case of trading the space on Ships and the profit gained there from.
th) The issue stands decided by various benches of Tribunal in the cases of Satkar Logistics [{2021-TIOL-543-CESTAT-DEL], Nilja Shipping Pvt. Lid. [2020-TIOL-461-CESTAT-MAD], Surya Shipping [2019-TIOL-249-CESTAT- AHM], ITC Freight Services [2021-TIOL-445-CESTAT-BANG], etc. aee5
7. We have considered the arguments on both sides and perused the records. For a service tax to be leviable:
fa) aservice must have been rendered;
(b) the service so rendered must be a taxable service within the meaning of Section 63(105) of Chapter V of the Finance Act, 1994; and
(c) aconsideration must have been paid for that service;
8 if a service is not rendered at all, no service tax can be levied regardless of the fact that an amount has been received. Similarly, if the service so rendered does not squarely fall within the definition of 'taxable service' under Section 65(105), no service tax can be levied. Even if it is doubtful whether the service is taxable or not, the benefit of doubt in respect of the charging section goes in favour of the assessee and against the revenue. The third important element is the consideration for the service. Any amount received must be for the service and it cannot be for some other purpose. For instance, if any amount is received towards any compensation, such amount cannot be taxed.
i 11 Service Tax Appeal No.406 Of 2012 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 Pyt. Lid, Surya Shipping and ITC Freight Services, we hold that the appellant is not liable to pay service tax."
- 6.5 In the case of Seamax Logistics Vs Commissioner of Central Excise & Service _ Tax, Tirunelveli vide F.O.No.41150/2018, the issue was the demand raised on the excess amount collected by the assessee over and ' above the ocean freight paid by them to liners. The Tribunal observed as under:
"6. The issue whether the amount collected over and above the actual cost incurred as freight charges has been analysed by the tribunal in the case of Bax Global India Ltd. Versus Commissioner of Service Tax (supra) under the ocean freight. The tribunal relied upon the decision in the case of Greenwich Meridian Logistics (I) Pvt. Ltd. versus Commr. Of S.T., Murnbai 2016 (43) S.T.R. 215 (tri. - Mumbai). The facts reveaied that cargo space is booked in accordance with instructions of the exporters for which the appellant receives commission and were discharging service tax liability on such commission received. Ocean freight is the amount paid to the steamer agent (appellant). Acting on behalf of the shipping line which was nothing but profit made from the trading. of space or slots for ocean transport containers. Slots may be contracted for by the shipper or its agent with the shipping line through the steamer agent. There is a uni-directional flow of consideration because the space belongs to the shipping line. The tribunal in the case of Greenwich Meridian Logistics (I) Pvt. Ltd. versus Commr. Of S.T., Mumbai 2016 analysed the issue in detail. It is re-produced as under: -
\ eo 12 Service Tax Appeal Ne.406 Of 2012 --
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 trading in space or slots fs a figment and freight is all that is transacted. This is a patent misconstruing of the usage of that expression. Freight, though used colloquially to describe all manner of carriage, is the nomenclature assigned to the consideration for space provided on a vessel for a particular voyage.
Freight is charged by the entity that is in possession of space on a vessel from an entity that requires the space for carriage of cargo.
11. Slots may be contracted for by the shipper or its agent with the shipping line through the steamer agent, Implicit is a uni- -directional flow of consideration because the space belongs to the shipping line.
Steamer agent or agent of shipper may earn commission in such a transaction. Leaving that situation aside, the contention of the appellant is that it is a 'multi-modal transport operator' which entails a statutorily assigned role in cross-border logistics. According to Section 2 of the Multi-modal Transportation of Goods Act, 1993.
(m) "multimodal transport operator" means any person who -
(i) concludes a multimodal transport contract on his own behalf or through another person acting on his behaif;
Gi) acts as principal, and not 2s an agent either of the consignor. ar consignee or of the carrier particicating in the imultinicdal transportation, and who assumes responsibility for ifie performance of the said contract; and
(iii) is registered under sub-section (3) of section 4; and ;
(a) carrier" means a person who performs or undertakes to perform for a hire, the carriage or part thereof, of goods by road, rail, inland waterways, sea Or air;
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 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 liné 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 cf agency function, Ergo, it is nothing but a principal-to-principal transaction "and the fraignt ae 13 Service Tax Appeal No.406 Of 2012 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 multimodal 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 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 alse disposed of.
7. Following the same, we are of the view that the demand cannot sustain and requires to be set aside which we fereby do. The impugned order is set aside. The appeal is allowed with consequentiai reliefs, if any. fs .
6.6 .In the case of Direct Logistics Private Limited Vs CST Bangalore 2021 (55) GSTL (Tri - Bangatore (1.0.2021) the department was of the view that the amount collected by the assessee from client (shipper) over and above the ocean freight paid to the shipping line is to be included in the taxable value for payment of service tax under 'Clearing and Forwarding Agent Service'. "The Tribunal answered the question in favour of the assessee.. The relevant paras read as below:
"5, The appellant is engaged either by the shipper or the consignee to move their goods from the Port of Loading to the Port of Destination. Appellant agrees on a price with customer for such transaction and thereafter engages a shipping line to ferry goods from the port of loading ta the port of discharge on terms agreed to between the shipping line and the appellant. This arrangement with the shipping line could be done befcrehand where the appellant has a rate agreement/contract or it could be on case-to-case basis in which the shipping line is engeqed sitter the appellant gats J-14
Service Tax Appeal No.406 Of 2012 confirmation from the customer to move their goods. The appellant - issues its own documents for ocean freight and assumes full responsibility and liability towards the customer. In case of export, the appellant gets paid after it issues its own Bill of Lading (BL) to the client depending upon the payment terms agreed. In case of imports, appellant gets paid after it issues delivery order to its customers upon arrival of goods at the port of discharge as per the terms agreed with the customers. Appellant does not have any warehouse and the goods are always held in the ICDs or CFS pending clearances. The appellant has been raising bills upon the customers for their services under the following heads:
(i) Ocean Freight
(ii) Halting charges
(iii) Fumigation charges
(iv) Customs Documentation charges
(v) Bill of lading charges
(vi) Transportation charges
(vii) Service charges, etc. G6. Under dispute is the amounts which they have collected towards Ocean Freight from the customers which was in many cases higher than the amount which they had paid to the shipping line for the freight. The case of the Revenue is that the difference between the amount of freight actually paid to the shipping line and the amounts collected towards freight from the customers by the appellant should form part of the assessable value, as it cannot be attributed to the freight and it can only be attributed to the services rendered by the appellant which are in the nature of Clearing and Forwarding Agent Services. After examining the books of records and balance sheets of the appellant, demands were raised to charge service tax on this differential amounts.
7. The case of the appellant, on the other hand, is that their earnings from the difference between the amounts charged to their customers for Ocean Freight and the amounts actually paid to the shipping lines is in the nature of profit earned from their business of selling cargo space on the ships. Elaborating on the arrangements, the Learned Counsel explains that at times they book cargo space on the ship as per the customers' specific orders. At other times, they book the carge space in bulk on the ship in anticipation of the customers' requirement. Their contract with the shipping line is on principal-to-principal basis. Once they book the cargo space on a ship, they are bound to pay the shipping line for the entire cargo space whether or not they are able to get sufficient customers to utilize the entire space booked by them. On the other hand, their relationship with the customers is also on principal-to-principal basis and they assure the customers of transport of their cargo on the ship. They charge their clients at one rate and pay the shipping line i 15 Service Tax Appeal No.406 Of 2012 at a different rate and the difference jis their business profit from trading in the cargo space on the ships. At times, if there are not adequate customers to take up the entire space booked by them on the ship, they may have to flower the rates to attract more customers. This even results in a situation where the total amount of rate which they have collected from the customers is much lower than the amount of rate which they have paid to their shipping lines.
8. In other words, it is the case of the appellant that in this business of booking cargo space on the ship and selling it to the customers, there could 'be profit or loss. By no stretch of imagination, can this profit or loss be called as service rendered fo | their customers. This service is not a part of the Clearing and Forwarding Agent Service rendered by the appellant, for which they are collecting service charges and have undisputedly paid service tax on them."
6.7 The Tribunal in the case of Star Freight Private Limited Vs CST, 2023 SCC_onliné Cestat 505, the very same issue was considered. The _ discussions made by the Tribunalj are as under:
"25. We also find that major demand is pertaining to the Ocean freight charges and Air Freight Charges. The issue on taxability of service tax on Freight charges and the liability of tax on profit/mark un which. is no more res integra as the same has been decided in catena of decisions. In the case of Tiger Logistics (India) Ltd. V. Commissioner of Service Tax-II, Delhi, (2022) 63 GSTL 337 (Tri. -Del.) supra the tribunal held as under:
"9. As far as the differential in ocean freight 1s 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. Lic., Surya Shipping | and ITC Freight Services, we hold that the appellant is not liable to pay service tax,"16
Service Tax Appeal No.406 Of 2012
26. Similarly, in the case of Seamax Logistics Ltd. v. Commissioner of Central Excise and Service Tax, Tirunelveli, reported in 2018 (7) TMI 262 has held that no service tax is chargeable on the difference between the ocean freight collected from the clients and the ocean freight paid to the shipping lines." .
_ 6.8 In the case of CST, New Delhi Vs Karam Freight Movers 2017(4) GSTL 215 (Tri - Del) the very same issue of liability to pay service tax on the brokerage from various airlines, shipping lines, freight forwarding companies for cargo related services was examined. It was heia that mere sale and purchase of cargo space and earning profit in the process is not taxable activity. It was held that the mark up value was of freight charges and not commission for rendering services. The relevant para reads as under:
"11. On the second issue regarding the service tax liability of the respondent under BAS, we find that the impugned order examined the issue in detail. It was recorded that the income earned by the respondent to be considered as taxable under any service category, should be shown to be in lieu of provision of a particular service. Mere sale and purchase of cargo space and earning profit in the process is not a taxable activity under Finance Act, 1994. We are in agreement with the findings recorded by the original authority. In this connection, we refer to the decision of the Tribunal in Greenwich Meridian Logistics (I) Pvt. Ltd. v. CST, Mumbai - 2016 (43) S.T.R. 215 (Tri.- Mumbai). The Tribunal examined similar set of fact and held that the appellants often, even in the absence of shippers, contract for space or slots in vessels in anticipation of demand and as a distinct business activity. It is. a transaction between principal to principal and the freight charges or consideration for space procured from shipping lines. The surplus earned by the respondent arising out of purchase and sale of space and not by acting for client who has space or not on a vessel. It cannot be considered that the respondents are engaged in promoting or marketing the services of any "client".
12. In the present case it was recorded that the respondent was already paying service tax on commission received from airlines/shipping lines under business auxiliary service since 10-9- 2004, The original authority recorded that the show cause notice did not specify as to who is the client to whom the respondent fs providing service. Original authority considered both the scenario, airline/shipping fines as a client or exporter/shipper as a client. In case the respondent is acting on behalf of airlines/shipping lines as client, it was held that they are covered by tax liability under BAS.
J-
17Service Tax Appeal No.406 Of 2012 Further, examining the issue the original authority viewed that . commission amount is necessarily to be obtained out of transaction which is to be provided by the respondent on behaif of the client, that is, the exporters. The facts of the case indicated that the mark- up value collected by the respondent from the exporter is an element of profit in the transaction. The respondent when acting as agent on behalf of airlines/shipping lines was discharging service tax w.e.f. 10- 9-2004. However, with reference to amount collected from exporters/shippers the original authority clearly recorded that it is not the case that this amount is a commission earned by the _ respondent while acting on behalf of the exporter and said mark-up value is of freight charges and are not to be considered as commission. Based on these findings the demand was dropped. We do not find any impropriety in the said finding. The grounds of appeal did not bring any contrary evidence to change such _ findings. Accordingly, we find no merit in the appeal by Revenue. The appeal is dismissed."
6.9 Though the department filed appeal before the Hon'ble Apex Court against the judgement passed by Tribunal! in the case of Greenwich _ Meridian Logistics (1) Pvt Ltd., the same was dismissed on 1.4.2019 on the grounds of delay, as reported in 2019-TIOL-150-SC-ST.
6.10 The Learned Counsel has also submitted that the Mumbai Bench of the Tribunal in the case of Emu Line Pvt Ltd. Vs Commissioner (2023) 4 Centax_122 (Tri-Mum) held that the demand of service tax on the incentives received by assessee from shipping line, under Business Auxiliary Service (BAS) alleging that assessee was promoting or marketing the business of shipping lines is not sustainable. This decision was affirmed by the Hon'ble Apex Court in Commissioner CGST & CE, Belapur Vs Emu Line Pvt Ltd (2023) 4 Centax 129 (S.C)
-6.11 The Learned Counsel for appellant has fairly adverted to the decision passed by Chennai Bench, in the case of M/s.Progeon Global Forwarding Limited Vs CGST & CE F.O Nos.40692 and 40693/2023 dt.18.08.2023. It is submitted that the Bench had taken a different view and held that such incentives on markup value of freight charges is subject to levy of service tax as there is no L 18 Service Tax Appeal No.406 Of 2012 . evidence/documentary proof for the sale of space and that there is no evidence for payment of VAT on the sale of space. The Learned Counsel countered this judgment by submitting that there may. be agreements (understandings) between parties. All such agreements are not contracts. A contract is one which is enforceable by law. It is not necessary that it should be reduced into writing. It is submitted by the learned counsel that being space and not goods, there cannot be any ievy of VAT.
6.12 Further, it has to be stressed, as already discussed, in para 8.4., that the appellant is a CHA, and the client of CHA is the exporter/importer/shipper and not the airline or shipping line. As a CHA, the appellant does not and cannot act as agent in promotion or marketing of the airline and shipping lines. The activity therefore will not fall under BAS as under clause (ii) of section 65(19).
6.13 Again, the other clause invoked by department to allege that the incentives received are taxable under Business Auxiliary Services is clause (vii) of section 65(19). The said clause has already been reproduced. The activity does not fail under clause (vii) also; as this clause is ancillary to clause (ii). If the activity cannot fall under clause (fi) it cannot fall under clause (vii) also. Further, clause (vil) covers activities generally carried out mostly by banks and other financial institutions, and includes that of a commission agent. The appellant is not appointed as commission agent of the airline/shipping line, Appellant is a CHA, working under the Customs Broker Licensing Regulation 2013. As per Section 65 (35) of Finance Act 1994, the Customs House Agent means a person licensed temporarily or otherwise under the regulations made under sub-section (2) of Section 146 of Customs Act.
6.14 From the above and relying on the decisions discussed in para 6.5 to 6.10, we are of the view that the demand of service tax on incentives under | 19 Service Tax Appeal No.406 Of 2012 Business Auxiliary Services is not sustainable and requires to be set aside.
Ordered accordingly.
7. The next issue is the demand under CHA services. It is not disputed that the appellant has discharged the service tax on agency commission received for CHA services. The demand is raised on the various expenses incurred and reimbursed by client. In para 5.3 to 5.4.2 of the impugned order, the original . authority discusses that the appellant has to include the various expenses incurred by them and reimbursed by client in the taxable value. The issue as to whether reimbursable expenses are to be included in the taxable value is settled _ by the decision of the Hon'ble Apex Court in the case of UOI Vs Intercontinental Consultants and Technocrats Private Ltd 2018 (10) GSTL 401. After appreciating the facts and following the decision of the Hon'ble Apex Court, we are of the view that this demand raised under CHA services, cannot sustain and requires to be set aside. Ordered accordingly.
8. The third issue is with regard to non-payment of service tax under GTA services. The Learned counsel submitted that the appellant is not contesting this issue in this appeal. The demand and interest on GTA services is upheld.
9. The Learned Counsel has argued on the grounds of limitation also. It is seen that the figures for raising the demand has been taken by department on the basis of the profit and loss account. It cannot therefore be said that the appellant has suppressed facts with intent to evade payment of tax. The period invoived is from 2004-05 to 2008-09. The SCN has been issued on 20.04.2010. The Hon'ble Jurisdictional High Court in the case of Firm Foundations & Housing Private Ltd. Vs Commissioner of Service Tax, Chennai 2018 (16) GSTL 209 (Mad) had occasion to analyse the demand of service tax raised on the basis of
- figures reflected in Profit and Loss Account. The Hon'ble High Court observed as under: . i 20 Service Tax Appeal No.406 Of 2012 "11. Before me, two legal issues arise for determination :
(i) relevance of the P and L accounts of the petitioner in the determination of point of rendition of service and the method of quantification of receipts in respect thereof; and
(ii) the application of Rule 3 itself in the admitted facts. and circumstances of the present case.
24. Rule 3(a) and (b) provides for the point of taxation to be either the point of raising of invoice [Rule 3(a)] or in a case where the service provider has received the payment even prior to the time stipulated in the invoice, upon receipt of such payment [Rule 3(b)]. In the present case, no invoice is said to have been raised. However, the petitioner confirms that it has, in fact, received lump sum advances corresponding to several initial landmarks in the contract, even prior to the achievement of such landmarks. As per the provisions of Rule 3(b), the entire sum received thus becomes taxable upon receipt and according to Mr. Prabhakar, has been offered to tax.
25. Instead of such determination by application of the provisions of Rule 3, the respondent relies upon the P and L accounts to conclude that the amounts reflected therein have not been offered for service tax. The reporting of income in the P and L being . irrelevant for the purposes of determination of service tax payable, the basis of the impugned assessment is erroneous.
26. It is a well settled position that when a statutory provision or rule addresses a specific scenario, such rule/provision is liable to be interpreted on its own strength and context and one need look no further to alternate sources to seek clarity in regard to the issue that has been addressed by the aforesaid rule/provision.
27. I am conscious of the fact, and indeed Mr. Sundar. has repeatedly emphasized, that there is an alternate statutory remedy available in respect of the impugned order and as such there is no warrant for the interference of this Court in extraordinary jurisdiction under Article 226 of the Constitution of India. However, all relevant facts are on record. Both Learned Counsel concur on the position that the agreements that provide for the landmarks or stages of completion of work by the petitioner and consequential payments by the customers, is available with the Department.
34, In the light of the discussion above, the impugned order of assessment dated 21-4-2017 is set aside and the matter remitted to the file of the respondent to be re-done de novo strictly 'in accordance with the provisions of Rule 3 of the Rules and in the light. of the observations made in this order after affording due opportunity to the petitioner, within a period of three (3) months from date of receipt of this order."
J 21 Service Tax Appeal No.406 Of 2012
10. In the present case, the appellant has accounted all amounts received by them in their financial statements. In such scenario, it cannot be said that the appellant has suppressed facts with Intent to evade payment of tax. Further, the demands raised under Business Auxiliary Services (on incentives) and CHA (on reimbursements) are interpretational in nature. There are several decisions in favour of assessee. In regard to GTA services, it is submitted by the learned counsel that they were under the bonafide belief that the amount is not subject to levy of service tax, as they were service recipients. The appellant has accounted the expense incurred towards freight and cartage charges in their Balance Sheet for the years' 2005-06 to 2008-
09. The demand under GTA services is Rs.1,83,646/-. There is no positive act of suppression established by the department, except for the vague averment that the appellant has suppressed facts. We, therefore answer the issue on limitation in favour of appellant.
11. The Learned Counsel has prayed to set aside the penalty as per Section 80, as it stood during the material period. We find that the appellant has given reasonable explanation for non-payment of service tax under GTA services. The penalty imposed on GTA services is set aside by invoking Section 80 of the Finance Act, 1994. 11.1 Inthe result, the impugned order is modified as under:
(i) The demand of service tax, the interest thereon, the penalties imposed under Business Auxiliary Services is set aside entirely.
) 22 Service Tax Appeal No.406 Of 2012
(i) The demand of service tax, the interest thereon, the penalties imposed under Customs House Agent Services is set aside entirely.
Gil) The demand of service tax and interest thereon on Goods Transport Agency Services is upheld. The penalties imposed in this regard are set aside entirely.
12. The appeal is partly allowed in above terms with consequential rellefs, if any.
(Pronounced in Court on fas hes taken i o a Sake g (a BAK 4 :
ee Rae. Sete. ee eee ee (M,. AJIT KUMAR) (SULEKHA BEEVI C.S.) MEMBER (TECHNICAL) (MEMBER (JUDICIAL) or bO Lad ST/406/2032 Per contra M. Allt Kumar,
13. I have gone through the orders of the learned Member Judicial Ms. Sulekha Beevi C.S. The impugned order of the lower authority covers issue pertaining to three services as below.
1) Service tax payable on Business Auxiliary Service (BAS)
2) service tax payable on Custom House Agent Service (CHA)
3) Service tax payable on Transport of Goods by road service (GTA} Two of the above services (i.e BAS and GTA) were, as alleged in the SCN, not declared earlier by the Appellant. The appellant had acquiescence to the classification of the non-deciared services with a few reservations expressed on valuation before the original authority. They have now raised a host of legal issues that require a deeper examination in conjunction with the facts of the case. I would hence ike to examine the facts and jaw independently before I arrive at a conclusion on the issues raised in the appeal. Hence, this order.
id. In the discussions below, 'liner' refers to both the 'airlines / shipping lines" and 'consignor' refers to the EXIM trade customers who want to book their cargo on a liner. Any agreement that is enforceable by law Is a contract, hence the words 'agreement' and 'contract' are being used interchangeably below.
15. The dispute emanates from an investigation done by the Survey, Intelligence and Research Unit (SIRU) of Service Tax Commissionerate regarding the alleged evasion of duty by the appellant involving the above-mentioned services rendered by thern. Before taking up these issues sequentially, two preliminary legal issues raised by the appellant need to be examined first:
1} Burden of Proof Sey reel lL Gt, eGo Oa og iss ', ho i ne ST/406/2012
2) Demand based on profit and foss statement is not sustainable Burden of proof and rebuttal i6. it was noted at the beginning, that this dispute arose as an investigation by the department against alleged evasion of service tax by the appellant. [t is the Appellants contention that the onus of proof is on the Department to prove evasion and taxability. It is true that the onus of establishing taxability in the first instance Hes with the department, The department has done so by examining the appellant, gathering documents and facts within the Appellants Knowledge and have there after issued a show cause notice, using data supplied by the Appellant which was sufficient to raise allegations in favour of Revenue's stand. This was then to be rebutted by the Appellant. Even Section 106, of the Indian Evidence Act, 1872, which is of greater relevance in the more stringent circumstances of a criminal trial, holds that when any fact is especially within the knowledge of any person, the burden of proving that fact is upon him, The section is reproduced below,
106. Burden of proving fact especially within Knowledge.--When any fact is especiaily within the knowledge of any person, the burden of proving that fact is upon him.
The broad effect of the application of the basic principles underlying section 106 ibid especially in a case of duty evasion would be that the onus is discharged by the Department if it adduces evidence, circumstantial or direct, as is sufficient to raise a presumption in its favour with regard to the existence of facts sought to be proved. [See: Collector of Customs, Madras & Ors. v. D. Bhoormu! Li974] 3 s.C.R. 833]
i) Let ST/406/2012 i7. Once a query has been raised by Revenue regarding evasion of duty on specific services rendered by the appellant, adverse inference could be drawn against the appellant if they are not able to provide a satisfactory reply. The initial burden of rebuttal is on the assessee, because the basic facts are within their special Knowledge which they have concealed by not filing statutory returns / documents. The appellant has not been abie to explain with proper evidence the nature and substance of the sala, discount and commission allowed to them SO as to Examine the true nature of these activities. In fact in their reply to the SCN they had reworked out the duty payable towards the three services mentioned in the SCN and agreed to pay the balance duty as per their calculations. The Apex Court in Commissioner of Yncome Tax v. Best & Co. (Pwt.) Lid. [AIR 1966 S.C. 1325] stated as under:
"We may point oul, as some argurnent was advanced on the question of burden of proof, that this Court did not lay down that the burden to establish that an income was taxable was on the Revenue was immutable in the sense that it never shifted to the assessee. The expression "in the first instance" clearly indicates that it did not say so. When sufficient evidence, either direct or circumstantial, in respect of its contention was disclosed by the Revenue, adverse inference could be drawn against the assessee if he failed to put before the Department material which was in his exclusive possession. The process is described in the law of evidence as shifting of the onus in the course of a proceeding from one party fo the other. There is no reason why the said doctrine is not applicable to Income-tax proceedings. While the Income-tax authorities have to gather the relevant material to establish that the compensation given for the loss of agency was (1) [1965] 3 S.C_R. 692 a taxable income, adverse inference could be drawn against the assessee if he had suppressed documents and evidence, which were exclusively within his knowledge and keeping."
{emphasis added} Hence the Appellants contention is found to be not correct in the facts of this case.
pet etgig LLL LY al "9 "
oy "26
Demands based on Profit and Loss statement not sustainable.
18. The appellants has stated that no demand can be raised on the basis of values reflected in financial statements, like a profit and loss statement. It is seen from the SCN that in this era of self-assessment the Appellant filed ST 3 returns for CHA service from April 2004 to September 2006 and have had not filed ST3 Returns for the impugned services for the period October 2006 to March 2009 and did not pay service fax thereon, This deprived the department of critical data with which they could perform compliance verification. The Profit and Loss statement was submitted by the Appellant to the officers during the investigation showing the income received, as stated at para 4.0 of the SCN. The belief, knowledge and intention of the parties are evidence, and these can be gathered from the actions and internal documents of the appellant's company. It is not denied by the appellant that the document relied upon by the department is a financial statement of the company itself, which has been submitted by them to the departmental officers. It is drawn based on the facts as available in the company's ledgers following acceptable accounting standards. Hence the profit and loss statement to that extent contains valuable information, which may be relevant to the facts in issue and is necessary to be scrutinized aS @ part of the compliance verification during the investigation especially since statutory returns were not filed. It was for the Appellant to provide the best possible evidence to the departmental officers. Having chosen to give the profit and loss statement and further having not raised any doubts abouts its accuracy before the learned Adjudicating Authority they cannot do so now. In its judgment in ideal Security vs. CCE, Allahabad [2011 (23) S.T_R. 66 (Tri. -
a, - da feyeee ww be "Sb 4 er, %, Zt ST/406/2072 Del.}] which is germane to this issue, a Cordinate Bench of this Tribunal at Delhi held as under:
"9. We do agree with the Id. Appellate Authority in the matter of the discrepancy noticed by him in respect of the considerations received and appearing in different manner in two different statutory documents. While the ST 3 return was statutory document under Finance Act, 1994, the balance-sheet and profit and loss account were statutory documents under Companies Act, 1956. Therefore, when the public documents bring the discrepancy, the onus of proof was on the assessee to come out with clean hand to prove its stand."
(emphasis added) i9. Having examined the Appellants preliminary objections and found them to be invalid, I now examine the merits of their submissions regarding the services rendered. I take up BAS first.
Business Auxiliary Service (BAS) 20, The demand pertains to the period 2004-05 to 2008-09. The appellant in their reply to the show cause notice dated 09/07/2010 have described their activity relating to their business transaction as under (no para ar page numbers have been given in their reply letter):
"We have contested the demand raised by the department on the ground that the services were rendered by us is to shippers of cargo only and not fo the various airlines. For example, services rendered by air ticket agents and rail ticket agents is to passengers only not to Airline or Railway, therefore, the service tax has to levied on service rendered to passengers: similarly, the above subject service was rendered to shippers only and. not airlines. Hence the impugned demand and penalty was not in accordance with law."
ek kee KRRERK SRARY "The department has not understood our nature of the business. Our business transaction is to collect the goods ina parcel from our client and send the same to abroad through Air or ship. While sending the goods fo abroad through air, the airline is giving the IATA 5% commission plus discount. The discount is not a regular one: if is based on the case to case basis. And also the discount received from airline nearly 50% to 60% will be passed on to our customer by way of reduction in the price for which we have annexed the sample bill far your kind perusal (Annexure 1)"
(emphasis added) Mp eg gh ly peatttere ST/406/20 2 Again at para 31 and 33 of the Appeal paper book, it was stated as under:
31. The commissioner of Central Excise failed to appreciate that section 65(19)(i!) provides for promotion or marketing of services provided by the client. In the instant case, the appellant is not promoting any sort of service provided by airline in order to attract section SS(19)i). The appellant books cargo in any airlines that is appropriate at that particular point of time based on the freight rates, chent's preference, route etc."
"33. The Commissioner of Central Excise failed to appreciate that in terms of section 65(105)(zzb), taxable services has to be provided to 4 Cent by any person in relation to business auxiliary services. In the instant case, the airline is not our client. The incentive cannot be considered as consideration for taxable service." (emphasis added) The relevant provisions of section 65(19) of the Finance Act 1994, (FA 1994) defining BAS, at the relevant time are reproduced below.
"Business Auxiliary Service means any service in relation to {i} promotion or marketing or sale of goods produced or provided by or belonging to the client: or Hi promotion or marketing of service provided by the client or i f y Explanation - For the removal of doubts, it is hereby declared that for the purpose of this sub-clause, service in relation to promotion or marketing of service provided by the client includes any service provided in relation to promotion or marketing of games of chance, organized, conducted or promoted by the client in whatever form or by whatever name called whether or not conducted on line including lottery, lotto, bingo.
ERR BEEEK Ree
(vi) a service incidental or auxiliary to any activity specified to sub-
clauses @) to (vi} such as billing, issue or collection of recovery of cheques payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision and includes services as a commission agent, but does not include any activity that amounts to 'manufacture' within the meaning of clause (f) of section 2 of the Central Excise Act, 1944.
Explanation - For the removal of doubts, it is hereby declared that for the purposes of this clause -
(a) 'commission agent' means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration and includes any person who, while acting on behalf of another person -
{i} deals with goods or services or documents of title to such goods or services: or 29 ST/406/20 12 ap collects payment of sale price of such goods or services: or
(i) guarantees for collection or payment for such goods or services: or {iv} undertakes any activities relating to such sale or purchase of such goods or services;
21. itis the appellants contention that:
(i} The consignor is their client.
(ii) The airline is not their client, (if) They book cargo space on various liners on a principal-to-principal basis and pay freight on the same.
(iv) They receive discounts / Incentives and do nat pay service tax on it as it is not a consideration for any taxable service.
(v) They are engaged in buying and selling Cargo space. Mere sale and purchase of cargo space and earning profit in the process is a trading activity and is not taxable, vi} They are not involved in the promotion or marketing of service provided by the liners who are also not their client, 22, The Appellant has stated that they are not involved in the promotion or marketing of service provided by the liners who are also not their client, so as to fall under the classification of their activity under BAS. Incentives / concessions are usually offered to intermediaries by the liners with the object of pramoting their own business of booking and delivering cargo. Such collaboration jeads to a steady supply of customers for the liners services and helps them achieve a faster turnaround time for the vessels and lesser demurrage to be paid to ports etc. Due to this the demand for the particular liners services increases and correspondingly does their business giving them the capacity to withstand competition from other liners. Hence the rep SOLLLE:
pee sad ST/406/2012 issue is whether these services by the Appellant are of a similar nature and are classifiable under the category of BAS as per the terms of the contract, for promotion or marketing of service provided by the client-
23. I find that the Hon'ble Apex Court in Singapore Airlines Ltd.
Vs CIT, [Civil Appeal No. 69646965 OF 2015 / 2022 SCC OnLine SC i588} examined an issue whether 'Supplementary Commission' in the hands of the IATA travel agent, besides the 'Standard Commission' would be subject to Tax Deduction at Source ("TDS") requirements under Section 194H of the Income Tax Act, 1961. The said section requires deduction of TDS at 10% plus surcharae from payments falling under the definition of "Commission" or "Brokerage", The issue arose because within the aviation industry during the relevant period, the base fare for air tickets was set by the International Air Transport Association ("IATA") with discretion provided to airlines to self! their tickets for a net fare lower than the Base Fare, but not higher. Within this framework, the airlines would have no contro! over the Actual Fare at which the travel agents would sell the tickets. While the ceiling price could not be breached, the agents would be at liberty to set a price lower than the Base Fare pegged by TATA, but still higher than the Net Fare demanded by the airline itself, Hence, the additional amount that the travel agents charged over and above the Net Fare that was quoted by the airline would be retained by the agent as its own income. This auxiliary amount charged on top of the Net Fare was portrayed on the BSP as a "Supplementary Commission" in the hands of the travel agent. The stand taken by the assessees was that the "Supplementary Commission", was income earned via proceeds from the sale of the y S1T/406/2012 tickets, and not a commission received from the Assessee airline. (in the impugned case the Appellants referred to the incame receipt in their accounts as 'Incentive frarn Airlines / Sea' and 'Income from Airlines / Sea). They further stated that Section 194H referred to "service rendered" as the guiding principle for determining whether a payment fell within the ambit of a "Commission". The airline is oblivious to the final price at which the agent sells the travel documents to the customer. The portion in addition to the Net Fare which the agent retains is not paid by the airline at all but Is a payment to the agent directly by the purchaser of the ticket. In this case, the amounts earned by the agent in addition to the Net Fare are not connected to any service rencered to the Assessee. (A similar plea has been taken in this case by the Appellant regarding 'sale of space'). The Apex Court Consequently, went on to determine whether the travel agents were "acting on behalf of" the airlines during the process of selling flight tickets. The Apex Court from the exposition of law on the ambit of a contract of agency and its resultant effect concluded that the classification of the difference between the Actual Fare and Net Fare as being a "Commission" liable to deduction of TDS.
24. The present appeal relates to a case of alleged duty evasion where we are to decide an appeal in which the Appellant has sought to rephrase their earlier averments and have resiled on the acquiescence made regarding the classification of the services involved. However, the specifics of the nature and substance of the activity and how the payments are made or accounted between them, the liners and consignors has not been placed before either the Lower Authority or before us. No contract has been shown except for assertions made be) bo S'P/406/2012 based on case laws of this Tribunal, on issues of law. Hence although we are the last fact-finding authority, we are left to decide a mixed question of fact and law while being in the dark about facts relevant to the issue. It is this context that the judgment of the Hon'ble Supreme Court in Singapore Airlines (supra} though delivered in a case pertaining to the Income Tax Act, 1961 is relevant. It is a pointer to the fact that the surplus received between the price of advance booking the cargo with the finer and then negotiating the charges with the consignor could have the colour of a 'brokerage' or 'commission' which will be clear only when the terms of engagement between the parties is known. Moreover Section 194H (ibid) referred to "service rendered"
as the guiding principle for determining whether a payment fell within the ambit of a "Commission", and the Hon'ble Court concluded that the classification of the difference between the 'Actual Fare' and 'Net Fare' as being a "Commission". Further the judgment has cited with approval the Hon'ble Court's judgment in Khedut Sahakari Ginning and Pressing Society v. State of Gujarat [(1971) 3 SCC 480 ] and has placed emphasis on the need to closely scrutinize the contract between the parties. The judgment opined that:
"5S. 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) This gains further relevance in the light of the Appellants claim that their activity Involves the sale of space and the 'sales Surplus' which is greet bes fe eb tty % % % fe ST/406/2012 a trading activity is not exigible to service tax. This issue will be discussed separately.
25. The points that emerges from the various judgments of CESTAT, cited by the Appellant, is that service tax is not payable by a person where. the terms of agreement between the parties shows that the person:
a} opre-books cargo space on a Jiner and in turn allots it to their customers / consignors as per their (customers / consignors) requirement. (it is informed that the trade terminology for this activity is 'Purchase and sale of space'. A similar transaction for airlines ticket booking is called 'Supplementary Commission', as seen above) The Shipping line issues a Master Bill of Lading and payment invoice in the person's name and in turn, the person subsequently issues House Bills of Lading and invoice from his account to its customers / consignors. D} the amount paid to the Shipping line for block booking of cargo space in advance shoulda normally be lesser than the total charges he collects from the consignors before the liner sails. The mark-up received in the transaction, or a lack of it, depends on market conditions. Thus, theoretically there could be a loss if the person is unable to distribute the total space ft booked from the shipping line or has to book the carga from the consignors at a lower rate in a contrary condition. No Service tax is payable on the mark-up as it is only a case of trading.
c} undertakes all the legal responsibility and fiability for the transportation of the goods and undertakes all the attendant risks, a} are not involved in the promotion or marketing of service provided by the liners who are also not their client. The transaction
2. eat vlPPEs 1 ee 7 ST/406/2012 with the liners are on a principal to principal basis. Discounts received from the Jiners are not part of the consideration and hence carinot be taxed,
26. Para 28 of the Apex Court's judgment in Sushtlaben indravadan Gandhi & Another v. The New India Assurance Company Limited and Others [Civil Appeal No. 2235 of 2020 / (2021) 7 SCC 151] is relevant to the impugned issue and is reproduced below.
"28. itis exceedingly doubfful today whether the search for a formula in the nature of a single test to tell a contract of service froma contract for service will serve any useful purpose. The most that profitably can be done is to examine all the factors that have been referred to in the cases on the topic. Clearly, not all of these factors would be relevant in all these cases or have the same weight in all cases. It is equally clear that no magic formula can be propounded, which factors should in any case be treated as determining ones. The plain fact is that in a large number of cases, the Court can only perform a balancing operation weighing up the factors which point in one direction and balancing them against those pointing in the opposite direction [ See Atlyah, PS. "Vicarious Liability in the Law of Torts", pp. 37-38]."
27. {have examined the judgments provided by the Appellant and listed at para 3 above, to support their stand. I, however, was unable to find any test employed in the judgements to determine the relationships between the appellants and the liners in the said cases, to help guide me. The decisions appear to be /pse dixit, (Latin term that can be roughly translated to mean "he himself said it."). Ina legal context, it refers to decisions made on an assertion or statement made by parties / appellant's solely on their own authority, without ary supporting evidence or proof or factual reasoning of the nature of activities being done by them, I find that the Honorable Supreme Court in the case of Standard Radiators Pvt Ltd Vs Commissioner of Central Excise [2002 (143) ELT 24] had held that --
ST/406/2072 "2. We are satisfied that far greater consideration should have been given by the Tribunal to the case of the assessee than is shown by the order under challenge. The Tribunal is the last fact finding authority and itis expected that it will discuss the facts in some detail and not cursorily and come to briefly stated conclusions on that basis.
28. It has been held by the Hon'ble Supreme Court in Mrs. M. N. Clubwaia And Anr vs Fida Hussain Saheb And Ors [1965 AIR 610 / 1964 SCR (6) 642] that in the absence, of a formal document the intention of the parties must be inferred from the circumstances and conduct of the parties. If the terms of the document evidencing the agreement between the parties are not clear, the surrounding circumstances and the conduct of the parties have also to be borne in mind for ascertaining the real relationship between the parties. The appellant have claimed that the liners are not their clients. Their relationship is that of principle to principle with the iiners, without the shippers knowing about it. It has to be stated at the risk of repetition that the expressions 'principal' and 'agent' used in a document are not decisive. The nature of transaction is required to be determined on the basis its substance and not by the nomenclature used. For this the Appellant is required to provide precise data in support of their pleading which are within their knowledge, especially since they also serve as IATA Agents for airlines and get a commission for this activity. The terms "Agent' and 'principal' are defined by Section 182 of the Indian Contract Act, 1872 which reads as under:
182. An "agent" is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the m "principal", ST/406/2012 According to this definition, an agent never acts on his own behalf but on behalf of another. He either represents his principal in any transaction or dealing with a third person and does not do so in his own capacity. The crucial test of the status of an agent is that his acts binds the principal. As stated by the Hon'ble High Court of Gujarat in Varsha Engg Pvt Ltd v. Vijaya Traders, [AIR 1983 Guj 166], the essential feature of an agent is his power of making the principal answerable to third persons and enabling the principal to sue third parties directly or render him flable to be sued directly by the third party. In the circumstances a test of whether the Appellants transactions with the liners, as claimed, are on principal-to-principal basis and that with the consignors on a principal-to-client basis, is proposed as under.
{. Whether there was a bulk booking of space onboard the liners, by the Appellant, in advance i.e. before negotiating the booking of cargo on board the vessel with the consignors, or was the booking done on a case-to-case basis after receiving an order from the consignar. The dates of the Master Bill of Lading issued by the Shipping line in the Appellants name and in turn, the date on which the Appellant issues co-related House Bills of Lading to its customers / consignors should be a pointer.
Il, Whether the liner's invoice to the Appellant pre-dates the invoice of the Appellant to the consignor or does the liner directly invoice the consignor.
iif. A negative test for the transaction being on a principal- to-principal basis could be the proof of the appellant having suffered a loss due to adverse market conditions affecting the cargo pricing model being adopted by them, as above. iV. Whether it was clear to the consignor that the appellant had the power to act on 'on his own account' and undertakes all the legal respansibility and liability for the transportation of the goods along with all the attendant risks or the appellant was acting on behalf of the liners with the consignor.
a. Whether in case of a shutout of cargo due to lack of space being cited by the liners, or any other PE ap we HEEL EL % Ce rey %: $i Go od ST/406/2012 deficiency of service by the Hiner, the Hiner would be required to indemnify the appellant or are they liable to indemnify the consignor. Can the Appellant sue the liner for this breach of contract.
b. Whether the Appellant is under a duty to compensate the consignor for any injury caused to hirn/ cargo due to the appellants or liners neglect or want of skill, after the goods are handed over to the Appellant and till they reach their destiny, in the terms of the agreement of the consignor with the Appellant.
Vi. whether the incentives received by the Appellant from the liners are commission or discounts?
IX. whether the amount received by the Appellant and reflected in his books of account is purely the differential between the mark-up of the cost of booking cargo and the profit gained therefrom or for a bundle of activities.
29. It is seen that the Appellant after receiving the SCN have themselves worked out the actual amount of service tax payable on BAS and CHA services and presented a table working out the revised duty payable. They have only challenged the Departments allegations of the incentive received from the liners being commission on sales. Further they have distinguished between the commission regularly received from the Airlines on which service tax was being collected whereas discounts received frorn the airline are based on the volume of goods exported and no service tax is collected and paid on the same. Hence their grievance was that service tax was sought to be collected on discounts received from the airlines. Another view taken was that their activity amounts to export of services and also was a secondary service and hence no tax was leviable. This view was not pleaded before us and the facts were not stated nor examined with the relevant provisions of the Act and Rules. As regards 'agency charges' and 'due agent collected' they stated that these were paid as handling charges §7/406/2012 and other charges at the air / sea port and later collected from their cents which is not their income and was not llable to discharge service tax. They have accordingly as per their own tabulation accepted to pay service tax on BAS and CHA services of Rs 34,99,952, and on GTA services of Rs 1,483,646. The total service tax payable on BAS+CHA+GTA was worked out to be Rs &0,39,813/- against Rs 1,/4,27,945/- alleged in the SCN. Having made certain payments during the investigation they accepted to pay the balance of Rs 31,34,876, shortly and produce the challans. They prayed that based on their submissions the SCN may be dropped. Although there has been some acceptance of the allegations made in the SCN, I feel that in the light of the pecular facts and issues raised in the appeal the factual position needs fo be re-examined afresh.
Sale of space and Sales Tax
30. Before concluding the discussions on BAS one of the issues which merits mention relates to the 'sale of space' by the Appellant who is also an TATA Agent. The issue merits factual examination as did 'supplementary commission' in the judgment of the Apex Court in Singapore Airlines (supra}. What are all the activities, if any, that bundled together constitute the value for 'sale of space' and whether the 'sale of space', which is intangible and incorporeal in nature, is capable of being taxed under FA 1994. The Hon'ble Supreme Court in the case of Bharat Sanchar Nigam (supra), while examining the levy of service tax on provision of telephone fine, held as below-
"48. . . What are the "goods" in a sales transaction, therefore, remains primarily a matter of contract and intention. The seller and such purchaser would have to be ad idem as to the subject matter of sale or purchase, The Court would have to arrive at the conclusion as to what fhe parties had intended when they entered into a particular transaction of sale, as being the subject matter of sale or Lad SO SP/ag6/2012 purchase. In arriving at a conclusion the Court would have te approach the matter fram the paint of view of a reasonable person of average intelligence.
Ree RRAWE WARE
79. Therefore whether goods are incorporeal or corporeal, tangible of intangihle, they must be deliverabie."
(emphasis added) The Hon'bie Apex Caurt in Commissioner of Service Tax, Delhi Vs Quick Heal Technologies Nd [CIVIL APPEAL NO. 5167 OF 2022 / 2022 (63) G.5.7T.L. 385 (S.C.)] has listed out the essential requirement of a transaction for the transfer of the right to use the goods.
52. From the judicial decisions, the settled essential requirement of a transaction for the transfer of the right to use the goods are -
(B itis not the transfer of the property in goods, but it is the right to use the property in goods:
a Article 366(2SA)\(d) read with the latter part of the clause (29A) which uses the words, "and such transfer, delivery or supply"... would indicate that the tax is not on the delivery of the goods used, but on the transfer of the right io use goods regardless of when or whether the goods are delivered for use subject to the condition that the goods should be in existence for use:
(iil) in the transaction for the transfer of the right to use goods, delivery of the goods js not a condition precedent, but the detivery of goods may be one of the elements of the transaction;
(iv) the effective or general control does not mean always physical control and, even if the manner, method, modalities and the time of the use of goods is decided by the lessee or the customer, it would be under the effective or general contra! over the goods:
{v} the approvals, concessions, licences and permits in relation to goods would also be available to the user of goods, even if such licences or permits are in the name of owner {transferor} of the goods; and (vil) during the peried of contract exclusive right to use goods along with permits, licenses, etc., vests in the lessee.
I find that the Department of Revenue's Circular, D.O.F. No.334/1/2008-TRU, dated 29 rebruary, 2008, which stated that, whether a transaction involves 'transfer of possession and control' is a question of fact and is to be decided based on the terms of the 4} ST/A06/2012 contract and other material facts and that this could be ascertainable from the fact whether or not VAT is payable or paid, was noticed and emphasis supplied by the Apex Court in para 18 of its judgment in Commissioner of Service Tax, Ahmedabad Vs. M/s. Adani Gas Ltd. [Civil Appeal No. 2633 of 2020/ 2020 (40) G.S.T.L. 145 (S.C.)}. This issue was brought up during oral submissions before us, in the context of the appellant not having discharged VAT / sales tax on the 'sale of space'. It was averred by the counsel on behalf of the appellant that no sales tax / VAT was paid as space was not 'goods' and hence it was not exigible to sales tax / VAT. This at first blush appears to resonate with Revenue's stand, that no sale is involved in the appellants' activity, and they are only involved in the service of booking cargo.
31. 'Sale' involves a transfer in the title of goods; "Deemed sale' involve transfer of rights to use goods, which can be tangible or intangible, corporeal or incorporeal; whereas as 'Service' involves human effort / exertions, skill, or labour. Service tax is a value added tax on activity. The effort made by the Appellant to 'collect the goods in a parcel from our client and send the same to abroad through Air or ship' are perfarmance-based services and a composite activity, from collection to sending, that Involves human exertions. The appellant has also referred to their activity as a 'secondary service' rendered to the consignor in their reply to the SCN. The issue hence needs to be examined an facts.
Custom House Agent Service (CHA)
32. As seen from the SCN, Revenue was of the opinion that 'Cargo Forwarding Income' and 'Custorn House Agency Charges' received by seggteee 41 STM406/2012 the assessee / appellant are covered under the 'Custom House Agent Service'. Hence the entire 'Cargo Forwarding Income' and the CHA charges including other charges collected while rendering CHA service are covered and chargeable under 'Custom House Agent Service'. The appellant has not challenged the element constituting CHA service sought to be taxed before the Original Authority, except for the taxability of 'agency charges' and 'due agent collected' as these were payments towards handling charges and other charges at the air / sea port and later collected from their clients which is not their income and was not Hable to discharge service tax. They recalculated the duty payable minus the said reimbursements and agreed to pay tax as per their calculations. The Original Authority examined the claim of the appellant and reworked out the demand under BAS from Rs 1,56,60,826/- to Rs 75,51,924/. He however did not exclude the amounts shown towards 'discounts' and 'commission' as these were consideration towards rendering the taxable service irrespective of the nomenclature. The appellant has stated that there is no finding in the impugned order with respect to the taxability of discounts. The airlines with whom the cargo space is booked is not their client, theirs is a principal-to-principal transaction, and therefore the discount is not subject to service tax. I have discussed the issue pertaining to the appellants claim for a principal-to-principal relationship with the liners above. It has to be stated at the risk of repetition that the expressions 'principal' and 'agent' used in a document are not decisive. Representative questions were formulated above to verify the nature and substance of the relationship. Further as stated above facts like the nature of the discount, whether there are any additional obligations Son bo ST/406/2012 on the part of the appellant to the liners, whether the discount was in any way tied to a recipracal activity etc. are all very relevant in determining the eligibility of Discount / Commission / Brokerage. These issues needed to have been taken up with the Original Authority. Not having done so this Tribunal cannot fill in the gaps in the pleadings made by the appellant against a charge of evasion of duty.
Goods Transport Agency Service (GTA)
34. The appellant had not disputed their liability under GTA services, The learned Adjudicating Authority on having found the acceptance of classification of services as proposed in the SCN did not discuss the same. They, have on their own calculations accepted the duty payable towards GTA to be Rs 1,83,646/- the impugned order has accordingly confirmed the demand without a discussion. During the oral argument before us too the appellant had stated that they are not contesting the amount due to fack of documentation. In their Synopsis dated 16/10/2023, they have mentioned the issue but not contested the same. Hence the issue has not been challenged.
No Discussion on Reimbursable Charces
34. The appellant in their synopsis have stated that there is absolutely no findings in the impugned order with reference to the taxability of reimbursements. As discussed above the appellant has not challenged the element constituting CHA service sought to be taxed before the Original Authority, except for the taxability of 'agency charges' and 'due agent collected' as these were payments towards nandiing charges and other charges at the air / sea port and later collected from their clients which is not their income and was not liable to discharge service tax. The Hon'ble Supreme Court's judgment in ST/406/2012 Union Of India vs M/S Intercontinental Consultants and Technocrats Pvt Ltd [Civil Appeal No, 2013 OF 2014/ 2018 (10) G.S.T.L. 401 (SC)] examined the expression 'such' occurring in Section 67 of the Act. It held that the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. Hence these stated 'reimbursabie charges' are to be examined for facts and if shown to be not part of the gross amount charged as per agreement / contractual obligations, then the amounts need to be deducted from the assessable value before arriving at the tax to be paid, not otherwise, Suppression of Facts and Penaity
35. The appellant has submitted that the demand has been confirmed invoking extended period of time which is incorrect and unwarranted, In the present case, the period covered by the impugned order is from 2010 to 2015. The Show Cause Notice is dated 9.10.2015. Therefore, the maximum period up to which the demand can be imposed is only til October 2013 and the demand fram 2010 to October 2013 merits to be set aside. There was never a suppression of facts to the department. Audit has been conducting periodical verification of accounts during the alleged period. They have been filing ST-3 returns and TRG forms regularly in which they have disclosed all requisite information. I find from the impugned order that in this era of self- assessment the Appellant filed ST 3 returns for CHA service fram April 2004 to September 2006 only and have had not filed ST3 Returns for the impugned services for the period October 2006 to March 2009 anc 2 "gegyeettes "alt oto, ST406/2012 did not pay service tax thereon. The Hon'ble Madras High Court in its judgment in K. Nirai Mathi Azhagan Vs Union of India [Writ Petition No. 18314 of 2018 / decided on 03/1/2020], at para 9 has stated as under:
"The department is correct in contending that the acts of an assessee in discharging his entire tax liability to the Government by way of Advance Tax, TDS, self-assessment, etc., is set at naught ifthe same is not intimated to the Government in time by filing of return of income in order to enable to cross verify the same and complete the assessment within the period of limitation and in order to ensure that such acis of an assessee in discharging his entire tax lability bear » fruits 202 However, though I have examined the impugned order in the light of the submissions made by the Appellant and found that they have not be able to substantiate their pleadings based on factual data and cocuments, at the same time I also find that the impugned order has been very cryptic and has not discussed the issue before coming toa conclusion including in those issues where the appellant has not disputed the allegations in the SCN. Reasoning disclosed in judgments and orders play a vital role in setting up precedents for the future and it also helps appellate bodies understand the rationale for a particular conclusion so that it can tested against the provision of law. No tax can be collected merely because of the consent of parties. There has to be a legally valid levy. The Apex Court in M/S Kranti Asso. Pvt, itd. & Anr vs Masood Ahmed Khan & Ors {(2010) 9 SCT 496] stated as under;
"18. This Court always opined that the face of an order passed by a guast-judicial authority or even an administrative authority affecting the rights of parties, must speak. It must not be like the 'inscrutable face of a Sphinx'."
The Hon'ble Court, in the above judgment summarized and laid down the following principles relating to a 'speaking order':
cad Lftarceeneet is tay S1/406/2012 "S71. Summarizing the above discussion, this Court halds:
a. {in India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.
b. A quasi-judicial authority must record reasons in support of its conclusions.
c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.
d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.
@e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations.
f, Reasons have virtually become as indispensable a component of a decision-making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.
g. Reasons facilitate the process of judicial review by superior Courts.
h. The ongoing judiciai trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of iustice.
i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. AH these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the fitigants' faith in the justice delivery system.
j. insistence on reason is a requirement for both judicial accountability and transparency. k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision-making process then itis impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.
. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or 'rubber-stamp reasons' is not to be equated with a valid decision-making process.
m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial pawers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review 731-737). n. Since the requirement to record reasons a CLG ap ret tTo2 46 ST/406/20 t2 emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Anya vs. University of Oxford, 2001 EWCA Gly 405, wherein the Court referred to Articie 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions".
©, In all cornmon law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for develapment of law, requirement of giving reasons for the decision is of the essence and is Virtually a part of "Due Process".
The summary has been quoted extensively so as to be a guide to quasi- judicial Officers who may have missed the impart of the judgment initially and can be guided by the principles stated therein. In the light of the gaps found both in the pleadings and in the impugned order, it is felt that a finding of fact on the lis as expected from the Tribunal is not possible.
36. Iifind that the impuaned order has failed to make a determination of the issues of fact and jaw in a manner required by the statute and requires to be redetermined afresh to prevent a failure of justice, A decision take ipse dixit at this stage would not help making good law By the jast fact-finding Authority. Further it may also be relevant to examine whether the purported activity of the Appellant sought to be classified as BAS was incidental to its activity as a CHA or not. However as regards Service tax paid on 'Transport of Goods by road service' (GTA}, the matter has reached a finality as the issue is not contested by the Appellant.
37. I find that the determination of the appeal arising from the impugned order is not possible, on issues other than GTA, without an examination of facts peculiar to this case in the fight of the Hon'ble Apex Court's judgment's in Khedut Sahakari Ginning and Pressing we Knorr"
S¥/406/2012 Society (supra) and in Standard Radiators Pvt Ltd (supra). I am thus constrained to disagree with the orders of the learned Member (Judicial),
38. From the discussions, I find it necessary that all issues including that of penalty, Dut excluding the duty demanded on GTA, may be re- examined by the Adjudicating Authority on merits and a speaking order passed, after affording the Appellant a reasonable time to submit their written submissions if they so desire and after hearing them afresh within ninety days of receipt of this order. The appellant should also co-operate with the Adjudicating Authority in completing the process expeditiously with liberty to adduce evidence as may be found necessary for determining the issue.
39. Accordingly, the impugned order is modified, and the matter remanded to the Original Authority on the said terms. The appeal is disposed of with the afore-mentioned directions.
OLLIE te * 2 S -
wr we Rasy toe (M. AJLE-KUMAR) Member (Technical) es saps > in view of the difference of opinion between the Members of the Bench regarding Service tax payable on Business Auxiliary Service (BAS) and on Custom House Agent Service (CHA), the following issues which arise from the appeal are framed for resolution:
POINTS OF DIFFERENCE (} Whether the demand of service tax on BAS and CHA services is liable to be set aside on the basis of submissions made and following the ratio of judgments / case laws submitted. OR Gi) Whether the Tribunal being the last fact-finding authority is required to examine the facts, written agreement / contract between the parties and in its absence remand the matter to the Original Authority for giving an opportunity to the appellant fo adduce evidence as may be found necessary for determining the issue.
(Pronounced in apen court on ix NS f ' gion { i N es § > i 4 EA we eas LARA ve he Uk. Fe .
"7 wn . , t rn nmeellall (M. AJIT KUMAR) (SULEKHA BEEVI C.S.) MembertTechnical) Member (Judicial) Service Tax Appeal No.406 of 2012 Per: S.S,. GARG The difference of the following issues recorded in terms of two separate orders passed by the learned Members of the original Bench has been placed before me to give my opinion as a third Member:
G) Whether the demand of service tax on BAS and CHA services Is liable to be set aside on the basis of submissions made and following the ratio of judgments / case laws submitted.
OR (1) Whether the Tribunal being the last fact-finding authority is required to examine the facts, written agreement / contract between the parties and in its absence remand the matter to the Original Authority for giving an opportunity to the appellant to adduce evidence as may be found necessary for determining the issue.
40. Though the facts of the case have already been recorded by the learned Members of the original Bench therefore, I will not state the facts again and I will only confine to the points of difference.
4i. lhave heard both the parties on the points of difference and perused the material on record. Learned Counsel appearing on behalf of the appellant submits that the view taken by the learned Member (Judicial) who has allowed the appeal by setting aside the demand of service tax on discounts/ incentives under "Business Auxiliary Services" and reimbursement under CHA Services after carefully considering the facts and following the precedents on identical issues. She further submits that demand has also been set aside on the ground that the extended period cannot be invoked g Service Tax Appeal No.406 of 2012 and that there cannot be a demand of service tax based on profit and loss account, She further submits that Hon'ble Member (Technical) has remanded the matter to the Original Authority by way of a separate order. She further makes the following submissions:
a) The Appellant is a service provider under the category of Custom House Agent Service and Cargo Handling Service and has discharged service tax on the consideration received, Db) Being an IATA agent the Appellant books cargo space with various airlines and receives 5% commission. Service tax has been paid on this commission.
c} The airline also gives discount/incentive on the freight which is a profit earned on purchase and sale of cargo space. Buying and selling of space in airlines does not amount to marketing or promoting the services of airline.
d) It is a principal to principal transaction without the knowledge of the shipper. Mere sale and purchase of cargo space and earning profit in the process is not a taxable activity.
e) The Appellant also relied upon a catena of decisions wherein it has been held that mere sale and purchase of cargo space and earning profit in the process is not a taxable activity. The incentive / discount earned is not taxable.
42, She further submits that the Hon'ble Member (Technical) has remanded the matter on the following grounds:
e That the burden of proof is on the Appellant as the Appellant has not been able to explain with proper evidence the nature and substance of sale, discount and commission allowed to them so as to examine the true nature of the activities.
Service Tax Appeal No.406 of 2042 That no contract has been shown except for assertions made based on case laws of this Tribunal on issues of law.
The Appellant is required to provide precise data in Support of their pleading which are within their knowledge especialy since they also serve as IATA agents for airlines and get a commission for this activity, That the issue is covered by the decision of the Supreme Court in the case of Singapore Airlines wherein the issue was whether Supplementary commission in the hands of IATA travel agent would be subject to TDS in terms of Section 194H.
That the various decisions of CESTAT on the same issue relied upon does not employ any test to determine the relationship between the Appellant and liners and the decisions appears to be made on assertion or statement made by parties / appellants solely on their authority, without any supporting evidence or proof or factual reasoning of the nature of activities being done by them. Para 28 at page 37 proposes the test to be employed to prove as to of whether a transaction is principal to principal transaction. Relies upon various decisions and circular wherein it has been heid that whether the transaction involves transfer of possession and control is 9 question of fact and is to be decided based on the terms of the contract. Sale involves transfer of title of goods. Therefore the issué needs to be examined on facts.
Demands based on profit and loss Statement are sustainable as the Appellant has not raised any doubts about its accuracy before the Adjudicating Authority.
Service Tax Appeal Ne.406 of 2012 » That the extended period is invocable. The order also observes that OO is very cryptic.
43, She further submits that the grounds on which the learned Member {Technical} has remanded the matter is not tenable in Jaw and the Hon'ble Member (Technical) while remanding the matter to the Original Authority has travelled beyond the Show-Cause Notice and the Order-in-Original. She further submits that the Show-Cause Notice in the present appeal does not dispute the fact that the appellant who is an IATA agent has discharged service tax on the agreement received from the airlines. The observation that the appellant has not produced any contract except for assertions made is not tenable. In the Show-Cause Notice, the demand under "Business Auxiliary Service" is raised with respect to the discounts/ incentives received from the airlines and the shipping lines. Learned Counsel! further submits that the Show-Cause Notice refers to various Heads of income and the detaiis furnished by the appellant in this regard at Page 2 & 3 of the Show-
Cause Notice which is reproduced herein below:
"Further, the difference between the rate per kg by the airlines and the rate per kg charged on the customers by the assessee is also shawn as is income from airlines. This is also nothing but commission received for procuring business for airlines. The rates charged by the assessee on their customers (passed on fare) are shown under rebate on alrway bill."
44, She further submits that the Show-Cause Notice and the Order-in- Original only question the non-payment of service tax. Before the Adjudicating Authority, the appellant has specifically contended that the discounts are not taxable, however, the demand is confirmed on the ground that °... any consideration for services by whatever nomenclature by which it is called is able for tax and it is immaterial whether the same is a regular ae opr Service Tax Appeal No.406 of 2012 income oar otherwise..." and not on the ground that the appellant has not produced any contract nor adduced any evidence. She further submits that the observation/ propositions made with regard to non-production of the contract; non-production of precise data in support of their pleading which are within their knowledge etc. were not even pleaded at the time of arguments by the Department before the Tribunal. Moreover, the case laws relied upon was also not referred by the Department. She also submits that the reasons given in the remand order that the matter has to be remanded as no contract is produced; has in fact travelled beyond the Show-Cause Notice and the Order-in-Original and therefore, liable to be set aside. In support of this submissions, learned Counsel has relied upon by the following decisions:
a) CCE v. Ballarpur Industries Ltd. (2007) 215 ELT 489 (b} Caprihans India Ltd. v. Commr. ST 2015 (35) ELT 632 (SC) (c} Saci Alfied Products Ltd. v. Commissioner of C. Ex, Meerut 2005 (283) ELT 225 {SC} (d} Precision Rubber Industries (€P) Ltd. v.
Commissioner of Central Excise, Mumbai 2016 SCC On Line SC 406 (e} Reckitt & Colman of India Ltd. v. Collector of Central Excise (1997) 16 SCC 379 (f} Faze Three Limited v. CCE & ST - Silvasa Final Order No.10138-10140/2024 dt. 12.01.2024
(g) Commissioner of Customs vs Toyo Engineering India Ltd. (2006} 201 ELT 513 (SC) {fh} Ramiala vs State of UP and others (2023) SCC Online ALL 2479
45. She further submits that the arrangement of booking of cargo space with the shipping line/ airline is done on case to case basis and sometimes on a daily basis. There is no written contract between the appellant and the oe) iso Service Tax Appeal No.406 of 2012 shipping line / airline, Further it is not necessary that a contract should be in writing. When a shipper wants to ship cargo to a particular country he just calls up and the Appellant will have to make available options and rates. She further submits that with respect to the observations of the learned Member (Technical) that the decisions of the Tribunal relied upon do not employ any | test fo determine the relationship between the appellant and the liner, it is submitted that a divergent view can be taken only on a point of law and cannot be on the ground that how the other decisions have come to a conclusion regarding the non taxability of incentives/discounts/mark up. A decision is a decision and not being able to agree to the law laid down cannot be the basis for not following the same. She further submits that the precedents will have to be followed. She further submits that the decision of the Hon'ble Supreme Court in the case of Singapore Airlines Ltd. Vs CIT reported in 2022 SCC Online S.C. 1588, which is a decision under the Income Tax, cannot be made applicable to the instant case. The decision of the CESTAT in the case of EMU Line Pvt Lid Vs Commissioner of CGST (2023) 4 CENTAX 122 (Tri. Bom.) wherein it has been held that service tax on the incentives received from the shipping line is not taxable under Business Auxillary Services has been affirmed by the Hon'ble Supreme Court as reported in EMU Line Pvt. Ltd. ¥s Commissioner of CGST {2023) 4 CENTAX 129 (SC). The said decision was relied upon by the Appellant and the same is also recorded at para 6.10 of the Order. The Hon'ble member (Technical) has not considered the same.
46. Learned Counsel for the appellant further relies upon the decision of the Larger Bench of the Tribunal in the matter of Kafila Hospitality & Travels Pyt. Ltd. Vs Commissioner of Service Tax, Delhi- 2021 (47) BH A Service Tax Appeal No.406 of 2012 GSTL 140 (Tri. LB) wherein it has been held that incentives received by the travel agent is not for promoting the business of the airline and therefore it cannot be termed as consideration and consequently not leviable to service tax. Learned Counsel further submits that the observations of the learned Member (Technical) that the appellant has not paid VAT/Sales Tax on the sale of space is made without appreciating the contentions of the appellant that the Appellant has not sold goods and has only sold the cargo space which is not goods and hence out of purview of service tax. Though this contention is recorded at page 41 of the order but at the same is brushed aside on an observation that it appears to resonate with revenue stand that no sale is involved in the Appellant's activity and they are involved in the service of booking cargo.
47. As regards the reimbursement of expenses is concerned, the learned Counsel submits that the expenses reimbursed cannot form part of taxable value in terms of Ruje 5(1) as it travels beyond the scope of Section 67. This position of law is faid down by the Hon'ble Supreme Court in the case of Union of India Vs Intercontinental Consultants and Technocrats Pvt. Lid (2018) 10 GSTL 401. She further submits that there is no finding in the impugned order with reference to the taxability of reimbursements. However the Show Cause Notice from para 5.2.0 up to 5.4.2 refers to the definition of CHA Services and Rule 5€1) & Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 and states that expenditure or costs incurred by the service provider as the pure agent of the recipient alone is excluded. Therefore the Show Cause Notice proposes to demand service tax on the expenditure incurred while providing the CHA Services which is ist Ge Service Tax Appeal No.406 of 2012 squarely covered by the decision of the Supreme Court in the case of intercontinental Consultants and Technocrats cited supra.
48. As regards imitation, the learned Counsel submits that the observation of Member (Technical) that the extended period is invocable is not tenable as all details have been taken from the Appellants books of accounts and there is no suppression. The appellant was under a bona fide belief as toa non applicability of service tax with respect to incentives/discounts receiveqa on freight charges as freight per se is not taxable, reimbursements are not taxable. Further, it Is a question of interpretation and therefore extended Limitation period is not Invocable. For this submission, she relied upon the following decisions:
® Pushpam Pharmaceuticals Company Vs. CCE 1995 (78) ELT 401 (S.C) « Hindalco industries Ltd Vs. CCE 2003 (161) ELT 346 e GRT Regency Vs. The Assistant Commissioner WP(MD) 14084/2017 order dated 11.10.2022 e Continental Foundation Vs. CCE 2007 (216) ELT i77(SC) e Bharat Hotels Ltd Vs. CCE 2018 (12) GSTL 368 (Del) e Nestor Pharmaceuticals Ltd Vs. CCE 2000 (116) ELT 477 « Tata Johnson Contrals Automotive Vs. Commissioner of Customs 2004 (167) ELT 93 e Commissioner of Customs Vs. Toyo Engineering India Ltd 2006(201)} ELT 513 {SC} « Ramiala Vs. State of UP 2023 SCC Online ALL 2479 49, Further, the learned Counsel submits that in the present case, demand has been raised on the basis of Profit and Loss account which cannot be done in view of the decision in the case of Firm Foundations & Housing Private Ltd. Vs Commissioner of Service Taxr reported in (2018) 16 GSTL 209 wherein it has been held that there cannot be a demand based on the P & L. As regards the penalty also, learned Counsel submits that the entire issue involves interpretation and the appellant was registered under Service Tax Appeal No.406 of 2012 the category of CHA and cargo handling service and has discharged service tax. Hence, there is no intention to evade payment and therefore, the penalty is liable to be set aside.
50. On the other hand, learned Authorized Representative for the Department fully supported the view taken by the learned Member (Technical) and submits that since the appellant has not produced the written agreement/ contract between the parties in the absence of which it is very difficult to examine the correct position with regard to the nature of service rendered by the appellant to the liners as well as to the shippers.
Therefore, the matter needs to be remanded to the Original Authority who can decide the matter afresh after providing opportunity to the appellant to produce evidence as may be necessary for determining the issue.
Si. 1 have considered the submissions made by both the parties and perused the material on record including the decisions relied upon by both the parties in support of their submissions. Further, I find that the learned Member (Technical) while remanding the matter on the ground cited supra has, in fact, travelled beyond the Show-Cause Notice and the Order-in- Original. The observation of the learned Member (Technical) that the appellant has not produced any contract except assertions made in their reply to the Show-Cause Notice is not tenable. Perusal of the Show-Cause Notice in Para 5.1.2, it is also referred in the Order-in-Original at Page 80 of the Appeal Memorandum is reproduced herein below:
"The assessee realized various amounts under the heads viz income from airlines, incentive from airlines, income from sea, incentive from sea, due agent collected, etc, and the same are received by the assessee for promotion and marketing of air cargo transportation service and sea cargo transportation 3 service Tax Appeal No.406.of 2012 service. It appears that the above income are classifiable under Business Auxiliary Service in terms of Section 65(19)(ii) and (vii) of the Act".
h) The Order in Original at bara 18 and i9 specifically observes that:
LB.O.. a, The assessee receives income under heads viz income from airlines, incentive from airlines, income from sea, incentive from sea, due agent collected, etc, which are charges received by the assessee for promotion and marketing of air cargo transportation service and sea cargo service all above income are classifiable under Business Auxillary Services in terms of Section 65(19) (ii) of the Finance Act, 1994....... -
19.0. The assessee has also contended that the income by way of discounts is not taxable as they pass an 50% te 60% of such discounts to the customers by way of reduction in the price and it was stated that while commission was regularly received from the airtine on the export of the goods, the discount was based on the volume of goods exported through a particular airline and therefore, not a regular income. On examination of the issue raised I find that any consideration for Services by whatever nomenclature by which it is called iS liable for tax and it is immaterial whether the same is & regular income or otherwise. Hence T do not prapose to give any abatement towards the "discounts" as claimed by the assessee in their reply", o2. Further, I find that in the Show-Cause Notice, the incomes under various Heads have also been stated at Page 2 & 3 of the Show-Cause Notice which is reproduced herein below:
"Further, the difference between the rate per kq by the airtines and the rate per kg charged on the customers by the assessee is also shown as is income fram airlines, This case also nothing but commission received for procuring business for airlines. The rates charged by the assessee on their customers (passed on fare) is shown under rebate on airway DHT"
53. Further, I find that, in fact, both the Show-Cause Notice and the Order-in-Original does not make any mention as to non-production of the contract nor has questioned the income fram airlines, incentive from airlines, RK Service Tax Appeal No.406 of 2012 incame from sea, incentive from sea, due agent collected. Further, I find that the appellant has given the details of each of the income received and also had informed the Department that there is a difference in rate charged by the airline and the rate charged by the appellant from the customer. Therefore, the observation that appellant had not put forth before the authorities precise data, in my view, is not tenable. The Show-Cause Notice and the Order-in-Original only question the non-payment of service tax on the discounts and the reimbursement received by the appellant. Further, i find that the reasons given by the learned Member (Technical) in the remand order that no contract is produced and that the appellant was unable to explain with proper evidence, the nature and substance of sale, discount and commission that the nature of test to be employed for asserting as to whether the transaction is principal to principal basis and whether the transaction involves transfer of possession and control is a question of fact and the same has to be decided based on the terms of the contract, travels beyond the Show Cause Notice and the Order-In-Original because these facts have not been disputed either in the SCN or OIO and therefore the same travels beyond the Shaw-cause notice and is liable to be set aside. In this regard, the appellant has cited number of decisions of various Courts, including the Hon'ble Supreme Court cited supra but I may refer to the decision of Hon'ble Apex Court in the case of CCE, Bangalore Vs Brindavan Beverages (P) Ltd.- 2007 (213) ELT 487 (SC) wherein the Hon'ble Apex Court in Para 9 & 10 has held as under:
8, We find that in the show cause notice there was riothing specific as to the role of the respondents, if any. The arrangements as alleged have not been shown to be within the knowledge or at the behest or with the connivance of the respondents. Independent arrangements were entered into by the respondents with the franchise holder. On a perusal of the show service Tax Appeal No.406 of 2012 cause notice the stand of the respondents clearly gets established.
iG. There is no allegation of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record. The show cause notice is the foundation on which the department has to build up its case, If the allegations in the show cause notice are not specific and are on the contrary vaque, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity toa meet the allegations indicated in the show cause notice. In the Instant case, what the appellant has tried to highlight is the alleged connection between the various concerns. That is not sufficient to proceed against the respondents unless it is shown that they were parties ta the arrangements, if any. As no sufficient material much less any material has been placed on record to substantiate the stand of the appellant, the conclusions of the Commissioner as affirmed by the CEGAT cannot be faulted.
S3. Further, T find that the Hon'ble Apex Court, in the case of SACT Allied Products Lid. Vs CEC, Meerut ~ 2005 (183) ELT 225 (SC), has held in Para 18 as under:
18. In this context, we may usefully refer to the judgment of this Court in the case of Reckitt & Colman of India Ltd. v.
CCE, 1996 (88) ELT. 641 (S.C.). This Court held that it is beyond the competence of the Tribunal to make out in favour of the Revenue a case which the Revenue had never canvassed and which the appellants had never been required to meet.
34. Similarly, in the case of Precision Rubber Industries Ys CCE, Mumbai- 2016 SCC Online SC 406, the Hon'ble Apex Court in Para 10 has observed as under:
10. Our attention has also been drawn te Commissioner of Central Excise, Nagpur v. Ballarpur Industries Ltd.
[2007 (215) ELT 489 (SC)] wherein this Court held in para 21 that it is well settled that the show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest. This view was reiterated in Commissioner of Central Excise v. Gas Authority of India Ltd: [2008 (232) ELT 7 (SC}] in para 7 of the order.
Service Tax Appeal No.406 of 2012
55. In these circumstances, when the Show-Cause Notice which is the foundation on which the Department has to bulld up its case, is vague and lacks details, it has to be held that the impugned order based on such a Show-Cause Notice is bad in law and therefore cannot be sustained.
56. Further, I find that the learned Member Qudicial) has set aside the demand after relying upon the precedents decisions of the Tribunal which has cansistently settled the issue regarding the sale of cargo space and reimbursement are not subject to service tax. Those precedents decisions have to be respected and followed otherwise there will be uncertainty in the administration of justice. I also find that the CESTAT in the case EMU Line Pvt Lid cited supra has held that the service tax on incentives received from the shipping line is not taxable under Business Auxillary Service and this decision of tne Tribunal has been affirmed by the Hon'ble Supreme Court therefore the said issue settled the controversies involved in the present case in favour of the appellant. Moreover, the Larger Bench decision of the Tribunal in the matter of Kafila Hospitality & Travels wherein it was held that incentives received by the travel agent is not for promoting the business of the alrilnes and therefore, It cannot be termed as "consideration" and consequently liable to service tax. In this regard, the observations of the learned Member (Technical) that the decision of the Tribunal relied upon do not employ any test to determine the relationshio between the appellant and the liner is not valid in law. Similarly, as regard as the reimbursement of the expenses received by the appellant are not taxable in terms of Rule 5(1} as it travels beyond the scope of Section 67 and this issue has been settled by the Hon'ble Supreme Court in the case of UOF Vs Intercontinental Consultants and Technacrats Pvt. Ltd (supra). Further, I find that in the & 2.
Service Tax Appeal No.406 of 2012 case of Firm Foundations & Housing Private (Ltd. (supra), it has been held that there cannot be a demand based on Profit and Loss Account and in the present case, the demand has been raised based on the Profit and Loss Account which is not correct In law. As regards limitation, I find that the view taken by the learned Member (udicial) is correct because the appellant has not Suppressed any material fact and has provided all the details and the show-Cause Notice has been issued on the basis of the details supplied by the appellant. Moreover, it is the question of interpretation and therefore, the extended period cannot be invoked as held by the learned Member (Judicial) which, in my view, is correct. As regards penalty also, the view taken by the learned Member (Judicial) is correct in law.
>/. In view of my discussion above, I am of the considered opinion that the view taken by learned Member (Judicial) is correct and I also hold the same view as discussed above and the view taken by learned Member (Technical) is not correct in law in view of the discussion made above. Let the file be sent to the Original Bench to draw majority opinion.
(S. S°GARG) MEMBER (JUDICIAL) ge ah Service Tax Appeal No.406 of 2012 MAJORITY ORDER The Third Member has agreed with the view taken by Member (Judicial) holding that the demand of Service tax on Business Auxillary Service and Custom House Agent's Services is required to be set aside. In view thereof, the impugned order is modified as under :;
(1) The demand of service tax, interest thereon, penalties imposed under Business Auxillary Service is set aside entirely.
{2} The demand of service tax, interest thereon, penalties imposed under Custom House Agent's Service is set aside entirely.
(3) The demand of service tax and interest thereon, on Goods Transport Agency Service is upheld. The penalties imposed are set aside entirely.
The appeal is partly allowed In above terms with consequential reliefs, if any.
; ; Pt «oo . Sad (Pronounced in open court on AY> OS BPE) \., a ¥ 4 Ase, nl a as $ aa (M. AJIT KUMAR) c.S.) Member {Technical} Member (udicial)