Custom, Excise & Service Tax Tribunal
Deep Chemicals vs Service Tax - Ahmedabad on 1 August, 2018
In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
Appeal No. ST/123/2009-DB
[Arising out of OIA-09/2009/STC/ID/COMMR-A-/AHD dated 03.02.2009 passed by
Commissioner of Service Tax-SERVICE TAX - AHMEDABAD]
M/s Deep Chemicals Appellant
Vs
C.S.T. & S.T.-Ahmedabad Respondent
Represented by:
For Appellant: Shri. Jigar Shah (Advocate) For Respondent: Ms. Nitina Nagori (A.R.) CORAM:
HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON'BLE MR. RAJU, MEMBER (TECHNICAL) Date of Hearing: 25/07/2018 Date of Decision: 01.08.2018 Final Order No. A / 11603 /2018 Per: Raju This appeal has been filed by M/s Deep Chemicals against demand of Service Tax, interest on imposition of penalty.
2. Ld. Counsel for the appellant pointed out that the Show Cause Notice was issued to the appellant on 05.04.2007 against the inquiry with started with their reply dated 28.08.2006. in response to summons received by DGCEI. The demand was confirmed by the original adjudicating authority and first appellant authority. Aggrieved by the said order the appellant before the Tribunal. He argued that the issue involved is with reference to their contract with M/s TaTa Chemicals Ltd wherein they were paying any service Tax in the capacity of C&F agent. They were also recovering the certain charges from M/s
2|Page ST/123/2009-DB TATA Chemicals Ltd as reimbursement. This Show Cause Notice invoking extended period of limitation has been issued for the period October 2002 to November 2006. Ld. Counsel pointed out that another Show Cause Notice was issued to them on 22.11.2006 on the issue regarding the packaging activity undertaking M/s Tata Chemicals under the same contract. Wherein, these reimbursements were made by the TATA Chemicals to the appellant. Ld. Counsel argued that in view of the decision of Hon'ble Apex Court in case of Nizam Sugar Factory Vs. CCE 2008 (9) STR 314 (SC) the demand Show Cause Notice on same/similar facts cannot be raised invoking extended period of limitation when another Show Cause Notice on same similar fact has already been issued. Ld. Counsel argued that in view of above the demand beyond the extended period of limitation cannot be sustain.
3. Ld. Counsel further argued that the appellant are entered into contract with M/s TATA Chemicals Limited for the activity of C&F and packaging agent. The appellant have paid on service fee for their activities. The agreement also prescribes certain payments, as reimbursement, for various expenses. Following amount were been recover by the appellant.
"(i) The details of Godown rent, other fixed expenses, and loading charges for outward movement received by them from M/s Tata Chemicals Limited, They also stated that against these charges no service tax is payable as the said amount is not received as consideration for rendering C&F service and narrated the reasons as to why the said amount cannot be covered under C&F services.
(ii) Godown rent received for use of Godown by them from M/s Tata is not for any C&F services and hence the rent received for Godown cannot be considered as service charges for C&F services as no service connected with clearing and forwarding operation is involved. They also informed
3|Page ST/123/2009-DB that any amount charged for provisions of c&f service only could be included in value of taxable service under the category of C&f service.
(iii) Regarding other fixed expenses they informed that these are charged for the expenses incurred by them towards fixed capital reimbursement, VFFS machines, spares, interest on fixed capital investment and operator and helper salary, and are no related to remuneration or commission paid to clearing and forwarding agent by the client.
(iv) The loading charges for outward movement is for recovery of expenses incurred by them for loading charges. The recovery of expenses of loading for outward movement is not a remuneration or commission for C&F service and hence cannot be included in the value of taxable services."
Revenue sought to demand duty on the expenses recovered under these heads.
4. Ld. Counsel pointed out that the Godown rent is given by M/s Tata as per the separate agreement of Rent on the basis of the area occupied by M/s Deep Chemicals. Currently the Godown rent is given at the rate of Rs.3.50 per Sq feet. The minimum area occupied currently is 24000 Sq. Feet. Out of this area approximately 300 Sq feet is used for packing of Soda Ash, and the remaining for the packing of common salt. He stated that M/s Deep Chemicals was paying the Godown rent to the original Godown owner which is not the same amount as claimed by them from M/s TATA.
5. Ld. Counsel also pointed out that the charges of fixed expenses towards capital reimbursement and interest are towards the investment made by them on the purchase of VFFSA machine for packing of salt. The machine was purchased by them in May 2004. He stated that prior to the purchase of machine the salt was packed manually by them. He stated that they had taken a loan from HSBC Bank for Rs. 18 lakhs.
4|Page ST/123/2009-DB The charges Rs. 10431/- towards fixed interest and Rs. 37255/- towards fixed capital reimbursement are claimed from M/s Tata. He stated that it was in the scheme of the contract that they had to purchase this machine through Loan from HSBC. He also stated that in case their contract with M/s Tata was terminated the loan is to be transferred to new agent together with the ownership of the machine. He also stated that they had to complete the loan in five years, the instalments of the machine are paid by M/s TATA Chemicals to HSBC bank after deducting the same from their bill raised to them. These charges of Rs. 10431/- towards fix interest and Rs. 37255/- towards fixed capital reimbursement will be claimed by them from M/s Tata chemicals for eight years, the period which is the life of the machine as determined by M/s Tata in the agreement. He stated that this is purely reimbursement of facilitation of financing.
5.1 Regarding the salary of the operator he stated that the salary of the operator was fixed by M/s TATA Chemicals at Rs. 34,000/- The operator is operating the VFFS machine for machine for packing of TATA salt. He also stated that they are spending more on the salary of the operator ie, approximately Rs. 41,000/- The salary of the operator is being increased to Rs. 37,400/- in the new agreement.
5.2 Regarding the receipts of Machine Spares, he stated that these charges were fixed from May 2004 at the rate of Rs.10,000/- per month. He stated that the actual expenditure on the spares of machine used for packing of common salt during rainy season is more and in some seasons it is less. The receipt of machine spares is increased to Rs. 12000/- per month as per the new agreement.
5.3 Regarding the loading charges he stated that these charges are recovered at the rate of Rs. 16.20 Per MT from M/s TATA
5|Page ST/123/2009-DB Chemicals. These charges are for truck loading of the common salt at the time of dispatch of the goods.
5.4 The demand Show Cause Notice sought to include the charges under the heads of storage and warehousing services, cargo handling services and packaging services.
6. Ld. Counsel for the appellant argued that it is not permissible to vivisect one service into its components and demand of duty on such components. He relied on the decision of Hon'ble Apex Court in case Daelim Industrial Company 2007 (5) STR J99. He also relied on the decision of Tribunal in case Gujarat Chem. Port Terminal Co. Ltd Vs CCE 2008 (9) STR 286 (T) . Ld. Counsel on the relied on the Circular:
Trade Notice No.87/97 10/Service Tax/97 of the Madurai2 Commissionerate dated 14-July-1997 and on the Circular No:
334/1/2008-TRU dated 29-Feb-2008 and Circular: 186/2015-S.T.dated 05-Oct-2015. Ld. Counsel relied on the decision of Hon'ble Apex Court in the case of Gannon Dunkerley & Co.(P) 1958 (4) TMI 42 Supreme Court of India.
7. Ld. Counsel argued that it is not open the Revenue to divide a single service of C&F agent into different components and demand Service Tax. He argued that the dominant purpose of the contract needs to be appreciated and service should be classified under the said head. He relied on the decision of House of Lord in the case card protection plan Limited.
8. Ld. AR relies on the impugned order.
9. We have gone through the rival submission. We find that the entire defence of the appellant is based on the argument that they
6|Page ST/123/2009-DB have essentially entered into only a contract of C&F cum packaging agent. In terms of the said agreement, their also getting certain amount as reimbursement of expenses. He has argued that the Revenue cannot demand Service Tax on these reimbursements under any category other than C&F agent. The argument is essentially based on the decision of Hon'ble Apex Court in the case of Daelim Industrial Company 2007 (5) STR J99. (Supra). In the case of Daelim Industrial Company 2007 (5) STR J99 the appellant had entered into contract for construction of diesel hydro sulfaraization at Gujarat refinery. In the said case the separate elements of work were costed individually in the contract only for the purpose for facilitating periodic instalment payment. The contract was one composite contract. In these circumstances the Tribunal held that different components of the single contract cannot be vivisected and part of the subjected to Tax. The said decision was of Tribunal affirmed by Hon'ble Apex court as reported in (2004) 170 ELT A181. We find that the fact for the instance case are different. The contract is not composite contract. Each payment is measured separately depending on the quantum of service provided. The payments for the entire contract was not one composite fixed payment but its depends of each component individually. The billing also was done for each component separately. In this regard, Ld. Counsel has also relied on the decision Hon'ble Apex Court in case of Gannon Dunkerley (Supra). In the said decision while holding that the workers contract cannot be vivisected for the purpose of Tax. Hon'ble Apex Court clarified as follows.
"To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p.
7|Page ST/123/2009-DB
165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment."
In the instance case, though there is a single agreement but it embodies separate contract for each kind of services that being provided and separate compensation for those services. In view of above, there is no vivisection attempted by the Revenue of composite service as there is no single composite service. The appellant has separately billed for each of these separate services. In view of this the Circular CBEC No. 87/97/service Tax dated 14.07.1997 and No. 186/5/20015 dated 05.10.2015 both relating to single composite service are not relevant.
10 Ld. Counsel relied on Circular No.334/1/TRU-dated 29.02.2008. He has particularly relied on Para 3.3 which read as follows.
33. Section 65A states the principles for classification of taxable services. Classification of composite service is based on that component of the service which gives the essential character. There is a need to determine whether a given transaction is the one containing major and ancillary elements or the one containing multiple and separate major elements. In the case of a transaction containing major and ancillary elements, classification is to be determined based on the essential features or the dominant element of the transaction. A supply which comprises a single supply from an economic point of view should not be artificially split. The method of charging or invoicing does not in itself determine whether the service provided is a single service or multiple services. Single price normally suggests a single supply though not decisive. The real nature and substance of the transaction and not merely the form of the transaction should be the guiding factor for deciding the classification."
11. Ld. Counsel has argued that the method of charging or invoicing does not in itself determined whether the Service Tax provided is a single Services or multiple services. In the instance case the contract is not a composite contract as each head of reimbursement is billed and
8|Page ST/123/2009-DB charged separately. In case the appellant was of the opinion that the service provided under the agreement is a composite of C&F service then he would not have vivisected the amounts covered in the garb of reimbursement from the service provided. In none of the heads the liability of the service recipients' to pay the said amounts. The machine has been purchased by appellant. The storage placed has been rented by appellant for warehousing. Appellant has not paid these amounts as an agent but as his own liability. In the instance case the amounts recovered under independent separate clause of the agreement of the rate schedule constitute independent and separate services thus on merits the demand is sustained.
12. On the issue of limitation it is seen that a Show Cause Notice was issued to the appellant on 22.11.2006 on the basis's of inquire initiated by summons. On the basis of same inquire initiated the appellant response in the said Show Cause Notice dated 22.11.2006 and impugned notice dated 05.04.2007 is one on the same. The argument under consideration in both notices was also in the same, under these circumstance invocation of the extend period of limitation cannot be sustain. Looking at the facts of the case the penalty under Section 78 is set aside, the penalty under Section 76 is revised to the amount of duty leviable for the period within limitation. Appeal is partly allowed in above term.
(Pronounced in the open court on 01.08.2018)
(Raju) (Ramesh Nair)
Member (Technical) Member (Judicial)
Prachi