Custom, Excise & Service Tax Tribunal
Dhl Lemuir Logistics Pvt. Ltd vs Commissioner Of Service Tax on 23 August, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH CHENNAI Appeal No. ST/122/2006 [Arising out of Order-in-Original No.05/2005 dt. 23.12.2005 passed by the Commissioner of Service Tax, Chennai] Appeal No. ST/124/2006 [Arising out of Order-in-Original No.06/2005 dt. 23.12.2005 passed by the Commissioner of Service Tax, Chennai] Appeal No. ST/132/2007 [Arising out of Order-in-Original No.10/2007 dt. 29.03.2007 passed by the Commissioner of Service Tax, Chennai] DHL Lemuir Logistics Pvt. Ltd. Appellant Versus Commissioner of Service Tax, Chennai Respondent
Appearance:
Shri N. Prasad, Advocate For the Appellant Shri K. Veerabhadra Reddy, JC (AR) For the Respondent CORAM :
Honble Ms. Sulekha Beevi C.S. Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of hearing / decision : 23.08.2017 FINAL ORDER No. 41834-41836 / 2017 Per Bench Issues involved in these appeals are common and hence all the three appeals were heard together for disposal.
2.1 The appellant is a Custom House Agent and is registered under the category of Custom House Agents (CHA) Service and Business Auxiliary Service (BAS). Pursuant to investigation, the department was of the view that the appellants are not discharging service tax liability on various charges which fall under CHA service as well as BAS. Show cause notices were issued for different periods. Upon adjudication, the adjudicating authority confirmed the duty demands along with interest and imposed penalties. Hence these appeals.
2.2 On behalf of appellant, ld. Counsel Shri N.Prasad submitted the details of the period involved and the issues involved in various appeals which is given in the table as below :
S.No. Appeal No. Period Date of SCN Issues Involved Penalty/ Interest
1.
ST/122/ 2006 01.07.2003 to 30.06.2004 24.12.2004
(i) Levy of service tax under Business Auxiliary Service (BAS) category on Airline commission Interest under Section 75
2. ST/124/ 2006 July 2004 to July 2005 18.10.2005
(i) Levy of service tax under BAS category on Airline commission
(ii) Levy of service tax under BAS category on Airline incentive
(iii) Levy of service tax under BAS category on Air-freight rebate Interest under Section 75 of the Finance Act, 1994
3. ST/132/ 2007 August 2005 to September 2006 23.10.2006
(i) Levy of service tax under BAS category on Airline incentive
(ii) Levy of service tax on various receipts viz. (a) CCX fee (b) break bulk fee (c) currency adjustment factor (d) unallocated income (e) expenses reimbursement billing. (f) Agency fee.
The above are taxed under BAS category.
(i) Interest imposed under Section 75
(ii) Penalty under Section 76 2.3. The ld. counsel submitted that the issues with regard to (a) Break Bulk fee as CHA service (b) Freight Rebate as BAS (c) Airline Commission as BAS (d) Airline Incentive as BAS and (e) CCX fee as BAS have been analyzed by the Mumbai Bench of the Tribunal on identical set of facts and has held the issue in favour of the appellant except for the CCX fee.
2.4 In regard to break bulk fee, he submitted that in the case of DHL Logistics Pvt.Ltd. Vs CCE Mumbai-II which was considered by the Mumbai bench (in Appeal ST/85795/2014), the issue was whether break bulk fee was leviable to service tax for the relevant period under the category of CHA service whereas in the present case, the department has sought to bring the break bulk fee under the category of BAS. He argued that break bulk fee represents only the share of profit earned between the group companies of the appellant and it is only a profit sharing between group companies and is not a consideration for service.
2.5 The other charges which are in dispute are (1) Agency Fee (2) Unallocated Income, (3) System Currency Assessment Factor and (4) Expenses Reimbursement.
2.6 He submits that Agency fee are charges collected from the importers for preparation of delivery order and for handing over the goods to the importer indicated in the house airway bill.
2.7 Unallocated income represents charges in accounting entries due to the change in terms of contract involving increase or reduction in rates.
2.8 System currency adjustment factor is charges collected from the importer to offset exchange rate fluctuations on the freight amount.
2.9 Expenses reimbursement are the amounts collected from the importer towards reimbursement of various expenses such as, delivery charges, priority handling charges, break bulk fees, courier charges. These were claimed on equalized basis from the importer. The difference between the actual expenses incurred and charges collected were termed expenses reimbursement billing, import console in the books.
2.10 The ld. counsel submitted that with regard to break bulk fee, agency fee, unallocated income, system currency adjustment factor and expenses reimbursement, appellant has been discharging service from 1.5.2006 onwards under the category of "Business Support Service" (BSS) and submitted that since the activities of managing distribution and logistics is included in the Business Support Service and the appellants have been discharging service tax liability under this category from 1.5.2006; that therefore the demand raised by the department prior to 1.5.2006 alleging that these would fall under BAS is unsustainable.
2.11 Ld. counsel argued that the definition of Business Auxiliary Service as it stood during the relevant period prior to 1.5.2006 did not include the service provided for the client. The definition was amended w.e.f. 16.5.2006 when it included only those services provided or rendered on behalf of the client. In such a case, rendering of services on behalf of client requires three parties. In regard to charges collected by the appellant, there is no involvement of three parties and the services are rendered directly to the client; that therefore the said charges / services would not fall under the category of Business Auxiliary Service.
2.12 Ld. counsel also argued to set aside penalties imposed contending that being an interpretational issue, there was much confusion as to whether services would fall under BAS or CHA services or whether the charges collected would be subjected to service tax at all.
3. The Ld. A.R Shri K. Veerabhadra Reddy reiterated the findings in the impugned order. He explained that the charges like break bulk fee, agency fee, unallocated income, system currency adjustment factor and expenses reimbursement are transactions involving three parties; that it involves airlines, appellant and the customer. Since there are three parties as discussed by the adjudicating authority in para 21.2 the charges/services would fall within BAS itself.
4. Heard both sides and perused the records.
5.1 Ld. Counsel has brought out to our notice the decision dt. 18.07.2017 in Appeal ST/85795/2014 of the Mumbai Bench of the Tribunal in the case of DHL Logistics Pvt. Ltd. The above decision is applicable to the following charges involved in the above three appeals. They are (a) Freight Rebate as BAS (2) Airline Commission as BAS (c) Airline Incentive as BAS and (d) CCX fee as BAS. From the above, the Mumbai Bench has held that freight rebate, airline commission and airline incentive are not liable to levy of service tax and has held the issue in favour of assessee. Following the same, we hold that the demand of service tax in respect of above three services is not sustainable and requires to be set aside, which we hereby do.
5.2 In the above decision, the CCX fee has been held to be liable to levy of service tax under the category of BAS. The appellant has submitted that these charges collected from the importer for the services of collection and remittances of freight amount to the international airlines. The charges are for fulfilling various regulatory formalities in foreign exchange remittance laws and to protect the importer from exchange rate fluctuations that occur between finalization of freight charges and remittance of freight charges. The Tribunal in the said decision held that demand under CCX fee as BAS is sustainable. Following the same, we hold that the demand in the appeal has to be sustained.
5.3 The issue of break bulk fee in the case of DHL Logistics Pvt. Ltd. (supra) was whether such fee would fall within the category of CHA service, whereas in the present case, the issue is whether the said fee would fall under BAS. The Mumbai Bench of the Tribunal in the aforecited case held that such fee would not fall under CHA service setting aside the demand. It is not disputed that the appellant has been discharging service tax on break bulk fee, agency fee, unallocated income, system currency assessment factor and expenses reimbursement under the category of BAS from 1.5.2006. It is also submitted that the department has not raised any demand on these charges after 1.5.2006 when the appellant has been discharging liability of service tax upon these charges under the category of BAS. Ld. counsel has explained that collection of these charges is a service directly rendered to the client and there is no involvement of three parties for such transactions. Though the ld. A.R has adverted to para 21.2 of the impugned order, on perusal of same, we find that ground discussed in this paragraph is regarding airline incentive. It is alleged by the department are to be classified under BAS since these satisfy the condition of rendering services on behalf of client. The said paragraph does not discuss about the payment of charges like break bulk fee, agency fee etc. Thus we are of the view that the demand of service tax on the charges like break bulk fee, agency fee, unallocated income, system currency assessment factor and expenses reimbursement are not subject to levy of service tax under BAS prior to 1.5.2006. The demand on these charges is required to be set aside, which we hereby do. Impugned Orders in respect of Appeal Nos.ST/122 & 124/2006 are set aside and these two appeals are allowed, with consequential relief, if any.
7. The impugned order in respect of Appeal ST/132/2007 to the extent of demand raised in regard to CCX fee is confirmed. Demand in respect of Airline Incentive is set aside. Since the issue stands covered by the decision of Mumbai Bench, demand in respect of break bulk fee, agency fee, unallocated income, system currency assessment factor and expenses reimbursement is set aside since the appellant has been discharging service tax on these amounts under "Business Support Service" w.e.f. 1.5.2006 and for the reason that these charges did not fall under the category of BAS during the disputed period.
7.16. Ld. Counsel has prayed to set aside penalty contending that the issue whether such charges would fall under the category of CHA/BAS/BSS or interpretational issue and the appellant has been discharging service tax. We do find substance in the said ground raised by the appellant for the reason that several amendments were brought into the definition of Business Auxiliary Service. Further, a new entry Business Support Service was introduced from 1.5.2006. In view thereof, we hold that imposition of penalty is unwarranted. Accordingly, penalty imposed under Section 76 of the Act covering Appeal No.ST/132/2007 is set aside. Impugned order is therefore set aside except for the demand in respect of CCX fee and appeal is partly allowed with consequential relief, if any.
(Operative part of the order pronounced in court)
(Madhu Mohan Damodhar) (Sulekha Beevi C.S)
Member (Technical) Member (Judicial)
gs
9
Appeal Nos.ST/122,124/2006
ST/132/2007