Custom, Excise & Service Tax Tribunal
M/S Max Logistics Limited vs Cce, Jaipur on 23 August, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. IV DATE OF HEARING : 14/07/2016. DATE OF DECISION : 23/08/2016. Service Tax Appeal No. 829 of 2012 [Arising out of the Order-in-Original No. 10/2012/ST/JPR-II dated 27/02/2012 passed by The Commissioner of Central Excise, Jaipur.] For Approval and signature : Honble Ms. Archana Wadhwa, Member (Judicial) Honble Shri B. Ravichandran, Member (Technical) 1. Whether Press Reporters may be allowed to see : the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it would be released under Rule 27 of : the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair : copy of the order? 4. Whether order is to be circulated to the : Department Authorities? M/s Max Logistics Limited Appellant Versus CCE, Jaipur Respondent
Appearance Ms. Reena Khair, Advocate and Ms. Aastha Gupta, C.A. for the appellant.
Shri Sanjay Jain, Authorized Representative (DR) for the Respondent.
CORAM : Honble Ms. Archana Wadhwa, Member (Judicial) Honble Shri B. Ravichandran, Member (Technical) Final Order No. 53175/2016 Dated : 23/08/2016 Per. B. Ravichandran :-
The appeal is against order dated 27/2/2012 passed by Commissioner of Central Excise, Jaipur II. The brief facts of the case are that the appellants entered into agreements with Rajasthan Small Industries Corporation (RSIC) in connection with operation of Inland Container Depots (ICD). RSIC obtained approval of the Customs Authorities for operation of ICDs in various places. In turn RSIC invited offers for handling transportation of containers and cargo between ICDs and ports and also for marketing of ICD services. The appellants, having been selected to do the work, entered into agreements with RSIC for various services as stipulated therein. The Department entertained a view that the appellants have rendered business auxiliary services (BAS) to various importers and exporters on behalf of RSIC at the ICDs. Proceedings were initiated against the appellant by issuing a show cause cum demand notice dated 18/10/2010 to demand and recover service tax of Rs. 8,04,80,401/- for the period from 01/4/2005 to 31/3/2009. The case was adjudicated by the Original Authority vide the impugned order confirming the service tax demand and imposing equal amount of penalty under Section 78 of the Finance Act, 1994. Additional penalties under Section 76 and Section 77 were also imposed.
2. Representing the appellant, the learned Counsel Ms. Reena Khair submitted that there is no service tax liability on the appellant. The learned Counsels arguments can be summarized as below :-
(a) The agreement between the appellant and RSIC is on cost and revenue sharing basis. They are working on principal to principal basis and they are not providing service to RSIC. Both the parties put together their resources and undertake various activities to generate revenue which is shared between them on pre-determined ratios. In this type of arrangement, there is no tax liability. Reliance was placed on decision of Honble Kerala High Court in CCE vs. Cochin International Airport Limited reported in 2011 (24) S.T.R. 20 (Ker.), Honble Chhattisgarh High Court decision in Sew Infrastructure Ltd. vs. CCE & CUS, Raipur reported in 2015 (37) S.T.R. 984 (Chhattisgarh), decision of the Tribunal in Centre for Development of Advance Computing vs. CCE, Pune reported in 2016 (41) S.T.R. 208 (Tri. Mumbai), J.M. Financial Services Pvt. Ltd. vs. CST, Mumbai I reported in 2014 (36) S.T.R. 151 (Tri. Mumbai), India Gateway Terminal (P) Ltd. vs. CCE, Cochin reported in 2010 (20) S.T.R. 338 (Tri. Bang.), and JAC Air Services Pvt. Ltd. vs. CST, Delhi reported in 2013 (31) S.T.R. 155 (Tri. Del.). Reliance was also placed on Board Circular dated 23/2/2009 to contest the service tax liability ;
(b) RSIC have discharged service tax on the gross amount collected from the importers and exporters. A portion of this amount is now being sought to be taxed again at the hands of the appellant. This is not legally sustainable as the said amount suffered service tax fully ;
(c) the demand is hit by limitation. The show cause notice dated 13/10/10 was for demanding service tax for the period 01/4/2005 to 31/3/2009 by invoking extended period in terms of proviso to Section 73 (1) of the Finance Act, 1994. There is no fraud, suppression or contravention of any provisions of Rules by the appellant justifying the invocation of extended period for recovery. The entire dealings with RSIC is on record and the amount received by them have been reflected in all the financial records including balance sheet and financial statements. There is no malafide on the part of appellant. When the service tax has been discharged by RSIC on the full gross value, the appellant entertained the bonafide belief that no further service tax is liable to be paid on the said amount in a revenue sharing arrangement. They were guided by the Boards clarification dated 23/2/2009 and as such there is no justifiable reason for invoking extended period of demand against the appellant.
(d) As an alternative it was submitted that even in case the appellants were held liable for service tax the amount is available as a credit to RSIC who are discharging service tax on the gross value and are fully entitled for the credit of the tax paid. As such, there is no loss to the Government. This plea is submitted to support the case of their bonafide understanding on tax liability with no monetary benefit accruing to them. Hence it is not a justifiable case for extended period demand and for penal action.
3. The learned AR strongly contested the grounds of appeal and submitted mainly on the following grounds :-
(a) the terms of contract clearly established that the appellants rendered services in relation to import and export operations including all other incidental operation/ services as mentioned in Schedule 3 of the agreement. Agreement clearly states that the contractor has to render services as stipulated. There is no element of doubt regarding the arrangement between the appellant and RSIC which is clearly one of service provider and service recipient in relation to handling/ transport of import/export cargo of the clients ;
(b) the agreement is for composite contract for various services in connection with import and export cargo. It also clearly stipulates (Clause 1.2 of Schedule 1) that the appellants shall perform all the required marketing activities for ICD services. The composite agreement indicates rendering of services which will fall within the scope of BAS ;
(c) the cost/revenue sharing model as agreed upon is only a methodology of payment of consideration by RSIC to the appellants. This by itself does not determine the tax liability of the appellant. When the agreement is clear regarding rendering of service by the appellants the mode of receipt of consideration will not alter the tax liability. The Boards further clarification dated 13/12/2011 regarding revenue sharing arrangement has been correctly relied upon by the Original authority ;
(d) the appellants were not registered with the Department and have not been filing the statutory returns for the consideration received in terms of these agreements. In such situation, the demand for extended period can be justified. Accordingly, the penal action also is legally sustainable.
4. We have heard both the sides and examined the appeal records. The point for decision is whether or not the appellants rendered any taxable services under the category of BAS and if so whether the demand has been made within the permissible time limit in terms of Section 73. A careful perusal of one of the agreements dated 13/6/2007 w.r.t. ICD at Jodhpur reveals that the contractor (appellants) covenants with RSIC to render all services in relation to import and export operations including all other incidental operations/services mentioned in the annexed Schedule 3 and also undertakes to fulfill all its contractual obligations in time to the entire satisfaction of the corporation (RSIC). The agreement in various other places also repeatedly refers to the services provided under the contract by the contractor. A plain reading of the agreement leaves no scope for doubt regarding the intend of the contracting parties to have an agreement for services. Overall, the agreement is listing out various obligations on the part of the appellant towards fulfilling the terms of agreement. There is hardly any obligation on the part of RSIC except that they are already holders of approval from the Customs Department to operate the ICDs as custodian of import/export cargo. The nature of services rendered by the appellant is elaborately listed out in Schedule 3 of agreement. The appellants were also given the work of marketing activities of the ICD services including determination of prices to be charged from the users. They have also to ensure that ICD users make payment of services to RSIC at the rate determined by the appellant. The business auxiliary services as defined under Section 65 (19) of the Finance Act, 1994 reads as under :-
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
(ii) promotion or marketing of service 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 in 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-clause (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 service, management or supervision, and includes services as commission agent but does not include any activity that amount to manufacture of excisable goods, [Explanation For the removal of doubts, it is hereby declared that for the purpose of this clause, -
(a) commission agent means any person who acts on behalf of the another person and causes sale or purchase of goods, or provisions or receipt of services, for 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
(ii) collects payment or sale price of such goods or services ; or
(iii) guarantees for collection or payment for such goods or services ; (iv) undertakes any activities relating to such sale or purchase or such goods or services ;
(h) excisable goods has the meaning assigned to it in clause (d) of Section 2 of the Central Excise Act, 1944 (1 of 1944) ;
(i) manufacture has the meaning assigned to it in clause (f) of Section 2 of the Central Excise Act, 1944 (1 of 1944)].
5. It is clear that the appellants were to market the ICD services, ensure the realization of amount from the users and provide various services to importers and exporters which are to be provided by RSIC as a holder of ICD custom operation licence. In other words appellants were providing services in terms of agreement with RSIC w.r.t. import export cargo of various parties. Reading together the terms of agreement and the scope of BAS, as mentioned above, it is clear that the appellants are rendering taxable services under the category of BAS. The argument of the appellants that there is no service tax liability in cost/revenue sharing arrangement is not tenable in terms of clear wordings of the agreement and intention of the contracting parties as clearly manifested therein. The revenue sharing model which was discussed in Boards circular dated 23/2/2009 was w.r.t. movie distribution. In any case the said circular was further clarified vide Circular dated 13/12/2011 wherein it was mentioned that revenue sharing arrangement by itself does not preclude service tax liability. We find that the appellant are only pleading on the principle of revenue sharing without actually elaborating on the nature of agreement as already indicated hereinabove. The agreement in the present case gives no room for doubt regarding the obligation of the appellants to render various services in terms of ICD operations owned and controlled by RSIC. The nature of financial dealings or payment of consideration for services rendered by itself will not decide the tax liability of the service. In the present case there is a taxable service rendered by the appellant.
6. The appellants contested the demand on the ground that the full value of consideration for taxable service as received by RSIC from various ICD users has suffered service tax and RSIC remitted the same to the Government. As such, it is the plea of the appellant that a portion of such consideration cannot be subjected to service tax again at the hands of the appellant.
7. We find that in terms of the agreement the appellants are rendering services like transport of containers, handling cargo and various other incidental activities for which an indicative estimate is given to RSIC. Thereafter, RSIC prepare the bill for charge which is paid by the ICD user and collected by the RSIC. This consideration is for overall services rendered by RSIC to various ICD user w.r.t. import/export cargo. The tax liability on the gross value as received by RSIC is not a point of dispute in the present appeal. The appellants case that they are in turn receiving a portion of such gross consideration from RSIC and as such no further tax can be levied on them is not supported by any legal provision. As concluded earlier in this order, appellants are providing various services in terms of the agreement with RSIC and are getting consideration in terms of the same agreement. Admittedly the considerations received by appellants are for services. These are taxable services. RSIC paid service tax on the gross income and out of that income they have paid some amount to the appellant and, hence, the plea that the appellants are not liable to service tax is not supported by any legal principle. The fact is that the appellants provided input services (BAS) which enable RSIC to provide overall services w.r.t. ICDs operated under licence by them. Apparently in such arrangement the tax paid by RSIC will be on the total gross value. To render such total service by RSIC to various clients the appellants did provide various taxable services in terms of the agreement. While it is an admitted fact that the appellant service forms part of the overall service rendered by RSIC to various ICD users, payment of service tax by RSIC by itself will not exclude the tax liability of appellants. Apparently the tax liability on the appellant confirmed in the present proceedings is only w.r.t. the consideration received by them and not on the gross value received by RSIC. There is no double taxation in the present case.
8. The appellants relied on various decided cases. The reliance placed on the decision of Honble Kerala High Court in the case of CCE vs. Cochin International Airport Ltd. reported in 2011 (24) S.T.R. 20 (Ker.) is not relevant. In the said case Cochin International Airport Ltd. were receiving royalty from M/s Air India which was sought to be taxed. The Tribunal after going through the agreement found that Air India has arrangement with the Airport Authority to collect charges from other airlines for services rendered and on entire collection M/s Air India paid applicable service tax to the Government. In such situation the Tribunal arrived at the decision. In the present case the service tax liability is from the appellant for providing services to various exporters and importers on behalf of RSIC and getting certain consideration from RSIC for such services. The tax liability of the main party (RSIC) is not point of dispute in the present case and as such the issue involved is different from what is decided by the Honble Kerala High Court.
9. In India Gateway Terminal (P) Ltd. vs. CCE, Cochin reported in 2010 (20) S.T.R. 338 (Tri. Bang.) the decision of the Tribunal is not on similar set of facts. It was a case of movement of cashew nut containers in the yard of CONCOR. It is not coming out as to the nature of service provided by India Gateway Terminal (P) Ltd. in that case. Further, we find the Tribunal in JAC Air Services Pvt. Ltd. vs. CST, Delhi reported in 2013 (31) S.T.R. 155 (Tri. Del.) was examining the Circular issued by the Board prior to 2007 to decide on the service tax liability of sub-contractors. We find that the Board issued a consolidated master Circular on 23/8/07 which categorically brought out the legal position regarding sub-contractors service tax liability. It is held that service tax is leviable on any taxable service provided whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services. The fact that a given taxable service is intended for use as an input service by another service provider will not alter the taxability of the service provided.
10. The appellants relied on Tribunals decision in Sunil Hi-Tech Engineers Ltd. vs. CCE, Nagpur reported in 2010 (17) S.T.R. 121 (Tri. Mumbai). We find that the said case has been reversed by the Honble Bombay High Court reported in 2010 (20) S.T.R. J118 (Bom.). It is seen that in respect of same party, the Tribunal in a later case reported in 2014 (36) S.T.R. 408 (Tri. Mum.) upheld the service tax liability of sub-contractor. We also take note that the Honble Kerala High Court in Furnace Febrica India Ltd. reported in 2016 (43) S.T.R. 175 (Ker.) held in view of the specific clarification regarding input service it cannot be held that the sub-contractor is not liable to pay service tax for services provided by him.
11. Considering the above discussion and analysis the service tax liability on the appellant cannot be contested as invalid. We uphold the findings in the impugned order regarding tax liability. However, the appellants contested the demand on the question of time bar also. It is their case that the full amount collected by RSIC from the importers and exports has been subjected to service tax. Even if the appellant is held liable on their share of Revenue received from RSIC the said tax is eligible for credit to RSIC. Further, the issue involved is interpretation of law and there is no intend to evade payment of duty in such situation. The appellants relied on various case laws to reiterate their views. We find that the appellant is having a strong ground regarding the question of time bar. It is to be noted that all invoices, for full consideration, have been raised by RSIC and the amount collected from the clients [importers and exports] were subjected to service tax which was deposited to the Government. RSIC in turn are paying certain amount to the appellants to get the services in these ICDs. In such situation there is a clear possibility for a bonafide belief that as the whole amount has been subjected to service tax the amount received by the appellant may not be liable to service tax in connection with the services rendered by them. The issue involved has been a subject matter of interpretation by the Tribunal and High Courts. In fact the earlier Circular issued by the Board, covering the period prior to the introduction of Cenvat Credit Rules gave an impression that when the main service provider discharged the service tax on gross value there may not be tax liability on the sub-contractor rendering similar service to the main contractor. The Tribunal in various cases held in such a case involving interpretation of law and also a bonafide belief regarding service tax liability, will not attract the demand for extended period. We also take note that service tax liability on the appellant when discharged will be available as a credit to RSIC which can be used by RSIC for discharging their overall service tax liability. As such, to impute motivation to the appellant for intention to evade payment of duty is not sustainable. A reference can be made to the Tribunals decision in British Airways vs. CCE (Adjn.), Delhi reported in 2014 (36) S.T.R. 598 (Tri. Del.), Atul Ltd. vs. CCE, Surat II reported in 2009 (237) E.L.T. 287 (Tri. Ahmd.). In the facts and circumstances of this case, we find that the demand for extended period is not sustainable. We have also perused the reasons recorded by the Original Authority for invoking extended period of demand. He recorded that but for the Departments investigation the non-payment of tax would not have come to the notice. Further, the balance sheet for certain years have not been furnished in time by the appellant which was obtained from Registrar of Companies. As such, it was held that the appellants willfully suppressed material facts. We find that the service tax demand against the appellant was sought to be confirmed mainly on the basis of the terms of agreement between the appellant and RSIC. The gross receipt of RSIC and service tax payment thereupon is available with the Department. A portion of that receipt is now being taxed under BIS at the hands of the appellant. The service tax liability is as such on the arrangement based on agreement which is also the basis for payment of full service tax by RSIC. In other words, the service tax liability of both RSIC and the appellant has common source agreement. As such, we find the demand for extended period is not sustainable in the present case.
12. In view of the above discussion and findings while holding that the appellants are liable to service tax under the category of BAS for services rendered by them we hold that the same can be confirmed only within the normal period of limitation. The appeal is disposed of in the above terms.
(Pronounced in open court on 23/08/2016.) (Archana Wadhwa) Member (Judicial) (B. Ravichandran) Member (Technical) PK ??
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