Custom, Excise & Service Tax Tribunal
Pvgt Freight Forwarders And Logistics ... vs Service Tax - Chennai on 4 July, 2018
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IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No. ST/00050/2012
(Arising out of Order-in-Original No. 25/2011 dated 18.11.2011
passed by the Commissioner of Service Tax, Chennai II
Commissionerate, Chennai)
M/s. PVGT Freight Forwarders & Logistics Pvt. Ltd. : Appellant
Vs.
The Commissioner of Service Tax, : Respondent
(Chennai II Commissionerate) Appearance:-
Ms. K. Nancy, Advocate for the Appellant Shri. K. Veerabhadra Reddy, JC (AR) for the Respondent CORAM:
Hon'ble Shri Madhu Mohan Damodhar, Member (Technical) Hon'ble Shri P Dinesha, Member (Judicial) Date of Hearing/Decision:04.07.2018 Final Order No. 42210 / 2018 Per P. Dinesha, M/s. PVGT Freight Forwarders & Logistics Pvt. Ltd., the appellants herein, are registered under the category of Clearing and Forwarding Services and Goods Transport Agency Services from 19.05.2006. From the date of registration, the appellants have been 2 rendering services within the prescribed parameters of law by remitting tax and filing periodical returns. In the course of Audit conducted by the Internal Audit Unit of Service Tax Commissionerate, it was alleged that the appellants were providing freight forwarding and logistics services, such as clearing export cargo by collecting documents such as Invoice, Bill of Lading, LC Copy, etc., and services provided by them would fall within the ambit of ‚Business Support Services‛ specifically under 'Managing Distribution and Logistics'. As such, the respondent sought to deny the classification of service under Clearing and Forwarding Services.It is further alleged that in the course of providing logistics services, they incurred various expenses under heads, viz., delivery order fees, documentation fees, LCL Charges, BL Charges, etc., and besides this, they also collected ocean / air freight from the clients, which were sought to be added to the assessable value.
1.2 Based on the above allegations a Show Cause Notice dt.
09.02.2011 was issued to the appellants, inter alia asking them to show cause as to why an amount of Rs. 1,13,62,354/- should not be demanded in terms of proviso to Section 73(1) of the Finance Act for the period 01.05.2006 to 31.03.2010, interest should not be imposed in terms of Section 75 and penalty should not be imposed in terms 3 of Section 76, 77 & 78 of the Finance Act, 1994. The appellant-
assessee offered their reply dt. 18.07.2011 inter alia contending that :
(i) The invocation of extended period was unwarranted as all the facts were within the knowledge of the Department,
(ii) The classification of services of the appellant under clearing and forwarding agency was appropriate and hence, the same would not fall under Business Support Services,
(iii) The tax demand was dropped by the Service Tax Commissionerate vide Order-in-Original on the ground that the reimbursable expense would not form part of taxable value, etc. The adjudicating authority, however, vide Order-in-Original dt.
18.11.2011, confirmed his proposals made in the Show Cause Notice, against which the assessee is before this forum.
2. Heard Ms. K. Nancy, Ld. Advocate for the appellant and Shri. K. Veerabhadra Reddy, Ld. Department Representative for the Revenue.
3. During the course of hearing, Ld. Advocate appearing for the assessee, contended as under :
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(i) The respondent has failed to substantiate the order as to how the activities rendered by them would fall under Business Support other than falling under Clearing and Forwarding Services. A mere statement without any reasoning is equivalent to the body without skin. The fact that the respondent has failed to appreciate is evident from the fact that the entire order is extract of Show Cause Notice and reply.
(ii) The respondent has failed to apply his mind to analyze if the services would fall under the category of clearing and forwarding or Business Support Services.
(iii) The respondent has not considered any of the submissions made by the appellants. It clearly exhibits the pre-
conceived mind of the respondent and on the ground of non-application of mind and non-appreciation of evidence, the order deserves to be set aside.
(iv) That the freight amount collected by them is not towards any service rendered by them. But it is paid to the shipper for transporting the cargo from one place to another. The Air Freight / Ocean Freight collected by the appellants from their customers is in connection with their import/export 5 activities and will not come within the category of Clearing and Forwarding Services or GTA.
(v) That they are not rendering any service relating to transport but that their customers are incurring the expense on account of transportation of goods.
(vi) That it is not disputed that the freight amount is either for ocean freight or for air freight and they collect the same for transport of the goods by sea or air. The consideration represents charges for transport of goods either by air or by sea in connection with import and export goods. Such transport of goods is a service by itself which is not provided by the appellants and secondly, such a service is not liable for any service tax as it is not one of the services specified as attracting service tax which is supported in Bax Global India Ltd. Vs. Commissioner of Service Tax 2008 (9) S.T.R. 412 (Tri. - Bang.)
4. Per contra, Ld. DR supported the findings of the lower authorities.
5. We have considered the rival contentions and also gone through the judgments relied upon by the Ld. Advocate.We find 6 that the Chennai Bench of CESTAT has addressed this very same dispute in Bax Global India Ltd. Vs. Commissioner of Service Tax, Chennai - 2017 (9) T.M.I. 1264 - CESTAT Chennai. The Bench inter alia held as follows :
‚5.5 We, however, find that on the same issue, in appellant's own case, the Tribunal in RE : Bax Global India Ltd. Vs CST Bangalore - 2008 (9) STR 412 (Tri.-Bang.) held that amount collected by CHA like cartage revenue, MSIL/JWG charges, due carrier, documentation charges etc. are for services rendered by third party and the appellant initially make payment for the activities on behalf of the client and later collected the amount from the client and that these are actually reimbursable expenses and not relating to the CHA activities. Even in respect of air freight, the Tribunal held that these charges cannot be said to be related to the activities of CHA. The relevant portion of the Tribunal's decision is reproduced below for ready reference.
"9. On a very careful consideration of the issue, we find that the appellants apart from the activity of the Customs House Agent undertake work as freight forwarders and other activities related to that. We have perused the details of the billing for their entire period under dispute. It is broadly categorized in the following way. The charges are relating to :-
(1) Air exports
(2) Air imports
(3) Ocean exports
(4) Ocean imports
(5) Customs clearance
(6) Logistic.
For example, in respect of Air exports, for the year 2000-2001 the Freight revenue is of the order of 8.8 crores. That means, this amount represents the freight collected by the appellants towards air freight for the customers and then paid to the airliners. This amount has also been sought to be taxed under the Customs House Agent activity. This shows the adjudicating authority has not applied his mind to the details of the various activities undertaken by the appellants and how they relate to the amount collected by them. In respect of air exports apart from freight, they collected various other charges i.e. Cartage revenue, MSIL/JWG charges, due carrier, documentation etc. In all these cases the services are rendered by the third party and the appellants initially make payment for the activities on behalf of the client and later collect the amount from the 7 clients. These are actually reimbursable expenses and they do not relate to any CHA activities. In these cases, on going through the statement, we find that in certain cases the appellants had incurred less cost and in certain cases, they had incurred more cost. In any case, the profit or loss incurred in respect of activities which are not related to CHA activities should not be the concern of the Department for the purpose of collecting service tax. The Apex Court's decision in Baroda Electric Meters Ltd. case (supra), even though it relates to the Central Excise, has definitely a bearing on this. If the appellant performs an activity which is not related to the customs house agent then service tax cannot be levied on that activity under the category of CHA services. Similarly, we have seen the break up of all other services. It was already pointed out by the appellants that in certain cases, the appellants directly render certain services which do not relate to CHA and they collect fees directly from the clients. These charges are ‚charges collect fee‛, ‚DO fee‛, ‚Currency Adjustment Fee‛, ‚Cartage revenue‛, etc. The appellants have clearly explained the nature of each of these charges. The Commissioner has not discussed the nature of each of the charges and given a finding whether it relates to CHA services. The definition of CHA as given in the Finance Act, 1994, Section 65(35) reads as follows :-
(35) ‚Customs House Agent‛ means a person licensed, temporarily or otherwise, under the regulations made under sub-section (2) of Section 146 of the Customs Act, 1962 (52 of 1962);
(105)(h)?to a client, by a custom house agent in relation to the entry or departure of conveyance or the import or export of goods;
Regulation 2(c) of the Customs House Agents Licensing Regulations, 2004 defines customs house agent as under :
‚(c) ‚Customs House Agent‛ means a person licensed under these regulations to act as agent for the transaction of any business relating to the entry or departure of conveyances or the import or export of goods at any Customs Station.‛ When we carefully go through the definition of the customs house agent, we find that the activity of the CHA relates to the entry or departure of conveyances or import or export of goods at any Customs station. Therefore the activity of the CHA is limited to the Customs Station. It cannot extend beyond it. For example, in the present case, the appellants collect air freight for export from the clients, but before collection he pays from his pocket to the Airliner. Thus this activity relates to transportation from a port in India or from a place in India to any other place in a foreign country. These freight charges cannot be said to be related to the activity of the CHA. In any case, the air freight fee is for a passage beyond India. This service is also not rendered by the CHA. The freight charges collected is for the transportation of the goods and the transportation service is rendered actually by the Airliner and not the CHA. These points have not been properly gone through by the 8 adjudicating authority. Similarly if we see the breakup of other services, they do not relate to CHA activity at all. Further we find that storage and handling charges came into the service tax net only with effect from 16-8-2002. In these circumstances, we are of the opinion that there is no merit in the impugned order. Moreover as contended by the learned Advocate, the major amount portion of the Billing represents freight charges and the Commissioner (Appeals) had already decided the issue in favour of the appellants. The order of the Commissioner (Appeals) has not been challenged by the Revenue. In such circumstances, we agree with the learned Advocate for the appellants that the Revenue cannot agitate over the issue which has become final. The demand is also time- barred. In view of the above observation, we are of the view that the impugned order is not sustainable. Summing up, we find that the appellants had already discharged the duty liability in respect of the Customs House Agent activities undertaken by him. As regards all the other activities, we find that they do not relate to customs house agent activities. Even if any profit has been made in respect of those activities, they cannot be subjected to service tax in view of the Apex Court decision in the Baroda Electricity Meters Ltd. case (supra). In fine the demand is not sustainable. There is no justification for imposition of any penalty. We set aside the impugned order and allow the appeal with consequential relief."
5.6 The second issue is whether free booking of space in shipping liners would amount to BAS or not. The appellant in respect of demand under BAS.
The appellant pre-books the slots even before they get an order from their exporter or other client. It is not the case that the appellants are doing on behalf of client only after they get an export order. The Tribunal in RE : Greenwich Meridian Logistics (I) Pvt. Ltd. Vs CST Mumbai - 2016 (43) STR 215 (Tri.- Mumbai) held that while notional surplus was earned from purchase and sale of space however that it was not by acting for the client. The relevant portion of the order is reproduced below :
"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 behalf;
(ii) acts as principal, and not as an agent either of the consignor, or consignee or of the carrier participating in the multimodal 9 transportation, and who assumes responsibility for the 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 line 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 of agency function. Ergo, it is nothing but a principal- to-principal transaction and the freight 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 multi-modal 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." 5.7 Similar view has been expressed by the Tribunal in the case of DHL Lemuir Logistics Pvt Ltd. Vs CCE Thane - 2017 (47) STR 309 (Tri.- Mumbai) wherein the Tribunal held as follows :
" 7.In the context of these contra transactions of specified space on the air carrier, we examine the taxable service and the definition thereto. The taxable service according to Section 65(105)(zzb) of Finance Act, 1994 is that provided or agreed to be provided :10
to a client, by any person in relation to business auxiliary service and relevant extract of Section 65(19) of Finance Act, 1994 defining ‚business auxiliary service‛ is :
‚any service in relation to xxxx promotion or marketing of service provided by the client;?(ii) or any customer care service provided on behalf of the?(iii) client; or procurement of goods or services, which are inputs for the?(iv) client; or xxxx provision of service on behalf of client; or?(v) xxxxx and includes services as a commission agent‛ A harmonious reading of the provisions supra points to the 'client' being an essential ingredient in the rendering of a taxable service; the client is the one who pays the consideration for rendering of such service. No record of any receipts from airlines has been brought on record to evince the flow from them as clients. On the contrary, the appellant pays the airlines for booking of space in aircraft. The airlines, therefore, lack the distinguishing characteristics of a client. The excess reimbursement is the true market price paid by the consignor to the appellant over and above the price at which slot was pre-booked from the airline. Of the many activities listed in the definition supra, the closest may, at best, be the procurement of services that are inputs for a client. However, here too, the appellant does not, in relation to the amounts entered in the books of accounts, procure space for the client but on its own behalf which are then sold to its clients. As no commission is involved in this trading of 'freight slots', the appellant can hardly be designated as commission agent. Therefore, pre-booking of slots which may realise upon allotment to a customer does not conform to the definition supra and hence is not liable to tax within the scope of the show cause notice. The Tribunal in Greenwich Meridien Logistics (I) Pvt. Ltd. v. Commissioner of Service Tax Mumbai [2016 (4)TMI 547-CESTAT- MUMBAI = 2016 (43) S.T.R. 215 (Tri.-Mum.)] found in favour of the assessee in a parallel matter relating to ocean freight. The demand of ` 2,56,896 fails the test of authority of law and is set aside."
5.8 We do not find any cogent ground or reason to deviate from the ratio already laid down by the Tribunal in the appellant's own case and in DHL Lemuir Logistics Pvt. Ltd. (supra). This being so, the impugned order cannot sustain and will have to be set aside, which we hereby do. In consequence, appeal is therefore allowed with consequential benefits, if any, as per law. ‚ 11
6. From the above, we find that this very issue has been considered and decided by this Bench and, therefore, by following the ratio decidendi of the abo1ve case, we set aside the impugned Order-in-Original and allow the appeal with consequential reliefs, if any.
(Operative part of the order was
pronounced in open Court)
(P Dinesha) (Madhu Mohan Damodhar)
Member (Judicial) Member (Technical)
Sdd