Custom, Excise & Service Tax Tribunal
International Clearing And Shipping ... vs Service Tax - Chennai on 12 February, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. I
Service Tax Appeal No. 42307 of 2013
(Arising out of Order-in-Appeal No.23-27/2013 dated 28.02.2013
passed by Commissioner of Service Tax, Chennai)
M/s. International Clearing & Shipping Agency ...Appellant
No. 325, Linghi Chetty Street,
Chennai - 600 001.
Versus
Commissioner of GST & CE, ....Respondent
Chennai North Commissionerate, No.26/1, Mahathma Gandhi Road, Nungambakkam, Chennai - 600 034.
APPEARANCE :
Ms. Radhika Chandrashekhar, Advocate for the Appellant Shri. M. Selvakumar, Authorised Representative for the Respondent CORAM :
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) HON'BLE MR. AJAYAN T.V. MEMBER (JUDICIAL) FINAL ORDER No.40197/2025 DATE OF HEARING: 21.01.2025 DATE OF DECISION :12.02.2025 Per AJAYAN T.V.
The appellants have assailed the impugned Order in Original No.23- 27/2013 dated 28.02.2013(OIO in short) whereby the adjudicating authority has confirmed demands of service tax payable as indicated therein, while adjudicating five SCNs, together spanning the period from 2006-07 to 2010-11, under Section 73(2) of the Finance Act 1994 (Act in short) read with proviso to section 73(1) of the Act along with applicable interest and imposing penalties under Section 76, 77(2) and 78 of the Act as more specifically indicated therein. 2
2. Brief facts are that the appellants are licensed under Customs Act as Customs House Agent and registered with the Service Tax Commissionerate for providing Custom House Agent service and other services. During the course of verification of their records by the jurisdictional service tax Commissionerate officers, it was noticed that the Appellant did not discharge service tax on the entire service receipts/income accounted in their profit and loss account. Show cause notices with proposals for demand of service tax for the period 2006-07 and 2007-08 were issued which were replied to by the appellants stating that they acted as pure agent of the recipients of their service and have billed the clients only at actuals on the reimbursable expenditure which came to be adjudicated after due process of law and aggrieved by the said decision, the appellants had preferred an appeal which was then remanded for denovo adjudication in the light of Board's' Circular No.119/13/2009-ST dated 21.12.09. While the matter was pending denovo adjudication, three further periodical notices were issued and thus, in the present proceedings, five show cause notices were adjudicated by the impugned order in original. The appellants in their reply contended that they are discharging service tax on the taxable value of CHA services rendered to their clients and have not rendered any service under Business Auxiliary Service. After due process of law, the adjudicating authority dropped service tax with respect to certain reimbursable expenses while confirming the demand with respect to EDI Charges, tourist taxi charges, inspection agency charges, courier charges, service charges exempted etc. on the ground that they are operative expenses used by the appellant for providing CHA service and 3 not reimbursable expenses as they were not received by the appellants satisfying the condition as pure agent and thus do not qualify under exclusion clause as pure agent. The adjudicating authority held that the appellants are liable to pay service tax on such reimbursable expenses. In addition to the reimbursable expenses, the appellants were seen to have accounted income under the head 'Freight rebate and brokerage' which the appellants had contended as received from liners in the nature of discounts, and hence not to be taxed under CHA service. The adjudicating authority agreed that it is not liable to be taxed under CHA service but being of the view that they are liable to be charged service tax under respective service depending on the nature of service and definition given in the Finance Act, observed that one such service added to the list of taxable services over a period was Business Auxiliary services with effect from 01-07-03. Apart from the rebate, brokerage, discount received, the appellants had also received airway bill fee for booking air cargo which is nothing but incentive/commission. The adjudicating authority held that the rebate, brokerage, discount and airway bill fee are rightly taxable under 'Business Auxiliary Service' in terms of Section 65(19) of the Finance Act, 1994 and thus confirmed demands on these under Business Auxiliary Service for the period from 2006-07 to 2010-11. The adjudicating authority also found that the extended period of limitation was invokable as the appellants had not furnished the details of such receipts in their ST-3 returns and thus imposed penalties. Aggrieved by the impugned order in original, the appellants have preferred this appeal and are before this Tribunal. 4
3. The learned counsel, Ms. Radhika Chandrashekar appeared and argued for the appellants. The learned counsel submitted that the appellants provide services under the category of CHA and are also freight forwarders. The appellants have been discharging service tax on the service charges received for CHA activity and have also discharged service tax on the IATA commission received from the airline. It is submitted that as regards the demand under reimbursable expenses under CHA services, the expenses incurred like EDI charges, tourist taxi charges, inspection agency charges, courier charges etc., are reimbursed by the customers. The operational surplus is nothing but the expenses which the appellants incur on behalf of their clients which are reimbursable in nature. Since the actual quantum of expenses cannot be determined in advance, the appellants collect an adhoc amount which would be approximate to the expenses likely to be incurred on that account and it is nothing but surplus income generated and is not related to the services provided by the appellant as CHA. It is submitted that the OIO confirms levy of service tax on service charges exempted which is nothing but the amount received by the appellants from the main CHA on sub-contracting work done by the appellants and include transactions between the branches of the appellants. It is submitted that these amounts are not a consideration and levy of service tax under CHA services on this amount is not sustainable. That all these charges are treated in the SCN as reimbursable charges and demanded under CHA services invoking Rule 5(1) of the Valuation Rules 2006 and the impugned OIO also confirms the demand as demand of service tax made on reimbursable expenses. Given that Rule 5(1) of the Valuation Rules has 5 since been struck down by the Honourable Delhi High Court in the Intercontinental Technocrats case and was further affirmed by the Honourable Supreme Court, the demands are untenable. The learned counsel submits that the appellants did not discharge service tax on the reimbursable expenses as it is not a consideration for any services rendered. The learned counsel submits that only the service charges received as consideration for the services provided or to be provided would form part of the taxable value for the purposes of service tax and reimbursements are not liable to tax. The learned counsel submits that the Honourable Supreme Court has in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd, reported in (2018) TIOL 76-SC-ST : 2018 (10) GSTL 401 (SC), affirmed the decision of the Delhi High Court wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was struck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections.
4. The learned counsel further submits that the as freight forwarders, the appellants purchase cargo space from the airline/shipping line at a particular price and sells the same to the shipper. The appellants negotiate with the airline for cargo space and the difference between the selling price and the purchase price is nothing but the profit or loss as the case may be on air freight and cannot be subjected to service tax. Air freight/sea freight per se are not taxable under service tax. That the appellants issue a document of transport airway bill in their own name to 6 the shipper and undertake to perform all the duties of the carrier/liner and when a freight forwarder purchases and sells cargo space there is absolute freedom in fixing the margin subject to the overall tariff and there is no necessity to disclose the margin to the liner and the transaction of purchase of cargo slot is on principal-to-principal basis. The learned counsel submits that this activity undertaken by the appellants, is not subject to levy of service tax as it is nothing but a discount or freight margin, that is, difference between price at which the cargo space is booked with the airline and the price at which the appellants offer it to the customers. The activity is nothing but selling of cargo space and the brokerage/freight rebate/incentives is a profit earned on the freight booking and cannot be taxed as business auxiliary service. The learned counsel submits that the appellants are not the agent of the airline and is not promoting the services of the airline and the airline is not the client of the appellants.
5. The learned counsel further submits that the Department had issued SCNs for the prior period on the same issue with respect to reimbursable expenses and demand of service tax on freight/brokerage/incentive and this Tribunal vide Final Order No.40974- 40979/2023 dated 01.11.2023 had set aside the demand and allowed the appeals. The learned counsel also placed reliance on the following decisions where it has been held that brokerage and commission from various airlines, shipping lines, freight forwarding companies for providing various cargo related services are mere sales and purchase of 7 cargo space and earning profit in such process is not a taxable activity under business auxiliary services:
i) Final Order No.41113-41114/2023 dated 13.12.2023 in the case of M/s. Team Global Logistics Pvt Ltd v CST
ii) Final Order No.42113/2017 dated 18.09.2017 in the case of Bax Global India Ltd v CST
iii) Final Order No. ST/52258/2017 dated 07.03.2017 in the case of CST v Karam Freight Movers
iv) Final Order No.43487/2017 dated 19.12.2017 in the case of Airogo Travel and Cargo Pvt Ltd
v) Final Order No.40876/2018 ated 02.03.2018 in the case of CST v AVR Cargo Agency
vi) Final Order No.40558/2024 dated 29.05.2024 in M/s. New Era Travel & Cargo Agencies v The Commissioner of GST & Central Excise
6. The learned Counsel submits that even otherwise the impugned OIO has confirmed tax under Business Auxiliary services with respect to rebate, brokerage, incentive, airway bill charges on the ground that the Appellants are acting as an agent of the airline, however, neither the show cause notice nor the OIO states the specific limb of Business Auxiliary Services under which demand is confirmed and therefore the demand cannot survive. Reliance is placed on the decisions in Balaji Enterprises v C.EX & ST (2020) 33 GSTL 97 and Reynolds petrochem ltd v Commissioner of C.Ex. & ST ( 2023) 68 GSTL 292.
8
7. It is the further submission of the learned counsel that the department had initially proposed to demand service tax under CHA services with respect to freight, rebate, brokerage, operational surplus and pure agent as reimbursement of expenses and demand of service tax on airway bill fees and miscellaneous recovery was under Business Auxiliary Services for the period 2006-07, 2007-08 and 2008-09. However, for the period 2009-10 and 2010-11 the SCNs proposed to demand service tax on incentives/commission/airwaybill fee/rebate/brokerage under Business Auxiliary Services and there was no demand on reimbursements. The learned Counsel submits that therefore, the OIO travels beyond the SCN as the demand with respect to freight/rebate/brokerage/operational surplus has been confirmed under Business Auxiliary Service even for the period 2006-07,2007-08 and 2008-09 when the SCN only had the proposal to levy service tax on these as CHA service. The learned counsel submits that para 7 of the OIO finds that rebate and brokerage amount received by the appellants are not liable under CHA service whereas the said amount is liable to be charged under service tax under respective service depending on the nature of service and definition given under Finance Act. It is the submission of the learned counsel that therefore the confirmation of demand of service tax on rebate and brokerage under Business Auxiliary Service for the period 2006-07, 2007-08 and 2008-09 is liable to be set aside as it travels beyond the proposals in the SCN. The learned counsel places reliance on the decisions in SACI Allied Products Ltd v CCE, (2005) 183 ELT 225, United Telecoms Ltd 22 STR 571 and Inox Leisure Ltd v CST (2022) 60 GSTL 326 affirmed by the Hon'ble Supreme Court in 9 (2022) 61 GSTL 342 (SC) and Final Order No.40558/2024 dated 29.05.2024 in M/s. New Era Travel & Cargo Agencies v The Commissioner of GST & Central Excise for the aforesaid proposition.
8. The learned counsel submits that without prejudice to the foregoing, the OIO at para 6.5 observes that the demand has been made based on P & L account with respect to service charges exempted. The learned counsel places reliance on the decisions in Firm Foundation & Housing Ltd v Pr.CST (2018) 16 GSTL 209, Greenwich Meridian Logistics (I) Pvt Ltd v CST, Mumbai (2016) 43 (STR) 215 and Final Order No.40558/2024 dated 29.05.2024 in M/s. New Era Travel & Cargo Agencies v The Commissioner of GST & Central Excise, in this regard.
9. The learned counsel also submits that the show cause notice was time barred as none of the ingredients required to invoke the extended period of limitation are present in this case. The learned counsel submits that the extended period in terms of proviso to Section 73(1) can be invoked only when there is fraud, collusion, wilful misstatement, suppression of facts or contravention of any of the provisions of the Act or the rules made thereunder with intent to evade payment of duty. The learned counsel submits that the question involved in the present matter is on interpretation of the provisions of the rules to determine the liability of the CHA to pay service tax on reimbursable expenses and thus no malafide can be attached to the appellants that warrant the invoking of extended period of limitation. That in any event, the Department was aware of the appellants' activities as for the prior period that is from 1997 onwards the same issues were agitated and thus there is no 10 question of wilful suppression of facts or intent to evade tax. The learned counsel says that Section 80 of the Finance Act mandates that penalties leviable under Section 76,77 or 78 may be waived in case of reasonable cause and since the issues are interpretational in nature penalties may be set aside.
10. Learned Authorised Representative, Smt. Anandalakshmi Ganeshram appeared for the Department and reiterating the findings in the impugned order in appeal, submitted that rebate, brokerage, discount received and airway bill fee are rightly taxable under "Business Auxiliary Service" and the arguments of the appellants with reference to suppression of facts do not merit consideration as the adjudicating authority has clearly detailed reasons for invoking extended period. The learned A.R places reliance on the decisions in M/s. Shri. Bhagavathi Traders , 2011-tiol-1155-CESTAT-BANG-LB, M/s. Pioneer Services, 2012-TIOL-949-CESTAT-MAD, and M/s.Chemplast Sanmar Ltd, 2023 (7) TMI 482-CESTAT Chennai. It is the submission of the learned A.R. in the written submissions that the present dispute involved is from 2006 to 2011 and prior to the Hon'ble High Court, New Delhi Judgement and therefore the judgement of the Honble Tribunal, Chennai is squarely applicable. The learned A.R. submits that the appeal be dismissed.
11. We have heard both sides, perused the appeal records and the case laws cited by the appellants.
11
12. We find that the adjudicating authority has in the impugned order in original placed reliance on Rule 5(1) and Rule 5(2) of the Service Tax Valuation Rules,2006 read with Board's Circular dated 21.12.2009 to determine when the reimbursable charges are eligible for exclusion and thereby in confirming the demands in so far as the reimbursable expenses are concerned. We find that the issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd, 2018 (10) GSTL 401 (SC) which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client, apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants & Technocrats Pvt Ltd v UOI, 2013 (29) STR 9 (Del), wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was struck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections. The Honourable Supreme Court had also noticed the nature of reimbursable expenses that arose for consideration in the facts of the case as well as that in connected appeals before it, and has gone on to hold as under:
"21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are 12 reimbursed, that is, for which the service receiver has made the payments to the assessees. As per these Rules, these reimbursable expenses also form part of 'gross amount charged'. Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act.
22. Section 66 of the Act is the charging Section which reads as under:
"there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in sub-clauses of Section 65 and collected in such manner as may be prescribed."
23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub- clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the 'value of taxable services'. Thus, service tax is with reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon.
24. In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this 13 interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of taxable service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.
25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider.
26. It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner:
"Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the byelaw, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision has precedence and must be complied with."
27. The aforesaid principle is reiterated in Chenniappa Mudaliar holding that a rule which comes in conflict with the main enactment has to give way to the provisions of the Act.
28. It is also well established principle that Rules are framed for achieving the purpose behind the provisions of the Act, as held in Taj Mahal Hotel:
14
"the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect."
29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the Learned Counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited [(2015) 1 SCC 1] wherein it was observed as under :
"27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of "interpretation of statutes". Vis-a- vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.
28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is 15 presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.
29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later."
30. As a result, we do not find any merit in any of those appeals which are accordingly dismissed."
13. In light of the Honourable Supreme Court's decision reproduced supra, we are of the considered view that the findings and confirmation of demand under the nomenclature reimbursable expenses as made in the impugned order in original cannot sustain. It is the contention of the learned A.R in the written submissions that the decisions of this Tribunal relied upon is squarely applicable in the present case since the period involved is from 2006 to 2009 and prior to the decision of the Delhi High Court. As observed supra, the decision of the Delhi High Court in the Intercontinental Consultants & Technocrats case was subsequently affirmed by the Honourable Supreme Court. We do not appreciate the 16 said contention of the learned A.R. since it militates against the principles of judicial discipline that mandate adherence to the decisions of higher judicial forums.
14. It is seen that the issue of operational surplus and freight and brokerage had also come up in the appellant's own case and this Tribunal in its decision in Final Order No.40974-40979/2023 dated 01.11.2023 in the case of M/s. International Clearing & Shipping Agency v CST, held in favour of the appellant and the relevant portions of the paras therein are reproduced below:
" 7.1.1. .......... The Department is of the view that since these amounts are over and above the expenses incurred, the appellant has to pay service tax and cannot be considered as reimbursable expenses. We are not able to agree with this view. In the course of providing CHA services there are several requirements to be met by the CHA for activity of import of export of goods. The charges incurred for transportation, courier, fax, communications etc., may vary each time. The charges collected in some occasions may be insufficient to meet the expenses and the appellant then accounts it as operational deficit. The Department has proceeded to demand Service Tax only on the operational surplus. Again, it has to be stated that the figure as 'operational surplus' is taken from the financial statements (profit and loss account) and not from the invoices raised by the appellant. This means it is the total operational surplus that has come into the hands of the appellant while incurring expenses and is not a consideration received for services provided to a client." 17
2. Thereafter, noticing the Department's Trade Notice No.39-CE/97 dated 11.06.1997, as well as considering the decision of the Honourable Supreme Court in the case of Union of India v Intercontinental Consultants and Technocrats Pvt Ltd cited supra, the discussions on which are not being reproduced here to avoid prolixity, it is held in para 7.1.4 of the aforementioned decision in appellant's case as under:
"7.1.4 After appreciation of the facts, the clarification issued by the Board as per the Trade Notice and the decision of the Hon'ble Apex Court in the case of International Consultants and Technocrats Pvt(supra), we are of the opinion that the demand of Service Tax on operational surplus cannot sustain and requires to be set aside. Ordered accordingly."
15. Thereafter, the demand raised on freight and brokerage is also addressed in the said decision in the appellant's case as under:
" 7.4.1 The third issue is the demand raised on freight and brokerage, etc.,. The Ld. Counsel submitted that the appellant receives a brokerage/rebate from the shipping line on the ocean freight that they have to pay to the shipping lines. It is in the form of the discounts or incentives paid to the CHA and such amount is not a consideration for providing CHA services. In fact, the appellant does not provide any CHA service to the shipping line. They act as an agent on behalf of the importer/exporter. So the incentive or the discount received by the appellant from the shipping line cannot be treated as a consideration received for CHA services. In the case of Commissioner of Service Tax, New Delhi Vs. Karam Freight Movers [2017(4) GSTL 215 (Tri-Del)], the Tribunal observed that the mark-up value collected by the assesse from 18 the exporter is an element of profit in the transaction. The said amount is not a commission earned by the assesse and is not while acting as an agent of the exporter or shipping line and cannot be considered as a consideration. The assesse while acting as an agent on behalf of the shipping line was discharging the Service Tax as Steamer Agency services. The Tribunal took the view that the mark up value collected by the assesse being an element of profit in the transaction cannot be subject to levy of service tax. Similar view was taken by the Tribunal in the case of Commissioner of Service Tax, New Delhi Vs. M/s. Continental Carriers [2017-TIOL-3964-CESTAT-DEL] and in the case of Greenwich Meridian Logistics (I) Pvt. Ltd. vs. Commissioner of Service Tax, Mumbai [ 2016 (43) STR 215 (Tri.Mumbai)]. In the present case also the Department does not have a case that the appellant has not discharged Service Tax on the agency commission received as a Steamer Agent or CHA. The demand is raised on the mark-up made which is the profit out of the difference in the value of ocean freight collected by the shipping line and paid by the exporter/client. The Tribunal in the case of Greenwich Meridian Logistics (I) Pvt Ltd.(supra) held as under:-
" 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 sustain 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 also disposed of."19
7.4.2 Following these decisions, we are of the opinion that the demand of Service Tax on freight brokerage cannot sustain and requires to be set aside. Ordered accordingly."
16. The Tribunal has, in a number of similar decisions, found that the profit earned by sale and purchase of cargo space cannot be levied to service tax, as can be seen from the decisions in Final Order No.41113- 41114/2023 dated 13.12.2023 in the case of M/s. Team Global Logistics Pvt Ltd v CST and Final Order No.40558/2024 dated 29.05.2024 in M/s. New Era Travel & Cargo Agencies v The Commissioner of GST & Central Excise, to state a couple.
17. We find that for the period 2006-07,2007-08 and 2008-09 the SCN only proposed to levy service tax with respect to freight/rebate/brokerage/operational surplus as CHA service. In fact, the learned adjudicating authority has rendered a specific finding in the OIO that rebate and brokerage amount received by the appellants are not liable under CHA service. However, that does not translate into a sanction for the learned adjudicating authority to unilaterally confirm the demand on these services under business auxiliary service for the aforementioned period, without putting the appellants to notice about the adjudicating authority's said intention to do so. The decisions in SACI Allied Products Ltd v CCE, (2005) 183 ELT 225, United Telecoms Ltd 22 STR 571 and Inox Leisure Ltd v CST (2022) 60 GSTL 326 affirmed by the Hon'ble Supreme Court in (2022) 61 GSTL 342 (SC) and Final Order No.40558/2024 dated 29.05.2024 in M/s. New Era Travel & Cargo 20 Agencies v The Commissioner of GST & Central Excise, relied upon by the learned counsel for the appellant support the proposition that Revenue cannot sustain a demand under a ground not raised in the SCN and such confirmation of demand on a category of service different from that proposed in the SCN would tantamount to travelling beyond the show cause notice. Thus, we hold that in any event, the finding of the adjudicating authority that rebate and brokerage received by the appellants are liable to be taxed under Business Auxiliary Service for the period 2006-07, 2007-08 and 2008-09, and the consequent confirmation of demand, is liable to be set aside as such a finding travel beyond the proposals in the SCN.
18. We also find substance in the appellants' contention that neither the SCN nor the impugned Order in Original has stated under which limb of Business Auxiliary Services would the appellants' activity stand covered as an activity liable to service tax under Business Auxiliary Service so as to confirm the demand of service tax made on the appellant under this category. This tribunal in its decisions in Balaji Enterprises v C.EX & ST (2020) 33 GSTL 97 and Reynolds petrochem ltd v Commissioner of C.Ex. & ST ( 2023) 68 GSTL 292, has held that since the definition of Business Auxiliary Services had various sub-clauses, it was necessary for the Department to point out which particular category of service contained in these clauses was attracted in the case of the appellant. The demands made on the appellants under Business Auxiliary Services in the SCNs and confirmed in the impugned order, will therefore not be tenable on this count also.
21
19. The appellants' submission that the demand of service tax made on service charges exempted on the basis of income reported in the P & L account, without it being shown that such income amounts to consideration received for services provided, merits acceptance. In this regard the decisions in Firm Foundation & Housing Ltd v Pr.CST (2018) 16 GSTL 209, Greenwich Meridian Logistics (I) Pvt Ltd v CST, Mumbai (2016) 43 (STR) 215 and Final Order No.40558/2024 dated 29.05.2024 in M/s. New Era Travel & Cargo Agencies v The Commissioner of GST & Central Excise are squarely applicable. The nomenclature under which an assessee books profit in its account cannot be the basis for slotting the appellant as providing a particular taxable service under section 65(105). Determination of taxability on the basis of accounting entries in the P & L account and assessing it to tax on this count, is alien to the Finance Act 1994. The amounts evidenced as received towards a taxable service before, during or after providing of such service can tantamount to consideration for the said taxable service.
20. It is also seen that for similar issues the Department has earlier issued SCNs and the matter upon reaching this Tribunal had been decided in favour of the Appellant and therefore the ingredients to invoke the extended period was absent. There is no evidence let in of any positive act of suppression or wilful misstatement with intent to evade payment of service tax on the part of the appellant, and thus the ingredients required to invoke extended period of limitation has not been established by the Department. We also find force in the contentions of the learned 22 counsel for the appellant that the issues involved were of interpretational nature and therefore the allegation of malafides made to invoke the extended period of limitation and impose penalties are untenable.
21. In view of the foregoing facts borne out from the records and the discussions and findings stated above, we find that the appellants succeed in their Appeal on merits as well as on their plea against invocation of extended period of limitation. The demands made in the impugned order in original being untenable, the demand of consequential interest and the penalties imposed also do not sustain. Hence the impugned order in original is set aside and the appeal is allowed with consequential relief, if any, in law.
(Order pronounced in the open court on 12.02.2025)
(AJAYAN T.V.) (VASA SESHAGIRI RAO)
MEMBER (JUDICIAL) MEMBER (TECHNICAL)
psd