Custom, Excise & Service Tax Tribunal
Esmario Export Enterprises Pvt Ltd vs Secunderabad - G S T on 29 February, 2024
1 Appeal No. ST/30844/2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
HYDERABAD
REGIONAL BENCH - COURT NO. - I
Service Tax Appeal No. 30844 of 2016
(Arising out of Order-in-Original No.HYD-SVTAX-000-COM-26-16-17 dated 25.05.2016
passed by Pr. Commissioner of Service Tax, Hyderabad)
Esmario Export Enterprises Pvt Ltd., .. APPELLANT
Surya Towers, Block F-1,
Third Floor, S.P. Raod,
Secunderabad,
Telangana - 500 003.
VERSUS
Commissioner of Central Tax .. RESPONDENT
Hyderabad - GST Kendriya Shulk Bhavan, L.B. Stadium Road, Basheerbagh, Hyderabad, Telangana - 500 004.
APPEARANCE:
Shri P Venkata Prasad, CA for the Appellant.
Shri A V L N Chary, Authorised Representative for the Respondent.
CORAM: HON'BLE Mr. ANIL CHOUDHARY, MEMBER (JUDICIAL) HON'BLE Mr. A.K. JYOTISHI, MEMBER (TECHNICAL) FINAL ORDER No. A/30171/2024 Date of Hearing:24.08.2023 Date of Decision:29.02.2024 [ORDER PER: ANIL CHOUDHARY]
1. The Appellant herein is a Private Limited Company incorporated in September 2010 and had acquired running business of a Proprietary concern M/s Esmario Export Enterprises with effect from 01.04.2012. They are registered with service tax and filing the ST-3 returns.
2. The Appellant is a distributor of the products manufactured by M/s Mercury Marine Singapore Pvt Ltd., Singapore ("Mercury") who are engaged in the business of manufacturing & selling Marine Motors, engines and spare parts thereof. Appellant earns the profits by selling these imported goods and was appointed as Sole Distributor for M/s. Mercury, in India carrying the business in following three ways:
a. Purchase and sale booked in the books of appellant: Based on a specific purchase order from customer(s) in India, the appellant raises specific order on Mercury for purchase, and the goods are supplied to the customer in India. In such cases both purchases and 2 Appeal No. ST/30844/2016 sales are booked in the accounts of appellant and subsequently M/s. Mercury also issues a credit note to the appellant crediting the post sale margin/discount.
b. Direct sale by Mercury and only margin booked in the books of the appellant: In these cases, the customers of the appellants raise a direct purchase order on M/s. Mercury and the products are shipped directly to such customers, which is mostly in the cases where the clients have customs concessions/exemptions for direct import. Appellant being exclusive distributor for the Territory of India, is entitled for margin for this direct shipment as well (price difference between sale price in India and distributor price).
c. Warranty Repairs: The appellant also undertakes free warranty repairs for the sale of products of Mercury on behalf of Mercury, for a period of 1 year. Accordingly, the appellant raises a statement of spares used and man hours spent based on which MECURY raises a 'Recipient credit tax invoice' reimbursing the spares and service income. No amount whatsoever is collected from the Indian customers for this work.
3. Besides aforesaid main activity, Appellant during the subject period also rendered vessel repair services inter alia to defence establishments (Navy, Coast guards etc.,) and claimed exemption from service tax.
4. The service tax department issued SCN dated 13.10.2010 to the appellant for the period FY 2006-07 to 2008-09, alleging that 'dealers margin' accounted as 'commission' is liable for service tax under the category of 'Business auxiliary services (BAS)'. The same was followed by another SCN No.15/2013 dated 18.02.2013 covering the period upto FY 2009-10. The proceedings of the first SCN dated 13.02.2010, was set aside by the Ld. Appellate Authority vide OIA No. TVM-EXCUS-000-APP-172-2016- 17 dated 22.11.2016, which was not further appealed by the Department.
5. The present SCN dated 12.10.2015 is 3rd SCN covering the period Financial Year 2010-11 to Financial Year 2013-14 and raised various demands including the similar demand of service tax on the 'Dealers margin/sales incentives. The SCN culminated into impugned OIO dated 25.05.2016 confirming the demands raised in SCN except one demand, and re-quantified treating the amounts as cum-tax as shown in the below table:3 Appeal No. ST/30844/2016
S.No. Particulars Period As per SCN As per OIO
1 Supply of Tangible 2010-11 to 1,99,421 Dropped
Goods Service 2013-14
2 Renting of Immovable 2011-12 44,463 40,311
Property Service
3 Management, 2010-11 to
Maintenance & Repair 2013-14
23,93,838 21,38,841
service (to Navy/coastal
guard)
4 Business Auxiliary 2010-11 to
Service (Dealers 2013-14
1,46,12,163 1,29,97,249
margin/sales incentive)
5 Management, 2010-11 to
Maintenance & Repair 2013-14
3,77,792 3,42,237
Service (Warranty
Repairs)
Total 1,76,27,677 1,55,18,638
6. Assailing the impugned order, Ld. Counsel Shri Venkata Prasad for the Appellant urges as follows.
'Cold storage rent' under the category of 'Renting of immovable property':
7. The demand under this category was confirmed in impugned OIO for not giving the documentary evidence, which were in fact submitted in appeal proceedings. As per the agreement, Appellant has taken the responsibility of providing cold storage facility, its maintenance including temperature and security of the facility. Hence, it is clear case of 'cold storage facility' service which do not fall under the category of 'renting of immovable property'. The observation in the impugned order that 'sea products' is not 'agriculture' but a 'pisciculture' is irrelevant in the present case, in absence of such proposal in the SCN and also considering the ordinary meaning of the term 'agriculture'. Agriculture as defined in Section 65B(3) includes rearing of all forms of animals.
Management, Maintenance & Repair service (to Navy/coastal guard):
8. Here again, the demand was confirmed on the differential turnover between the books and ST-3 returns merely stating that documentary evidence was not furnished except turnover bifurcation and claim that services are rendered to Navy/coastal guards etc. Out of the total turnover of Rs.4,71,49,579 towards 'repair or maintenance' works, turnover of Rs.2,70,97,757/- was declared in ST-3 and paid appropriate service tax thereon whereas impugned SCN & OIO has deducted only turnover of 4 Appeal No. ST/30844/2016 Rs.2,69,70,736/-. Due to this, there was an excess demand of Rs.1,27,021/-
He submitted that the balance turnover of Rs.1,99,18,591/- pertains to services provided to Navy and Coastguard for repair and maintenance of vessels which is exempt from payment of service tax for the reasons given in below table:
Exemption/Non taxability vide Remarks
Notification No. 31/2010-ST dated Services provided by the appellant are in
22.06.2010 which exempts repair the port area hence exempt from
of ships or boats or vessels payment of service tax.
belonging to the Govt. of India
including Navy or Coast Guard or
Customs when provided within a
Port or an Airport.
Notification No.25/2012-ST dated Similar exemption as that of Notification
20.06.2012 vide Sl.No.25 provides No.31/2010 except that the condition that
that services provided to Govt., a the services provided in the port area is
Local authority or a Govt. authority absent.
by way of repair or maintenance of
a vessel or an aircraft as exempt.
The work orders and invoices were shown in support of the above claims and remaining turnover of Rs.1,33,230/- pertains to discounts given, which is not taxable. He further submitted that the repair works done also includes material portion. Whereas the demand under 'MMRS' can be made only for pure service contracts. In that background, the service tax demand of 'composite contract' do not sustain under 'MMRS' category. Further, no demand can be confirmed under any other category, as it goes beyond the SCN. Relied on Commissioner of C. Ex. &Cus., Kerala vs. Larsen & Toubro Ltd. 2015 (39) S.T.R. 913 (S.C.) and CCE Vs. Mahakoshal Beverages Pvt. Ltd. 2014 (33) S.T.R. 616 (Kar.).
Demand under 'BAS':
9. As stated in background facts, the appellant is the sole distributor of the M/s Mercury Marine Singapore Pvt Ltd., which is clear from first page of Distributor agreement and also, from Para 3.2; Para 3.1 and 4.1 of the Distributor agreement. Among various activities this appellant purchases and sells the products of M/s Mercury Marine Singapore Pvt Ltd. Appellant gets the products at a particular price and pays the Customs duties thereon and later M/s Mercury Marine Singapore Pvt Ltd., allows additional discount depending on the final sale price to the Indian customer. The purchase and sale are accounted and applicable VAT/CST was remitted. The additional discount was given by the Manufacturer qua M/s. Mercury Marine Singapore Pvt Ltd., by sending credit note after the conclusion of sale (popularly known 5 Appeal No. ST/30844/2016 as 'post sale discount). The additional discount was accounted as 'Discount -
dealer margin').
10. He contended that, the appellant in the first instance could have got all his trade margin/discount, but to maintain the actual price of the goods and to maintain competitiveness by giving post sale discounts, the mechanism of post sale discount was adopted. Sample copies of purchase invoice, sale invoice, bill of lading, credit note of Mercury and copies of the entries in the books of accounts are enclosed in the appeal and explained during the course of hearing with the instance of a transaction:
Sl.No. Description Amount
Purchase order based on list
1 price 1,18,42,805
2 Sale price 1,25,47,920
3 Difference/ trade margin (2-1) 7,05,115
Additional discount received
from M/s. Mercury (discount
4 Dealers Margin) 11,63,877
As explained above, both trade margin and dealer margin are related to trading of goods, out of which one is difference of purchase and sale price and second is post sale discount/dealers margin.
11. He contended that issue of levy of service tax on the trade margin of the trader who trades goods/services is no more res integra and in unvarying series of decisions, it was held that service tax is not leviable. He relied on -
a. CST v. Om Air Travels Pvt. Ltd 2019 (25) G.S.T.L. 460 (Tri. - Ahmd.) b. SEA Master Shipping and Logistics v. CCT 2019 (25) G.S.T.L. 458 (Tri. -
Hyd.) c. Varadhi Advertisers Pvt. Ltd., vs. Commr. of Central Tax, Hyderabad vide Final Order No. A/30613-30168/2023 dated 04.07.2023 (Para 7 to 11) d. Greenwich Meridian Logistics (India) Pvt. Ltd. v. Commissioner -- 2016 (43) S.T.R. 215 (Tribunal) e. CST Vs Jaybharat Automobiles Ltd 2016 (41) STR 311 (Tri-Mum) f. EURO RSCG Advertising Ltd Vs Commissioner Of C.S.T., Bangalore 2007 (7) S.T.R 277 (Tri-Bang) g. P. Gautam & Co vs Commissioner of Service Tax, Ahmedabad 2011 (24) STR 447 (Tri-Ahmd).
6 Appeal No. ST/30844/2016It is clear that in the present case also, the post-sale incentive/discounts given by M/s. Mercury Marine Singapore Pvt Ltd., to appellant, by way of adjustment note/credit note cannot be made subject to service tax, as the said note was given in relation to transaction, which is purely related to trading of goods.
12. Direct sale by Mercury and only Margin booked in the books of account of the Appellant: In few cases customer of the appellant directly places purchase order on Mercury, and the same is directly supplied by Mercury to the customer, which is mostly in cases where customers are eligible for concession/exemption in customs and to facilitate the customs clearance smoothly. Accordingly, the invoice is raised by Mercury on the instructions of the appellant, directly on the customer, and post sale, the margin is credited by Mercury by way of credit note to the appellant.
13. The impugned order denied the benefit of export of service, on the only ground that there is no receipt of foreign exchange. It is settled law that account adjustment made, itself is considered as payment received in convertible foreign currency, therefore non- realization of the convertible foreign currency does not arise at all. He relied on a. Reserve Bank of India vide RBI/2011-12/264 A.P. (DIR Series) Circular No. 47 which permits set-off of export receivables against import payables.
b. RBI Master Circular 14/2013-14 dated 01.07.2013 vide Para No. C 26(B) which clarifies netting is allowed.
c. OIA No. TVM-EXCUS-000-APP-172-2016-17 dated 22.11.2016 in case of erstwhile Proprietorship firm (M/s. Esmario Export Enterprises). d. J.B. Boda - 1997 (223) ITR 271 (SC) e. Commr. Of C. Ex., Jaipur-1 Vs. National Engineering Industries Ltd. 2019 (30) G.S.T.L. 211 (Raj.) f. Bharat Re-Insurance Brokers Pvt. Ltd. Vs. Commissioner of Central Excise Customs and Service Tax, Hyderabad-II 2020 (6) TMI 259 - CESTAT HYDERABAD (Para- 11) g. Suprasesh General Insurance Services & Brokers P. Ltd. v. Commissioner2016 (41) S.T.R. 34 (Mad.) (Refer Para 43, 44, 57 and 58) h. Sun-Area Real Estate Pvt. Ltd. v. CST, Mumbai-I, 2015 (39) S.T.R. 897 (Tri. - Mum.) (Refer Para 9 & 10) The same was also clarified by the CBIC vide its Circular No. 78/52/2018- GST - Central Tax, dated 31-12-2018 under GST. The provisions of GST and 7 Appeal No. ST/30844/2016 service tax with respect to the condition of receiving convertible foreign exchange are similar.
14. He further contended that Impugned SCN & order clearly admitted the fact that amounts from foreign customers are received by way of adjustment against payables from India, by raising credit notes but denied the benefit of treating such adjustment as 'receipt of foreign exchange', stating that required permissions were not taken and procedure as per RBI guidelines were not followed. He contended that having admitted that amounts were received, the alleged lapse in procedure or permissions is not valid grounds for denial of the benefit, and it is not in jurisdiction of the service tax department to object on the infirmities, if any under RBI guidelines.
15. He further contended that w.e.f. 01.07.2012, Section 66B specified that the services provided in the taxable territory are only leviable to service tax. Hence, the services rendered outside taxable territory i.e., exports are outside the purview of the levy and no service tax can be charged. He also submitted that 'Discount amount received from Mercury, is for facilitating sale of goods only and not falling under definition 'Intermediary' as per Rule 2(f) of Place of Provision Rules, 2012 for the impugned period up to September 2014, which relates only to intermediary of services and not of goods, as per the definition of intermediary.
Demand under 'MMRS' (Warranty claims):
16. For the period upto 30.06.2012: The amounts accounted as 'Warranty claims received' represents a. Cost of spares in repair service and b. The service portion in repair service.
17. As submitted above, this appellant providing the services to M/s Mercury Marine Singapore Pvt Ltd., said activity cannot be classified as 'MMRs' instead it should be classified as 'BAS' as defined u/s 65(19)(vi) read with 65(105)(zzb)-
(vi) Provision of service on behalf of client; or .........." (zzb) to a client, by any person in relation to business auxiliary service; The present activity is covered under 'export of service' and mere non receipt of convertible foreign exchange cannot disentitle the appellant to claim the benefit of exports as submitted supra. Assuming the above activity is not an export, it is a composite contract and not liable under 'MMRS' 8 Appeal No. ST/30844/2016 category. He also sought benefit of Notification No.12/2003-ST dated 20.06.2003.
18. For the period after July 2012:Service of warranty was provided on behalf of Mercury to the beneficiary in India and no amount is being charged from service beneficiaries. Both Mercury and this appellant have privity of contract. As per Rule 3 of POPS Rules, 2012 place of provision will be the location of the service recipient i.e., on whose account the service is provided i.e., Mercury, thus activity being Export. Reliance is placed on Blue Star Ltd. v. Commissioner -- 2016 (46) S.T.R. 59 (Tribunal); Samsung India Electronics Pvt. Ltd. Vs. Commissioner of C. Ex., Noida 2016 (42) S.T.R. 831 (Tri. - Del.).
'Extended period of limitation' & 'Penalties':
19. It is a periodical notice wherein no extended period can be invoked. Initially department had issued notice for 2008 to 2010 on the following issues a. Dealers margin b. Agency commission and c. Warranty claims The present show cause notice is issued for the period 2010-11 to 2013-14 which covers all the above three issues. It is settled legal position that extended period cannot be invoked in subsequent periodical notices. Reliance is placed on Nizam Sugar factory vs. Collector of Central Excise, A.P. 2006 (197) ELT 465 (SC).
20. Initially the appellant was under the bonafide belief, that as they are into exports, which is a non-taxable activity, no reason for disclosure of such exempted amounts in returns. Subsequently, they have started disclosing from 2012-13 with respect to repairs of vessels. It is settled legal position that once the appellant is disclosing the amounts in returns, no extended period can be invoked.
21. Appellant had no intention to evade payment of tax, present issues were subject to varied interpretations and enough confusion was revailing. In this background, Extended period of limitation is not invokable. In this regard, relied on -
9 Appeal No. ST/30844/2016a. Pushpam Pharmaceuticals Company Vs Collector Of C. Ex., Bombay 1995 (78) E.L.T 401 (S.C) b. Padmini Products v. Collector -- 1989 (43) E.L.T. 195 (S.C.) c. Jaiprakash Industries Ltd. v. CCE, 2002 (146) ELT 481 (SC) d. Pr. Commr. of Service Tax vs. Shree Chanakya Education Society 2018 (362) E.L.T. 741 (Bom.) e. P. Siva Prasad Vs. Commr. Of C. Ex., Cus. & S.T., Hyderabad-III 2019 (27) G.S.T.L. 233 (Tri. - Hyd.) f. Shreehari Associates Pvt Ltd Vs CCE 2015-TIOL-595-CESTAT-MUM g. Sri Chaitanya Educational Committee (SCEC) v. CCE 2016 (41) S.T.R. 241 (Tri. - Bang.)
22. For the same reasons, the penalty under Section 78 cannot be imposed. Levy of penalty under Section 77 attracts only when there is contravention of provisions, whereas in the instant case Appellant has duly complied with all provisions and there is no contravention as alleged by impugned order.
23. He also argued that Appellant has been incorporated in September 2010 acquiring the business of Proprietorship concern w.e.f. 01.04.2012. Whereas the SCN proposed demand from April 2010 to March 2014. It is settled legal position that both the Corporate Entity and Proprietary Concern are two different legal entities having different PAN No's and different Service Tax registrations. That Section 73(1) requires that 'notice can be served on the person chargeable with the service tax'. Accordingly, the person chargeable to service tax was the Proprietary concern and not this appellant. It is to further submit that Section 87 of the Finance Act, 1994 provides the power of recovery from the successor, and did not deal with adjudication/chargeability/levy of service tax of service tax dues of predecessor from the successor. Reliance is placed on a. Freezair India (P) Ltd. v. Commissioner 2014 (304) E.L.T. 360 (Del.) dealt with similar facts & circumstances (Para 28). The appeal of the department is dismissed by the Hon'ble SC in C.A. No. 006949/2015 vide its order dated 06.02.2019.
b. Shabina Abraham v. Collector -- 2015 (322) E.L.T. 372 (S.C.) c. Commissioner v. Dhiren Gandhi -- 2012 (281) E.L.T. 64 (Kar.) d. Commissioner v. Press Fab Precision Components Pvt. Ltd. 2007 (207) E.L.T. 207 (Kar.) 10 Appeal No. ST/30844/2016
24. On the other hand, Ld. DR reiterated the findings of the impugned order and contended that demand was mainly due to non-submission of supporting documents. Hence, the matter may be remanded.
25. Heard both sides. The perusal of SCN and OIO brings out that the main demand is under 'BAS' for the amounts received in the capacity of 'distributor' to M/s. Mercury. Both SCN & OIO while admitting that the payments were received by Appellant by way of adjustment in the running account &raising credit notes but refused to equate with receipt of 'convertible foreign exchange' solely on the ground that requisite procedure/permissions were not taken from RBI. This finding is not sustainable for the simple reason that Service tax department are not the competent authorities to adjudicate on the issues related to RBI. Law is well settled that 'set off'/adjustment against payables is to be considered as 'receipt of convertible foreign exchange and needs no reiteration as held by Hon'ble SC in J.B. Boda - 1997 (223) ITR 271 (SC) and followed in several decisions for service tax in Commr. Of C. Ex., Jaipur-1 Vs. National Engineering Industries Ltd. 2019 (30) G.S.T.L. 211 (Raj.), Bharat Re- Insurance Brokers Pvt. Ltd. Vs. Commissioner, Hyderabad 2020 (6) TMI 259
- CESTAT HYDERABAD. Having accepted in SCN & OIO, that payments are received and adjusted in running account against the payables in foreign currency to the same foreign party outside India, we see no reason to deviate from the settled law, that 'set off' is sufficient fulfilment of the condition of receipt in convertible foreign exchange. In absence of any other contradiction alleged in the SCN/OIO, the demand raised under 'BAS' category for the subject period does not sustain. Even for the period after 01.07.2012, the above legal position holds good and cannot be made subject to service tax more so when Section 66B, ibid provides no levy for the services rendered outside India.
26. With regard to demand made under 'renting' category, perusal of the agreements and related documents makes it clear that transaction is in the nature of 'cold storage facility' not mere renting. Accordingly, the demand does not sustain under 'renting' category.
27. With regard to the demand made under the category of 'MMRS' on services rendered to 'Navy'/'coastal guards', the Appellant admittedly paid service tax when provided to other service recipient, and claimed exemption 11 Appeal No. ST/30844/2016 when provided to 'Navy'/coastal guards' etc. Perusal of the relevant work orders and invoices clearly evidences that services are rendered to Navy/coastal guards only and rightly eligible for the exemption from service tax during the subject period. When the demands were raised after detailed audit of the records, it is inherent that department was in possession of the related work orders, invoices, ledgers and bank statements etc. Viewing from that background, it is incorrect to say that Appellant did not submit the supporting documents for the exemptions claimed.
28. So far the demands made under 'MMRS' category for warranty claims, the main plank of argument is that Appellant being distributor of M/s. Mercury, rendered warranty services on behalf of M/s. Mercury and hence it is classifiable under 'BAS' not under 'MMRS'. In any case, warranty claims were raised for the composite works involving service & material portion, the demand cannot be made under service category of 'MMRS'. We find force in both arguments of the Appellant and accordingly set aside the demands.
29. On the issue of limitation, we find strong force in the submissions of the Appellant, that the facts were known to the department as evident from the previous SCN's. The issues are subject to varied interpretations and confusion was prevailing. Further, appellant maintained proper books of accounts and the present demand have been raised based on the records maintained by the appellant and there is no mis representation, or any suppression or mis statement or fraud on the part of the appellant. Accordingly, we hold that extended period of limitation is not invocable in the present case. For the same reasons, all the penalties needs to be set aside.
30. In view of the findings and observations above, we allow the Appeal and set aside the Impugned Order. Appellant shall be entitled to consequential benefits, in accordance with law.
(Order Pronounced in open court on_29.02.2024_) (ANIL CHOUDHARY) MEMBER (JUDICIAL) (A.K. JYOTISHI) MEMBER (TECHNICAL) jaya