Custom, Excise & Service Tax Tribunal
M/S. Internatioinal Shippers & Trders ... vs Commissioner Of Central Excise, ... on 26 May, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: ST/326/2007-DB [Arising out of Order-in-Original No. 16/2007 (VR) dated 21/05/2007 passed by the Commissioner of Central Excise & Customs, Visakhapatnam.] For approval and signature: HON'BLE SHRI JUSTICE G. RAGHURAM, PRESIDENT HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes M/s. INTERNATIOINAL SHIPPERS & TRDERS PVT LTD. COCANADA CHAMBER OF COMMERCE BUILDING, COMMERCIAL ROAD , Kakinada 533 001. Appellant(s) Versus Commissioner of Central Excise, Customs and Service Tax VISAKHAPATNAM-I CENTRAL EXCISE BUILDING PORT AREA, VISAKHAPATNAM 530 035. ANDHRA PRADESH Respondent(s)
Appearance:
Mr. Hari Radhakrishna, Advocate S.S RADHAKRISHNA # 17, 1ST CROSS STREET, CHENNAI 600086. TAMILNADU For the Appellant Mr. R. Gurunathan, Addl. Commissioner (AR) For the Respondent Date of Hearing: 26/05/2015 Date of Decision: 26/05/2015 CORAM:
HON'BLE SHRI JUSTICE G. RAGHURAM, PRESIDENT HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER Final Order No. 21255 / 2015 Per : B.S.V.MURTHY International Shippers and Traders Ltd., Kakinada is a licensed Custom House Agent (CHA). The services rendered by a CHA became liable to service tax w.e.f 15.6.1997. After calling for some information and verification of records, proceedings were initiated by way of issue of show-cause notice on 21.4.2006. It was observed in the show cause notice that appellant was providing composite services which included unloading of goods from ship, transportation of goods and hiring of barges as well as warehousing, standardization and despatch of goods. It was also observed that appellant company was rendering clearing and forwarding services, steamer agent service, port service and cargo handling service but had taken out registration only for CHA services. On the basis of income in balance sheet, the service tax liability was calculated and notice was issued. After the adjudication process, it has been held that the services provided by the appellant is to be classified as clearing and forwarding services in view of the fact that as per provisions of Section 65A(b) of Finance Act, 1994 when composite service is provided, the service which gives essential character would be the one under which the composite service has to be categorized. Accordingly, demand for service tax of more than Rs.2.56 crores with interest has been demanded and penalties under various Sections of Finance Act, 1994 have been imposed. The period is from 1.7.2003 to 31.12.2004.
2. Learned counsel for the appellants submitted that as observed in the show-cause notice the appellant had undertaken to attend to discharge of cargo from the vessel; transporting the cargo to the shore by using barges; unloading the cargo at the wharf; clearing the goods and transporting it to the godown and unloading at the godown; and transporting the cargo from the godown after bagging either by truck or by railway wagon. He drew our attention to the Circular issued by the Board wherein it was held that CHA renders several services and it is not limited to clearing of import and export consignments alone. Further, he also submits that the classification of the service cannot be done on the basis of the contract or on the basis of category of income indicated in the balance sheet. He also submits that appellant had not deliberately split up the value of service into various categories and a fixed amount is given to the appellant. The contract consists of the amounts for payment of actual expenses and a specific percentage to the appellant as commission. He submitted that there is a distinction between the functions of CHA and C & F agent. The CHA offers services to clear the imported goods from the customs station whereas C & F Agent offers services to clear the goods from the manufacturers/traders premises. He also submits that he relies on the decision in the case of Intercontinental Consultants & Technocrafts Pvt. Ltd. Vs. UOI [2013(29) STR 9 (Del.)] to submit that reimbursable expenses cannot be included for arriving at the value of the service. He also relies upon several other decisions to submit that the services rendered by him are only that of CHA and not C & F Agent service at all.
3. Learned AR submitted vehemently that the activities undertaken by the appellant are that of a clearing and forwarding operations. He submits that the appellant is getting the goods cleared from customs and forwarding it to the principal and appellants have also got godowns in the customs area for storing the goods and undertake to transport the goods. Therefore he submits that the stand taken by the Revenue is correct and appellant is liable to pay tax and liable to penalties.
4. We have considered the submissions and gone through the records. During the relevant period, the CHA service was defined as service to any person by a CHA in relation to the import or export of goods.
4.1 As per Section 65(25) of Finance Act, 1994 : Clearing and Forwarding Agent is defined as any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent.
4.2 At the time of introduction of levy of service tax on services rendered by customs house agent, in the Trade Note No.39/97 dated 11.6.1997 issued, Delhi Commissionerate had explained the role of CHA and also had laid down the procedures to be followed. Relevant paragraphs 2.3 to 2.5 are reproduced below.
2.3 The services rendered by the Custom House Agent are not merely limited to the clearing of the import and export consignment. The CHA also renders the service of loading/ unloading of import or export goods from /at the premises of the exporter / importer, the packing, weighment, measurement of the export goods, the transportation of the export goods to the customs station or the import goods from the customs station to the importers premises, carrying out of various statutory and other formalities such as payment of expenses on account of octroi, destuffing/pelletisation, terminal handling, fumigation, drawback/ DEEC processing, survey / amendment fees, dock fees, repairing and examination charges, landing and container charges, statutory labour charges, testing fees, drug control formalities, sorting / marking / stamping / sealing on behalf of the exporter / importer. The Custom House Agent also incurs various other expenses such as crane / fork lift charges, taxi charges, photostat and fax charges, bank collection charges, courier service charges, and miscellaneous other expenses on account of the exporter / importer. For all the above charges, the CHA is ordinarily reimbursed by the importer / exporter for whom the above services are rendered. Apart from the above charges, the CHA also charges the client for his service under the head / nomenclature of agency and attendance charges or similar kind of heads which is purported to be his service charge in respect of the services rendered in relation to the import / export goods.
2.4 It is clarified that in relation to Custom House Agent, the service tax is to be computed only on the gross service charges, by whatever head / nomenclature, billed by the Custom House Agent to the client. It is informed that the practice obtaining is to show the charges for services as " agency commission", "charges", "agency and attendance charges", "agency charges" and some similar descripttions. The service tax will be computed only with reference to such charges. In other words, payments made by CHA on behalf of the client, such as statutory levies (cess, Customs duties, port dues, etc.) and various other reimbursable expenses incurred are not to be included for computing the service tax.
2.5 In many cases, the Customs House Agent undertakes "turnkey" imports and exports where a lump sum amount is charged from the client for undertaking various services. In these cases, the lump sum amount covers not only the "agency commission" fee but also other expenses and no separate break-up is given in respect of these expenses. It has been decided that in such cases, the value of the taxable service shall be 15% of the lumpsum amount charged to the client. The Custom House Agents are required to show the service charges as 15% of such lumpsum amount of the bills and Service Tax of 5% will be chargeable on the above 15%. It is the claim of the appellant that they have paid service tax on this basis. Further, in Circular No.119/13/2009-ST dated 21.12.2009, CBEC had clarified the position. In fact the Trade Note is based on the circulars. In paragraph 3 of the said Circular, it was observed and reported that Board had clarified on 6.6.1997 that service tax would be charged on the service charges only and statutory levy and other reimbursable charges would not be included in the taxable value. The Board also observed that in case where there is lump sum payment towards reimbursible as well as service charges, service tax would be charged on 15% of the gross value only. In the clarification, it was stated that with the introduction of Valuation Rules for service tax, the previous circulars become invalid. The period covered by the orders before us is prior to April 2006. Therefore the guidelines issued by CBEC would be squarely applicable to the facts of this case. Appellant has taken registration as a CHA has been discharging service tax liability on that basis and the activities undertaken by the appellant are the ones which have been taken note of by the CBEC.
4.3 At this stage, it would be appropriate to mention that two contracts entered by the appellants on a sample basis have been produced before us. In the case of contract with The Andhra Sugars Ltd., the appellant was to undertake all the activities discussed hereinabove and were entitled to a rate of Rs.220 per metric tonne including agency commission of Rs.10 per metric tonne. Similarly in the case of agreement with Indian Potash Ltd., agency commission was specifically mentioned as Rs.5.5 per metric tonne. From both the agreements, it becomes very clear that appellant was being reimbursed estimated actual cost of the activities and providing separate agency commission was paid to the appellants. In any case, there is no finding that the amount recovered over and above the commission was more than the actual expenses or actuals were not in the nature of reimbursement. It was also submitted that the transportation from the godown to various places was under a separate agreement and not part of the agreement on the basis of which the activities within the port were undertaken. The only ground the Commissioner has refused to exclude the reimbursable expenditure is that it got merged in the consolidated pre-agreed rate as per the agreement. We find that the Board circular issued and referred to above clearly covered the case of the appellant.
4.4 Moreover, the liability of CHA to service tax was considered by the Tribunal. In the case of S & K Enterprises vs. CCE, Calicut, this Tribunal had held that commission received for C & F activity alone is taxable and reimbursement on account of loading and unloading, coolie/cartage and freight charges are not liable to service tax as reported in 2008 (10) S.T.R. 171 (Tri.-Bang.). Even in the case of clearing and forwarding agent also, the Tribunal had taken a view that reimbursement on account of loading and unloading, packing/unpacking, freight, etc., cannot be included (Apco Agencies vs. Commissioner, Calicut as reported in 2008 (10) S.T.R. 169). In the case of Gudwin Logistics vs. CCE, Vadodara: 2012 (26) S.T.R. 443 (Tri.-Ahmd.), it was clearly held that stand taken by the Revenue that the activities similar to the one under consideration before us amounts to rendering of C & F Agent service is not correct and it was held that the services has to be classified as CHA service only. This decision is applicable to the facts of this case. The Honble High Court of Delhi in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. vs. UOI: 2013 (29) S.T.R. 9 (Del.) held that reimbursable expenses cannot be included for the purpose of valuation of service.
4.5 The discussions hereinabove would show that the stand taken by the Revenue that services rendered by the appellant in the capacity of CHA service need reclassification as C & F agent service cannot be sustained. Therefore, we allow the appeal with consequential relief, if any to the appellant.
4.6 Since we have held that the issue on merits in favour of the appellants, the question of imposition of penalty does not arise.
(Order pronounced in open court) B.S.V.MURTHY TECHNICAL MEMBER JUSTICE G. RAGHURAM PRESIDENT rv 2