Custom, Excise & Service Tax Tribunal
M/S. Chennai Port Trust vs Commissioner Of Service Tax, Chennai on 12 June, 2017
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
ST/Misc./40181 to 40184/2017 & ST/178/2006 and ST/173/2007 and ST/128 & 129/2008 (By Assessee)
ST/181/2006 (By Deptt.)
(Arising out of Orders-in-Original No. 16/2006 dated 11.5.2006; No. 77/2007 dated 16.5.2007 and No. 25 & 26/2008 dated 31.3.2008 passed by the Commissioners of Service Tax, Chennai)
M/s. Chennai Port Trust
Commissioner of Service Tax, Chennai Appellants
Vs.
Commissioner of Service Tax, Chennai
M/s. Chennai Port Trust Respondents
Appearance Shri Meenakshi Sundaram, Consultant for the Assessee Shri K. Veerabhadra Reddy, JC (AR) for the Respondent CORAM Honble Ms. Sulekha Beevi C.S., Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing : 31.05.2017 Date of Pronouncement: 12.06.2017 Final Order Nos. 40915-40919 / 2017 Per Bench The issue involved in these appeals being common, they are taken up for hearing and disposed by this common order. The parties are referred to as assessees and department for convenience.
2. The issue that poses for consideration in these appeals is whether the Terminal Handling Charges (THC) received by the assessees is taxable under the category of Business Auxiliary Service.
3. The assessees are registered under the category of Port services and were paying service tax under this head from 16.07.2001. During the course of audit it was noticed that there was difference between the taxable income and income declared in the returns and thus short payment of service tax on port services. The dispute of short payment on port services is not an issue in these appeals. During the audit it was also noticed that assessee is receiving Terminal Handling Charges (THC) from Southern Railways which appeared to be subject to Service Tax under Business Auxiliary Services introduced from 01.07.2003 onwards. The assessee was not paying service tax on THC. Show cause notices were issued alleging non-payment of service tax on THC and proposing to recover the differential of service tax along with interest as also imposition of penalties. After due process of law, the adjudicating Commissioner vide impugned Order No.16/2006 dated 11.5.2006 confirmed the demand of service tax along with interest, however did not impose penalties. Against the non-imposition of penalties in Order-in-Original No.16/2006 the department has filed appeal No.ST/181/2006. The other appeals are filed by the assessee aggrieved by the demand of service tax, interest and penalties imposed for the subsequent periods. The period involved, amount of tax demanded and penalties imposed are given in the Table below as furnished by the assessee:-
SI No. Appeal No. OIO No. Material Period Amount of Tax challenged (Rs.) Penalty Involved Type of Receipt
1.
ST/178/2006 16/2006 01.07.2003 to 31.01.2004 51,11,738 No THC
2. ST/173/2007 77/2007 01.02.2004 to 31.03.2006 3,23,77,629 Yes;
u/s 76 THC
3. ST/128/2008 25/2008 01.04.2006 to 31.03.2007 2,25,05,761 Yes;
u/s 76 THC
4. ST/129/2008 26/2008 01.04.2007 to 27.08.2007 1,36,36,980 Yes;
u/s 76 THC
4. On behalf of the assessee, learned consultant Shri Meenakshi Sundaram submitted that Terminal Handling Charges (THC) received by assessee would not fall within the definition of Business Auxiliary Services as it stood during the period from 1.7.2003 to 09.09.2004 and later as amended from 10.09.2004. He first argued on the additional grounds raised in the Misc. application filed by appellant. This will be dealt by us later. The Learned Consultant adverted to the definition of BAS and contended that as per the definition contained in Section 65(19)(iv), services in the nature of billing, collection or recovery of cheques, accounts, remittances etc. would come under the definition of Business Auxiliary Services only if these services are provided incidental and auxiliary to any of the services mentioned under clauses, (i), (ii), (iii) of the said Section. That out of the 14 services provided by the assessee, even according to department only services such as collection of freight, remittance of amount to Reserve Bank of India and accounts maintenance, would be covered by the definition of BAS. The assessee receives lump sum charges as THC for the entire 14 services provided whereas, the department has not been able to establish whether the other eleven services would also fall within the definition of Business Auxiliary Services. That though the services such as billing, collection of freight, remittance to Bank and maintenance of accounts are provided by assessee to Railways, these services not being incidental or auxiliary to any of the services mentioned in clause (i), (ii) and (iii) of section 65(19) they are not liable to service tax under the category of Business Auxiliary Services.
5. Again, with effect from 10.9.2004, the definition of Business Auxiliary Services was amended and clause (vi) was added to Section 65(19) whereby the services provided on behalf of a client were also brought into the ambit of the definition. Even after such amendment, the activities would not be covered under BAS since the assessee is not providing any services on behalf of a client. That no services whatsoever is rendered by the assessee on behalf of Southern Railways to any other person for which the THC is received by the assessee. To satisfy subsection(vi) of Section 65(19) it requires three parties. In the case of assessee, while rendering the services of billing, collection of freight, remittance to RBI etc., there are only two parties, namely, assessee and Southern Railways. As there is no third person involved, the requirements under this sub-section of Sec.65(19) as amended from 10.9.2004 is not fulfilled and accordingly the activities would not fall within the definition of Business Auxiliary Services with effect from 10.9.2004 also. In addition it was submitted that vide Notification No. 25/2004 dated 10.9.2004, the services rendered on behalf of the client prior to 10.9.2004 were exempted. For this reason also, no service tax is liable to be paid prior to 10.9.2004.
6. Learned consultant has also argued on the issue of limitation. He submitted that the assessee is a public sector undertaking and no intention to evade payment of service tax can be saddled on the assessee and therefore the show cause notices issued invoking the extended period of limitation is unsustainable. For the same reason, no penalty is liable to be imposed and contended that when the adjudicating Commissioner in Order-in-Original No.16/2006 has dropped the proposal to impose penalties, the same would apply in the case of penalty proposed under section 76 in other appeals and the same requires to be set aside.
7. These being the main grounds stated by the appellant before the authorities below and also in the appeal memorandum filed before the Tribunal, the appellant, however filed Miscellaneous application No.ST/Misc.40183/2017 seeking permission to raise additional grounds. In this miscellaneous application, the appellant has raised additional grounds, which are as under:-
(i) It is not-exigible to tax since it is a government railway u/s 65(105)(zzzp) : The subject income is earned for a bundle of 14 services which are meant for transportation of goods by rail from port to zero-point and vice-versa and consequently fall under the classification of transportation of goods by rail u/s 65(105)(zzzp). These services are not-exigible to service tax u/s 65(105)(zzzp) since it is a government railway as per section 29 of Major Port Trusts Act, 1963.
(ii) It is not-exigible to tax even if this is considered not as government railway u/s 65(105)(zzzp) : Consideration received for transportation of goods in containers by rail alone is taxable u/s 65(105)(zzzp); whereas the subject income comprises of transportation of goods (i) in containers and (ii) not-in-containers by rail. Taxing this consideration is not permissible since there is no machinery provision to vivisect this consideration.
(iii) It is not-exigible to tax since none of the 14 services bundled in this case are falling under the definition of BAS: Admittedly, the subject income is earned for a bundle of 14 services which are meant for transportation of goods by rail wherein none of these 14 services are falling under the definition of BAS u/s 65(19).
(iv) It is not-exigible to tax even if this is considered to be falling under the definition of BAS: Admittedly the OIO has held only 3 out of the total of 14 services to be falling under the definition of BAS. Taxing this consideration meant for a bundle of 14 services is not permissible since there is no machinery provision to vivisect this consideration.
(v) There is no authority to demand tax: There is no authority to demand service tax since (i) the term of person chargeable with the service tax used in section 73 is not-defined in law and (ii) the appellant, namely a service provider, is not included rule 2(1)(d) of STR 2004 which defines the term person liable for paying the service tax. This legal lacunae has been cured by amendment to rule 2(1)(d) by including service provider in rule 2(1)()d(ii) w.e.f. 01.07.2012.
(vi) Demand of interest is invalid since it is not show caused: Interest demanded in the OIO is not show caused in the SCN and consequently demand of interest is invalid.
8. The Misc. application was strongly opposed by the learned AR Shri K. Veerabhadra Reddy, who submitted that the appellant has not put forward any of these grounds before the adjudicating Commissioner and being entirely new pleas, the same cannot be raised at this stage of appeal.
9. Let us proceed first to analyse the admissibility of these additional grounds. As narrated above, the major additional grounds raised in the miscellaneous application are entirely new pleas put forward by the assessee. The records reveal that such pleas have never been raised before the adjudicating authority and the department has not got any opportunity to defend or clarify the same. The adjudicating authority also, therefore, has not been able to consider any of such grounds. The first additional ground raised is that the Terminal Handling Charges are received for services of transportation of goods by rail from port to zero point and vice versa. That, services of transportation of goods by rail fall under Section 65(105)(zzzp) and not BAS. That, even under Sec.65(105)(zzzp) the activities are not taxable. That, being a government railway as per Section 29 of Major Port Trusts Act, 1963, the services carried out by appellant for transportation of goods by rail are not exigible to tax under Sec 65(105)(zzzp). The next ground is an alternate plea that even if it is considered not to be, a government railway, service tax is leviable on the consideration only if transportation of goods is in containers. The appellant receives Terminal Handling Charges for transportation in containers and otherwise. That these charges received cannot be vivisected and therefore no tax can be levied on the THC amount received. Another ground taken is that the Terminal Handling Charges are not eligible to tax since none of the 14 services bundled would fall under category of BAS as defined under Section 65(19). According to him the charges are received for a bundle of 14 services used for transportation of goods by rail and none of these 14 services individually fall under BAS. This ground is in entire contradiction to the ground raised before the lower authority. The ground raised before adjudicating authority as well as in this appeal memorandum is that the services of billing, collection of freight, remittance etc., not being incidental or auxiliary to clauses (i), (ii) & (iii) of the definition of BAS would not come under the definition. Again, an alternate plea is raised stating that even if it comes under BAS it is not exigible to tax. A further ground goes to the extent to say that no service tax can be demanded from any person prior to 01.07.2012, as the person liable to pay Service Tax was not defined during the period. It is very much clear from the above additional grounds raised that the appellant is trying to built up a new case which was never put forward in the reply to show cause notice or at the time of personal hearing or at the time of filing this appeal.
10. In the case of Warner Hindustan Ltd. Vs. Collector of Central Excise, Hyderabad reported in 1999 (113) ELT 24 (SC), the Honble Supreme Court held that it is not permissible to build up a new case at the Tribunal stage. Similar view was taken in the case of Sree Vishnu Electronics Vs. Commissioner of Central Excise, Chennai II reported in 2015 (326) ELT 113 (Mad.) and in Ram Gopal Kudal Vs. Additional Customs. 2016 (334) E.L.T. 50 Mad.
11. From the discussions above, it is explicit that the additional grounds are entirely new grounds in the nature of a new case put forward by the assessee for the first time before the Tribunal. We, therefore, are of the considered opinion that such additional grounds cannot be permitted at this appellate stage. Miscellaneous application No.ST/Misc/40183/2017 is dismissed.
12. Apart from countering the additional grounds made by the assessee, the learned AR has put forward the following arguments:-
(a) Business Auxiliary Services has become taxable with effect from 1.7.2003 and the same was amended with effect from 10.9.2004. The activities undertaken by the assessee include issuance of Railway Receipt on behalf of Railways, collection of freight on behalf of the Railways, remittances of the collected freight/other charges into Reserve Bank of India on behalf of Railways and maintenance of such accounts on behalf of Railways. These activities would fall within the definition of Business Auxiliary Service. The contention of the assessee that these services like billing, collection of freight, remittance etc., would not fall under the definition of Business Auxiliary Service and only when such activities are incidental or auxiliary to the services mentioned in sub-clause (i), (ii) and (iii) of Section 65(19) is not correct for the reason that the activities of billing, collection or recovery of cheques and remittances etc. by themselves stand alone and, would be services falling under the definition of Business Auxiliary Service under sub-clause (iv) of section 65(19).
(b) It was argued by learned AR when the assessee is receiving THC amount for the activities / services rendered to Southern Railways, it is for the assessee to put forward the details of charges received for each services and cannot take shelter by contending that the THC received cannot be vivisected for each services. The assessee is admittedly doing the activity of collecting railway freight, haulage charges and remitting the same to Reserve Bank of India on behalf of the Railways. They also maintain the accounts and prepare the railway freight receipt on behalf of railways. Such activities qualify the criteria mentioned in the definition of Business Auxiliary Service with effect from 1.7.2003 onwards.
(c) Learned AR further submitted that on verification of the service tax payments made in terms of ST-3 Returns filed by the assessee it was revealed, inter alia, that there was a difference between the taxable income and the income declared in the ST-3 returns and, it further emerged that assessee is receiving THC on which no service tax is discharged. The assessee having registered for port services has suppressed the THC received. It has come to light only during audit. Therefore the demand raised invoking the extended period of limitation is legal and proper.
13. We have considered submissions made by both sides.
14. The Learned Consultant, Sh. Meenakshi Sundaram has made elaborate arguments which were mainly focused on the additional grounds raised in the miscellaneous application. Under an agreement called Working Agreement entered by assesse with Southern Railway, the assessee undertook the activity of transporting Cargo (both imported and exported) between the dock and the entry point of the Port. It is the Railways who directly undertake transportation from and upto this entry point. Within the Port area, the assessee undertakes the activity of unloading / loading the cargo from/to the vessel to the railway wagons. The wagons are owned by Railways. The consideration for the services for loading unloading/transportation was collected by assessee by cheque drawn in favour of Railway. The assessee issued the Railway receipts to the cargo owners/customers. The amount collected was then deposited in RBI by assesse in favor of Railways. For such services the assesse received Terminal Handling Charges (THC) which according to department is taxable under Business Auxiliary Service. The 14 services carried out by the assessee are as under:-
1. Harbour haulage charges clause 3(a)
2. Level crossing maintenance clause 4(iii)
3. Maintenance of lines, sidings and signals and telecommunication installations clause 5
4. Joint train examination clause 6(a)(i)
5. Provision of facilities for repair of sick wagons clause 7(a)
6. Placement of sick wagons and withdrawal of repaired wagons 7(b)
7. preparation of list of damages and deficiencies of the stock tendered by the railway to the trust clause 8(a)
8. Intimation of accidents to railway representatives clause 10(i)
9. Restoration of track clause 10(ii)
10. Assessment of damages caused due to accident clause 10(iii)
11. Enquiry as regards accident claim and compensation clause 11
12. collection of freight clause 18
13. Remittance of freight and other charges into the Reserve Bank of India clause 19
14. Accounts maintenance clause 20
15. Out of these services, Sl. nos. 12, 13 and 14, namely the collection of freight, remittance of freight/other charges into the Reserve Bank of India and accounts maintenance, are the main activities according to department which would fall within the definition of Business Auxiliary Service. For better appreciation, the definition of Business Auxiliary Service as it stood from 1.7.2003 to 9.9.2004 and from 10.9.2004 onwards is as under:-
During the period 01.07.2003 to 09.09.2004 During the period from 10.09.2004 to 27.08.2007 (19) business auxiliary service means any service in relation to,
(i) promotion or marketing or sale of goods produced or provide by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) any incidental or auxiliary support service such as billing, collection or recovery of cheques, accounts and remittance, evaluation of prospective customer and public relation services, and includes services as a commission agent, but does not include any information technology service. Explanation. For the removal of doubts, it is hereby declared that for the purposes of this clause information technology service means any service in relation to designing, developing or maintaining of computer software, or computerized data processing or system networking, or any other service primarily in relation to operation of computer systems; (19)business auxiliary service means any service in relation to
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
(v) production of goods on behalf of the client; or
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to manufacture within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).
Explanation. For the removal of doubts, it is hereby declared that for the purposes of this clause, information technology service means any service in relation to designing, developing or maintaining of computer software, or computerised data processing or system networking, or any other service primarily in relation to operation of computer systems;
16. The contention of the Learned Consultant is that clause (iv) of section 65(19) would be applicable only if the activities are incidental or auxiliary to the activities mentioned in clause (i), (ii) and (iii) whereas the contention of department is that the activities of billing, collection or recovery of cheques, accounts and remittances mentioned in clause (iv) by themselves would be activities falling under the definition of Business Auxiliary Service. On bare perusal of the definition as noticed above, we have to say that the contention raised by the assessee does not hold water.
The definition, as it stood prior to 10.9.2004, expressly mentions the words billing, collection or recovery of cheques, accounts and remittances which are the services falling under Sl. No.12 to 14 out of the fourteen services rendered by the assessee. It is not necessary that such services should be incidental or auxiliary to the services mentioned in (i), (ii) and (iii). As rightly argued by the department, the services of billing, collection of freight etc. are stand alone services by themselves and would qualify to be Business Auxiliary Service.
17. Another contention raised is that the services would be taxable as Business Auxiliary Service only if such services are provided on behalf of the client. That the assessee is not rendering any services on behalf of any client and therefore their activities are not Business Auxiliary Service. We are unable to appreciate this contention. The assessee, is preparing the Railway receipt, (billing), collecting the Railway Freight and remitting the same in RBI for Railways. For utilizing the services of Railways within the Port area the customers have to pay charges to Railways. The assessee cannot collect freight from the customers unless authorized by the Railways. For this reason, the issuance of railway receipts and collection of freight is definitely rendered on behalf of Railways and the remittances of the amount in Reserve Bank of India is also rendered on behalf of Railways which would make the services rendered on behalf of client.
18. From the above discussions we find that the demand of service tax under Business Auxiliary Service is correct and proper.
19. Before we part, even though the Misc. application for receiving additional grounds stands dismissed we would like to address the same. The sum and substance of these additional grounds is that the activities are not exigible to tax. The Consultant has made a frail effort to establish that being transportation of goods by rail the services if any would fall under Sec 65(105)(zzzp) and such transportation being through government railways, it is not exigible to tax. The activities carried out by the assesse, are not mere transportation of goods by rail, but the billing, collection of freight, remittance etc. Therefore this ground fails. Another additional ground put forward by the assessee is that the Terminal Handling Charges are received as lumpsum for bundle of 14 services rendered by the assessee and not being able to be vivisected is not subject to tax as per the judgment of the Honble Supreme Court in the case of Commissioner of Central Excise Vs. Larsen & Toubro 2015 (60) Taxman 354 (SC). We have to say that when the assessee is receiving Terminal Handling Charges for the services rendered to Railways and when Sl. Nos. 12, 13 and 14 would qualify for Business Auxiliary Service as taxable services, it is for the assessee to give the charges collected for each of the 14 services and to prove that such THCs do not apply to the services other than Sl. No. 12, 13 and 14.
20. We may now consider the issue of limitation. The show cause notices have been issued invoking extended period of limitation, the assessee was paying service tax under port services. From the facts of the case, it clearly emerges that only after conduct of audit by the department, the fact of receipt of such THCs by the appellant came to light. This had culminated in issue of show cause notice dated 27.12.2014 and subsequent adjudication proceedings, inter alia, demanding an amount of Rs.51,11,738/- as Business Auxiliary Service on such THCs. This demand was paid up by the appellants for which reason alone, in the related impugned Order-in-Original (ST/178/2006), the penalty under section 78 of the Finance Act, 1994 was waived. In spite of such detection by the department and acquiescence by the appellant on the issue of taxability of such THCs, the appellants did not however include receipt of such charges in their statutory returns filed thereafter nor did they discharge service tax liability thereon. Discernably, appellants had suppressed the fact of subject income in the subsequent periods. In this scenario, appellant cannot then take the plea that the extended period cannot be invoked on the ground that the information was declared in the returns. Being a public sector also cannot be a plea against invocation of extended period. On the other hand, as a public sector, they have an increased responsibility to discharge the tax liabilities to the Government exchequer in a correct manner, especially after the requirement had been pointed out to them as discussed above and the fact that appellant had even discharged the tax liability for the period 1.3.2003 to 31.1.2004. We are also unable to fathom how the appellants did not seek or obtain additional registration under Business Auxiliary Service even after the issue of the first impugned order of the Commissioner dated 11.5.2006. Viewed in this light, we are unable to find any infirmity with the finding of the adjudicating authority in the impugned orders, justifying invocation of extended period. Ffor example, in Order-in-Original No. 77/2007 dated 16.5.2007 para 18.5:-
As regards extended period of time limit, it is to be stated that the assesse himself accepted that they are liable to pay Service tax under Business Auxiliary Service. In fact, they have paid the Service tax along with interest under Business Auxiliary Service from 01.07.2003 to 31.01.2004. However, they have not taken for consideration the Terminal Handling Charges for payment of Service tax nor did they include in the determination of taxable value as declared in the S.T.3 Returns or in any manner amounts to suppression of fact with intent to evade payment of Service tax. Therefore, extended period of limitation under proviso to Section 73 of the Act is applicable for demand of Service tax and Education Cess. The assessees are also liable to penalty under Section 76 and 78 of the Act for contravention as mentioned supra. The assessee is also liable to pay interest at the applicable rates on the Service tax and Education cess demanded in this order.
21. For these reasons, both on merits and on limitation, we do not find any merit in the appeals filed by the appellant, for which reasons the appeals filed by them are dismissed.
22. Coming to the departments appeal ST/181/2006 on the grievance of imposition of penalties under various provisions, going through the facts and the impugned order dated 31.3.2008, we find that at least in that case, the appellant had paid up the tax liability along with interest even before issue of the show cause notice which cooperation has been taken into consideration by the adjudicating authority for non-imposition of penalties as a mitigating factor for non-imposition of penalties. From the facts of the case, we are of the opinion that there is no infirmity in the order passed by the adjudicating authority, the same is just and proper and within the law. Hence the departments appeal ST/181/2006 will have to be dismissed, which we hereby do.
23. Appeals are disposed of in the above terms.
(Pronounced in open court on 12.6.2017)
(MADHU MOHAN DAMODHAR) (SULEKHA BEEVI C.S.)
Member (Technical) Member (Judicial)
Rex
20
ST/173/2007 & Ors.