2024 (5) TMI 723 - AT - Service Tax

Levy of service tax - Business Auxiliary Service - freight margin recovered by the noticee from their customers - intermediary services or not - place of provision of services - invocation of extended period of limitation - HELD THAT - From plain reading of the legal provisions relating to Place of Provision of Services Rules, 2012 it clearly transpires that the place of provision of service in general has been specified under Rule 3 ibid, and in specific situations such as place of provision of performance-based services, provision of services relating to immovable property, provision of services relating to events, services provided at more than one location, services where provider and recipient are located in the taxable territory, provision of certain specified services have been specifically categorized and the place of provision in such cases have been given in the respective Rules 4, 5, 6, 7, 8 and 9 ibid respectively. As regards the place of provision for goods transportation services, other than by way of mail or courier, it is specifically stated as the place of destination of the goods under Rule 10 ibid. Considering the above legal provisions, in the present case, it is found that since the services are provided in respect of transportation of export goods, on the ocean voyage for delivery at the port of destination abroad, which is out of taxable territory , the services provided by the appellant cannot be covered under the service tax net, in the post negative list regime after 01.07.2012 also in terms of Section 66B ibid. Further, the findings given in the impugned order for rejecting application of Rule 10 ibid is on the ground that Rule 8 shall apply in the present case, as both service provider and recipient of the service are located in the taxable territory. In this regard it is found that, Rule 14 ibid specifically state thatnotwithstanding anything stated in any rule,where the provision of a service is, prima facie, determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration. Thus, in terms of non-obstante clause which grants superimposing authority to Rule 14 ibid over the provisions of other rules, in terms of the rule that occurs later would be applied and accordingly Rule 10 ibid is the correct one to be applied in the present case. The issue of service tax liability in respect of freight charges of cargo/container space has already been dealt in elaborately by the Tribunal in the case of GREENWICH MERIDIAN LOGISTICS (INDIA) PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX MUMBAI 2016 (4) TMI 547 - CESTAT MUMBAI holding that the service tax is not applicable on such freight element. The impugned order dated 05.04.2019 with regard to confirmation of adjudged service tax demands along with interest and penalties are not sustainable - Appeal allowed.

Summary

Issues Involved:

1. Classification of services under 'Business Auxiliary Services' (BAS).
2. Applicability of service tax on freight margin.
3. Invocation of extended period for demand.
4. Place of Provision of Services Rules, 2012.

Summary:

1. Classification of Services under 'Business Auxiliary Services' (BAS):

The appeal was filed by M/s Total Transport Systems Limited against the Order-in-Original passed by the Principal Commissioner of Central GST & Service Tax, Thane Rural, Mumbai. The Department contended that the extra margin charged by the appellants over and above the freight charges billed by the shipping lines amounted to 'service charges' liable to service tax under 'Business Auxiliary Services' (BAS) as per Sections 65(19) and 65(105)(zzb) of the Finance Act, 1994. The appellants argued that their transactions involved the trading of cargo/container space on a principal-to-principal basis and did not constitute a service.

2. Applicability of Service Tax on Freight Margin:

The Tribunal, referring to earlier decisions in similar cases, held that the appellants' activities of buying and selling cargo/container space did not fall under the definition of 'Business Auxiliary Services' (BAS). The Tribunal noted that the appellants were not acting as agents for the shipping lines but were engaged in the sale of space on a principal-to-principal basis. The Tribunal cited the case of EMU Lines Pvt. Ltd. Vs Commissioner of CGST & C.E., Belapur, where it was held that the freight element or any profit on such freight could not be subjected to tax under 'Business Auxiliary Services' (BAS).

3. Invocation of Extended Period for Demand:

The Tribunal found that the Show Cause Notice (SCN) did not provide specific grounds for invoking the extended period for the demand of service tax. Citing the Supreme Court's judgment in Uniworth Textiles Ltd. Vs. Commissioner of Central Excise, Raipur, the Tribunal emphasized that the burden of proving mala fide conduct lies with the Revenue, and the SCN must explicitly state the grounds for invoking the extended period. The Tribunal concluded that no effective case was made out for invoking the extended period, rendering the demand for the extended period patently illegal and unsustainable.

4. Place of Provision of Services Rules, 2012:

The Tribunal referred to the Place of Provision of Services Rules, 2012, and found that the place of provision for goods transportation services should be the place of destination of the goods as per Rule 10. The Tribunal rejected the findings of the Commissioner that Rule 8 should apply, stating that Rule 14, which grants superimposing authority, mandates the application of the rule that occurs later, i.e., Rule 10. Therefore, the services provided by the appellants were not taxable as they were provided in respect of transportation of export goods to a destination outside the taxable territory.

Conclusion:

The Tribunal set aside the impugned order dated 05.04.2019, holding that the confirmation of adjudged demands under 'Business Auxiliary Services' (BAS) and the invocation of the extended period were not sustainable. The appeal was allowed in favor of the appellants.