2017 (8) TMI 600 - AT - Service Tax

CHA service - charges collected as Break bulk fee - Held that - similar issue decided in the appellant own case 2009 (3) TMI 158 - CESTAT BANGALORE where it was held that the activity relating to one of the categories could not be subjected to service tax under any other category. In other words the activities relating to Freight forwarding cannot be brought under CHA - the demand of service tax under the head of CHA service for the revenue earned under the head of Break Bulk Fee is set aside. Business Auxiliary Service - freight rebate - Held that - It is apparent that collection or recovery of cheques accounts and remittance is specifically covered under BAS. In view of that activity of collecting remittances by the appellant for a fee would fall under this category of service as BAS. In view of above the demand of service tax on the Revenue streams of CCX Fee is upheld. CENVAT credit - denial on the ground that the documents on the basis of which credit was taken or not in the name of the appellant - Held that - the only error is that instead of the appellant address at Gurgaon the address of Mumbai is mentioned. The show cause notice seeks to deny credit on the ground that these addresses are not disclosed under the list of Branch Officers. Show cause notice does not challenge the receipt of use of the service. Since the invoices are in the name of appellant themselves and the receipt of service by the appellant have not challenged credit on the same cannot be denied merely because of a different address being shown - credit allowed. Appeal allowed - decided partly in favor of appellant.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the demand of service tax on amounts earned as Break Bulk Fee can be sustained under the category of Customs House Agent (CHA) services.

(b) Whether the demand of service tax on Freight Rebate can be sustained under the category of Business Auxiliary Services (BAS).

(c) Whether the demand of service tax on Airline Commission and Airline Incentive received by the appellant qualifies as BAS.

(d) Whether the demand of service tax on CCX Fee collected by the appellant falls under BAS.

(e) Whether Cenvat Credit availed on documents not in the name of the appellant or bearing different addresses can be disallowed.

(f) Whether the extended period of limitation for raising the demand was properly invoked.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Demand on Break Bulk Fee under CHA Services

The legal framework relevant here includes the definition and scope of Customs House Agent (CHA) services as per CHA Regulations, 2004, and prior Tribunal precedents including the appellant's own case reported in 2010 (17) STR 266 (Tri.-Bang.). The Tribunal has consistently held that CHA activities are confined to services related to entry or departure of conveyances or import/export of goods at customs stations.

The Court examined the appellant's activities and found that charges such as Break Bulk Fee relate to freight forwarding and not to CHA services. The Tribunal reiterated that activities like freight forwarding cannot be taxed under CHA category, as these are distinct services. The Court relied heavily on the earlier decision which clarified that income from Break Bulk Fee is not includable in the value of CHA services for service tax purposes.

The Court noted that the Commissioner had failed to properly segregate the charges and had not allowed the appellant to produce Chartered Accountant certificates for claimed deductions, which was a procedural lapse. Therefore, the matter was remanded previously for re-examination. Relying on this precedent and reasoning, the Tribunal set aside the demand of service tax on Break Bulk Fee under CHA services.

(b) Demand on Freight Rebate under Business Auxiliary Services (BAS)

The relevant legal framework is the definition of BAS under the Finance Act and the requirement that BAS involves services rendered in relation to promotion, marketing, or sale of goods or services of a client, or customer care and auxiliary support services on behalf of a client.

The appellant's argument was that the Freight Rebate arises from their own trading activity of bulk buying and selling of cargo space with airlines and shippers, without any involvement of a third-party client. The Tribunal agreed that BAS requires the presence of a third-party client for whose benefit the service is rendered.

The Court found that the Freight Rebate was generated from transactions solely between the appellant and the carriers, with no third party involved. Hence, the service tax demand under BAS could not be sustained as the appellant was not providing any auxiliary service to a client but was engaged in its own trading activity. The demand was accordingly set aside.

(c) Demand on Airline Commission and Airline Incentive under BAS

The legal issue was whether income earned as airline commission and incentives qualifies as BAS. The appellant contended that these were volume-based discounts or performance bonuses received from airlines for buying cargo space on their own behalf and not as a service rendered to any client.

The Tribunal emphasized that BAS requires at least three parties: the service provider, the service recipient, and the client. Here, only two parties existed-the appellant and the airline. The appellant purchased space themselves and then sold it to exporters, thus the commission/incentive was related to their own business and not a service provided to a client.

The Court concluded that such commission or incentive payments do not constitute BAS and cannot be subjected to service tax under that category. The demand was therefore set aside.

(d) Demand on CCX Fee under BAS

The issue was whether the CCX Fee, charged by the appellant for collecting freight charges from consignees and remitting them to international airlines, falls under BAS. The appellant argued that the demand was not raised under any specific sub-head of BAS and that they have been paying service tax on this fee since 1.5.2006.

The Tribunal examined the definition of BAS at the relevant time, which explicitly included "collection or recovery of cheques, accounts and remittance" as incidental or auxiliary support services. The Court found that the appellant's activity of collecting remittances for a fee squarely falls within this definition.

Consequently, the demand for service tax on CCX Fee was upheld.

(e) Denial of Cenvat Credit on Documents Not in Appellant's Name

The appellant claimed Cenvat Credit on invoices some of which were not in their name or bore different addresses. The Revenue denied credit on this ground.

The Tribunal analyzed the invoices and found that three invoices were addressed to the appellant's earlier name and Mumbai address, while others were not in the appellant's name at all. The Court held that since the receipt and consumption of the service was not disputed and the invoices were in the appellant's name (albeit with a different address), credit could not be denied merely on that basis.

However, credit on invoices not in the name of the appellant was rightly disallowed. The penalty was accordingly limited to the confirmed demand amount related to reversal of credit.

(f) Invocation of Extended Period of Limitation

The appellant contended that the demand was barred by limitation and that extended period could not have been invoked as the issues were not beyond doubt at the relevant time.

The Tribunal did not specifically elaborate on this issue in the impugned order but noted the appellant's submissions. Given the remand and the setting aside of several demands, the extended period invocation was implicitly found to be improper for those demands which were not sustained.

3. SIGNIFICANT HOLDINGS

"We are of the considered opinion that the activity relating to one of the categories could not be subjected to service tax under other category. In other words, the activities relating to Freight forwarding cannot be brought under CHA."

"The activity of CHA relates to entry or departure of conveyances or import or export of goods at any customs station. Therefore activities of CHA is limited to customs station and it cannot extend beyond it."

"For sustaining demand under BAS, there has to be third party involved in the transaction namely a client. In the absence of any client, no demand under BAS can be raised."

"Any commission/incentive received, as a result of this transaction of sale cannot be considered as supply of BAS."

"The definition of BAS at the material time explicitly includes collection or recovery of cheques, accounts and remittance. In view of that activity of collecting remittances by the appellant for a fee would fall under this category of service as BAS."

"Since, the invoices are in the name of appellant themselves and the receipt of service by the appellant have not challenged, credit on the same cannot be denied merely because of a different address being shown."

The Tribunal conclusively held that demands of service tax on Break Bulk Fee under CHA services, Freight Rebate under BAS, and Airline Commission/Incentive under BAS were unsustainable and set aside those demands. The demand on CCX Fee as BAS was upheld. Cenvat Credit denial was partially upheld only where invoices were not in the appellant's name. Penalties were accordingly restricted to confirmed demands.