2023 (6) TMI 647 - AT - Service Tax

Levy of Service Tax - amounts recovered as reimbursement of expenses while providing CHA service - to be included in value of taxable service when such service is not provided by CHA but by other agencies and CHA has only acted on behalf of its clients to pay such expenses and get reimbursements from clients or not - HELD THAT - There is no dispute that the appellant being CHA has been discharging their service tax on the agency service the expenses were incurred on behalf of their client and the same was reimbursed by the client. From the circular no. B43/1/97-TRU dated 06.06.1997r which is relevant to CHA service it can be seen that during the provision of service of CHA the agency charges shall be taxable and reimbursable expenses incurred by CHA on account of various other expenses on behalf of the client cannot be part and parcel of the CHA service hence the same cannot be taxable. The adjudicating authority and the Commissioner (Appeals) upheld the demand on reimbursable expenses invoking Rule 5(2) of Service Tax (Determination of Value) Rules 2006 - Hon ble Apex Court in the case of UOI Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT held Rule 5 of Service Tax (Determination of Value) Rules 2006 as ultra vires to Section 67 therefore considering this settled legal position thus the reimbursable expenses incurred by the CHA which is other than the CHA Agency charges cannot be taxable hence the demand on such reimbursable expenses is not sustainable. Levy of Service Tax - Business Auxiliary Service - incentive/commission received from shipping line or steamer agent for achieving business target - period from 01-04-2003 to 31-03-2008 - services in relation to procurement of customer and verification thereof - HELD THAT - From the definition of Business Auxiliary Service it can be seen that one of the service procured in relation to procurement of service against commission is chargeable to service tax. In the present case the appellant have received the incentive/Commission from shipping line or streamer agent as commission agent they have received the commission in course of provision of service of shipping line and streamer agent for the service recipient therefore the commission is liable to service tax - On going through N/N. 13/2003-ST dated 20.06.2003 it is found that the service of Commission Agent was indeed exempted for the period from 01.07.2003 to 08.07.2004 therefore the demand of the said period is not sustainable as the same is covered under exemption. CENVAT Credit - input services such as Air conditioner repairs motor car repair travelling expenses etc. used in relation to business activities of this appellant - HELD THAT - The service are indeed used in provision of the output service of the appellant i.e. CHA Service. In many judgments this service have been held as admissible input service - Moreover expenses on account of these services are indeed included in the cost of the output service. For this reason also the input service are admissible under Rule 2(l) of Cenvat Credit Rules 2004 therefore it is held that the appellant are eligible for the cenvat credit on the input service in question. Extended period of limitation - penalty - suppression of facts or not - HELD THAT - As the majority of demand is set aside accordingly the penalties under Rule 76 and 78 of the Finance Act 1994 are also not imposable invoking Section 80 of the Finance Act 1994. Appeal allowed in part.

Summary

Issues Involved:
1. Inclusion of reimbursement of expenses in the value of taxable service under CHA service.
2. Service tax liability under "Business Auxiliary Service" on incentive/commission from shipping lines or steamer agents.
3. Admissibility of CENVAT credit for input services related to business activities.
4. Invocation of extended period of limitation and imposition of penalties.

Summary:

Issue 1: Inclusion of Reimbursement of Expenses in CHA Service
The Tribunal examined whether amounts recovered as reimbursement of expenses while providing CHA service can be included in the value of taxable service. It was noted that the appellant, a custom house agent (CHA), paid service tax on agency charges but not on reimbursable expenses incurred on behalf of clients. The Tribunal referred to Board Circular No. B43/1/97-TRU dated 06.06.1997, which clarified that reimbursable expenses incurred by CHA on behalf of clients should not be included in the taxable value. The Hon'ble Supreme Court's judgment in UOI Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. (2018) held Rule 5 of Service Tax (Determination of Value) Rules, 2006 as ultra vires to Section 67. Consequently, the Tribunal concluded that reimbursable expenses are not taxable, and the demand on such expenses is unsustainable.

Issue 2: Service Tax on Incentive/Commission under "Business Auxiliary Service"
The Tribunal addressed whether service tax is payable on incentive/commission received from shipping lines or steamer agents for achieving business targets under "Business Auxiliary Service" (BAS). It was found that the consideration received by the appellant is covered under BAS as it relates to services provided to clients. However, for the period from 01.07.2003 to 08.07.2004, the service of Commission Agent was exempted under Notification No. 13/2003-ST dated 20.06.2003. Therefore, the demand for this period is not sustainable.

Issue 3: Admissibility of CENVAT Credit for Input Services
The Tribunal considered whether CENVAT credit is admissible for input services such as air conditioner repairs, motor car repairs, and travel expenses. It was determined that these services are used in the provision of the appellant's output service (CHA service) and are included in the cost of the output service. Therefore, the Tribunal held that the appellant is eligible for CENVAT credit on these input services under Rule 2(l) of Cenvat Credit Rules, 2004.

Issue 4: Invocation of Extended Period of Limitation and Imposition of Penalties
The Tribunal evaluated whether the extended period of limitation and penalties could be invoked. It was found that the appellant had not suppressed any information, had paid due service tax on CHA services, and had filed periodical returns regularly. The demand for the period up to 30.09.2007 was deemed time-barred as the show cause notice was issued beyond the permissible period. Consequently, the penalties under Rule 76 and 78 of the Finance Act, 1994 were not imposable, invoking Section 80 of the Finance Act, 1994.

Conclusion:
The impugned order was modified to the extent discussed, and the appeal was partly allowed. The majority of the demand was set aside, and penalties were not imposed. The judgment was pronounced in open court on 12.06.2023.