2025 (6) TMI 1580 - AT - Service Tax

Levy of service tax - freight charges incurred paid for imported goods - period of dispute is from 04.05.2006 to 03.10.2007 - SCN issued on 30.03.2009 - HELD THAT - As per section 65(3b) of the Finance Act 1994 aircraft operator means any person who provides transport of goods or passengers by aircraft and as per Section 65(105)(zzn) taxable service means any service provided or to be provided to any person by an aircraft operator in relation to transport of goods by aircraft . Section 66A cannot be invoked unless the service rendered by the appellant is defined under Section 65(105) of the Finance Act 1994. Both the authorities do not divulge the service that are rendered by the appellant under which service tax is being demanded as per Section 66A. The freight element on which service tax is being demanded are the charges paid by the appellant in Indian currency to the freight forwarders who are the agents who have provided the service as an aircraft operator agent. Hence the service tax if any is liable to be paid by these agents (freight forwarders) who have collected the freight charges from the appellant. The appellant has also placed on record various copies of Bills of Entry to prove that the freight element paid by them to the freight forwarders was part of the assessable value on which customs duty is paid hence it amounts to double taxation in as much on the same freight charges service tax is being demanded under reverse charge from the appellant. Conclusion - The appellant is not liable to pay service tax on air freight charges under Section 66A of the Finance Act 1994 for the period from 04.05.2006 to 03.10.2007. There are no merit in the impugned order demanding service tax on the appellant - the impugned order is set aside and Appeal is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the appellant is liable to pay service tax under Section 66A of the Finance Act, 1994 on air freight charges paid for imported goods.
• Whether the payment of air freight in Indian Rupees to an Indian agent of the freight forwarders constitutes a taxable service rendered in India.
• Whether the provisions of Section 66A(2) and Explanation 1 exempt the appellant from service tax liability by virtue of the service being rendered by agents of freight forwarders.
• Whether the freight charges included in the assessable value under Section 14 of the Customs Act, 1962 and subjected to customs duty can be subjected to service tax again, i.e., the issue of double taxation.
• Whether the transport of goods by air was outside the purview of service tax during the relevant period, including after the introduction of the negative list and issuance of Notification No.9/2016-ST.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability to pay service tax under Section 66A on air freight charges

Relevant legal framework and precedents: Section 66A of the Finance Act, 1994, stipulates that certain services provided by a person outside India to a recipient in India are taxable as if provided in India. Section 65(105)(zzn) defines taxable service as any service provided by an aircraft operator in relation to transport of goods by aircraft. Section 65(3b) defines an aircraft operator as a person who provides transport of goods or passengers by aircraft.

The appellant relied on precedents including Asiatic Drugs and Pharmaceutical Ltd. vs. Commissioner of CEST, Alwar and Commissioner of Service Tax vs. Kiri Dyes and Chemicals Ltd., which addressed similar issues of service tax applicability on air freight.

Court's interpretation and reasoning: The Tribunal noted that Section 66A applies only if the service rendered falls under the taxable services defined in Section 65(105). The appellant did not provide the transport service themselves but paid freight charges to Indian agents of the freight forwarders.

Key evidence and findings: The appellant produced Bills of Entry showing that the freight charges were paid in Indian Rupees to Indian agents and included in the assessable value for customs duty under Section 14 of the Customs Act.

Application of law to facts: Since the appellant paid freight charges to Indian agents who acted as intermediaries, the actual service provider was the aircraft operator or its agent. The appellant did not directly provide the transport service. Section 66A is not applicable to the appellant as the service was not provided by a person outside India directly to the appellant but through agents within India.

Treatment of competing arguments: The Revenue argued that the appellant was liable to pay service tax under Section 66A from 18.04.2006 on the airport services. The appellant countered that the service was rendered in India by Indian agents and thus not taxable under Section 66A. The Tribunal accepted the appellant's argument, observing that the service tax liability, if any, lies with the agents who provided the service.

Conclusions: The appellant is not liable to pay service tax under Section 66A on air freight charges as the service was rendered by Indian agents, not by a foreign service provider directly to the appellant.

Issue 2: Applicability of Section 66A(2) and Explanation 1 regarding agents of freight forwarders

Relevant legal framework: Section 66A(2) treats permanent establishments in India and abroad as separate persons for service tax purposes. Explanation 1 clarifies that a person carrying on business through a branch or agency in any country is deemed to have a business establishment in that country.

Court's interpretation and reasoning: The Tribunal found that the freight forwarders' Indian agents constitute a business establishment in India and thus the service provided by them is taxable in India, not under reverse charge from the appellant.

Application of law to facts: Since the appellant paid freight charges to Indian agents, these agents are liable to pay service tax on the services they provided. The appellant cannot be held liable under Section 66A for services rendered by Indian agents.

Conclusions: The provisions of Section 66A(2) and Explanation 1 exempt the appellant from service tax liability on air freight charges paid to Indian agents of freight forwarders.

Issue 3: Double taxation on freight charges included in customs assessable value

Relevant legal framework: Section 14 of the Customs Act, 1962 requires inclusion of freight charges in the assessable value for customs duty. Service tax is a separate levy under the Finance Act, 1994.

Court's interpretation and reasoning: The Tribunal noted that the freight element was already subjected to customs duty as part of the assessable value. Imposing service tax on the same freight element under reverse charge on the appellant would amount to double taxation.

Key evidence: Bills of Entry produced by the appellant demonstrated inclusion of freight charges in customs valuation.

Application of law to facts: The Tribunal held that since customs duty was paid on the freight charges, demanding service tax on the same amount under reverse charge from the appellant is unjustified.

Conclusions: The appellant cannot be subjected to service tax on freight charges already subjected to customs duty, as it would amount to double taxation.

Issue 4: Whether transport of goods by air was outside service tax purview during the relevant period

Relevant legal framework: The appellant argued that transport of goods by air was outside service tax purview even after the introduction of the negative list and Notification No.9/2016-ST dated 01.03.2016.

Court's interpretation and reasoning: The Tribunal focused primarily on the period from 04.05.2006 to 03.10.2007 and the applicability of Section 66A. It did not specifically elaborate on the impact of the negative list or the 2016 notification, but implicitly accepted that the relevant provisions during the period mandated service tax only on services provided by aircraft operators or their agents.

Conclusions: The Tribunal did not find merit in the appellant's argument that transport of goods by air was outside service tax purview during the relevant period, but held that the appellant was not liable under Section 66A for the reasons discussed above.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"Section 66A cannot be invoked unless the service rendered by the appellant is defined under Section 65(105) of the Finance Act 1994. Both the authorities do not divulge the service that are rendered by the appellant under which service, tax is being demanded as per Section 66A. The freight element on which service tax is being demanded are the charges paid by the appellant in Indian currency to the freight forwarders who are the agents, who have provided the service as an aircraft operator agent. Hence, the service tax, if any, is liable to be paid by these agents (freight forwarders) who have collected the freight charges from the appellant."

Core principles established include:

• Service tax under Section 66A applies only when the service is provided by a person outside India directly to a recipient in India.
• Services rendered by Indian agents of foreign service providers constitute services rendered in India and are liable for service tax by such agents, not the recipient.
• Inclusion of freight charges in customs assessable value and payment of customs duty precludes double taxation by imposing service tax on the same freight element under reverse charge.

The final determination was that the appellant was not liable to pay service tax on air freight charges under Section 66A of the Finance Act, 1994 for the period from 04.05.2006 to 03.10.2007. Consequently, the impugned order demanding service tax from the appellant was set aside and the appeal allowed.