2024 (6) TMI 1448 - AT - Service Tax

Classification of services - Clearing Forwarding (C F) agent services or Business Auxiliary Service (BAS) - whether the incomes shown under various heads are on account of cargo handling services for export and hence such services are exempted from payment of service tax? - recovery alongwith interest and penalty - Jurisdiction of Commissioner of Service Tax Mumbai-VII over all the Branches of the assessee appellant for adjudication of the SCN dated 21.10.2008 - Extended period of limitation. Classification of service - HELD THAT - The clearing and forwarding services relate to receipt of goods from factories or premises of manufacturer who is the principal and the C F agent acts as his agent in such receipt warehousing of goods; receiving despatch orders from the principal manufacturer and arranging its despatch as per instructions of the principal and through his authorised transporters maintaining records of stock receipt and despatch on behalf of the principal for which the C F agents receives the remuneration as a commission either as a percentage of turnover or in any other manner as variable commission based on certain performance indicators agreed upon between them. These aspects are clearly absent in the present factual matrix of the case. The present case is concerned only with handling of export/import cargo on behalf of the principal APLL HK who is a vessel owner or a Non-Vessel Operating Common Carrier (NVOCC) involved in transportation of such cargo for their clients both of whom are situated outside India. Thus on the basis of facts of the present case the services/activities performed by the appellant assessee as per agreement dated 01.01.2002 does not fall under the category of clearing and forwarding agent service. The taxable services under the category of cargo handling service covers under its scope various activities related to handling of cargo in import/export operations through containerised or non-containerised freight listed out in the means portion of the definition; however it the non-inclusion portion the services relating to handling of export cargo have been specifically excluded. Further this service is limited in its scope inasmuch as it covers only cargo handling activities and does not extend to financial accounting marketing services etc. as is the case of the appellants here. Thus cargo handling service is not relevant to the services provided by the appellant assessee in the present set of facts in this case. The demand of service tax under Clearing and Forwarding agent service was confirmed on the basis of the terms and conditions of Forwarders Cargo Receipt (FCR) with specific reference to condition Sl. No.3 4. On perusal of the sample copy of FCR produced by the appellant assessee it is found that the appellant assessee had issued the document as agent of APLL HK for the buyer situated abroad outside India to whom the export goods are sold by Indian business entity as seller covering voyage of the export goods from India to destination port outside India at the place of buyer - The word customer has been explained in condition No.1 to include persons entering into an agreement with APLL HK and therefore specific mention in condition No.3 4 that any services provided by appellant assessee to the customers could include the clients/customers or business entities who have entered into an agreement or arrangement with APLL HK - it is not feasible to extend such reference to the term customer in the FCR document to business entities situated in India and treat the appellant assessee as agent of these business entities in India and thus cover the services provided by the appellants under the taxable category of Clearing and Forwarding agent services for charging service tax. It is not found that appointment of sub-agents like APL Logistics and Warehouse Management Service (Hong Kong) Ltd. (APLL WMS) a company organized under Hong Kong laws as unauthorized or deliberate action with an intention to evade tax. Further it is also noted that the payment of service tax already made by the appellant assessee with effect from February 2006 towards Business Auxiliary Services provided by them and with effect from June 2006 towards Business Support Services which have been appropriated in the impugned order for an amount of Rs.3, 45, 06, 438/-. Jurisdiction for adjudicating the SCN - HELD THAT - Rule 3 of the Service Tax Rules 1994 provide for appointment of officers for the purpose of exercising the powers under Chapter V of the Finance Act 1994. We further find that the SCN dated 21.10.2018 does not specifically mention that the appellants had centralized registration during the relevant period and thus they had issued demand notice covering all the locations/branches of the assessee appellant. Further we also find that in different jurisdiction i.e. at Chennai the Commissioner of Service Tax Chennai had also issued show cause notice for recovery of service tax payable on the business auxiliary services for the period from 10.09.2004 to 30.04.2006 and 10.09.2004 to 31.01.2006 vide SCN 12.07.2007 - the impugned order dated 31.12.2015 had by verifying the Chartered Accountant s certificate dated 18.12.2015 had dropped the service tax demand in respect of interest earned on time deposits/fixed deposits. Therefore there are no infirmity in the above decision of dropping of such demand on the basis of factual details and supporting evidential documents. On perusal of CBEC instructions issued vide F. No. 137/ 50/2007-CX.4 dated 16.03.2007 it appears that these are the nature of administrative instructions for proper handling of files documents and investigation records by a single authority having jurisdiction over service tax matters in respect of centralised registration and the manner of handling transitional issues from decentralized registration to centralised registration. However we do not find that the said instruction dated 16.03.2007 and provide any legal authority for exercise of the powers conferred on the officers by the Board under Rule 3 of the Service Tax Rules 1994. Further the records available in the present case do not indicate that on account of centralised registration being taken by the appellant assessee in November 2010 the SCNs pending adjudication at different locations were transferred to the Commissioner of Service Tax-VII Mumbai. As the SCN in respect of the impugned order was issued on 21.10.2008 much prior to the centralised registration taken during November 2010 there is no possibility for the jurisdictional Commissioner to assume jurisdiction over all the units of the appellant registered separately at different locations. In view of the above factual position there are no merits in the appeal filed by the department stating that the dropping of the service tax demand raised in the SCN dated 21.10.2008 for locations other than Mumbai is legally sustainable. Penalties proposed in the show cause notice - levy of penalty equal to the amount of service tax demanded under Section 78 ibid - Extended period of limitation - HELD THAT - The legal provisions contained in Section 73(1) ibid provide that extended period can be invoked for demand of service tax in situations where there is any involvement of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of this Chapter or of the Rules made thereunder with intent to evade payment of service tax by the appellant assessee. Neither in the show cause notice nor in the impugned order there is any specific allegation or finding for invoking such legal provisions - the Department claimed that the appellant by avoiding to provide the figures had intentionally by design stopped the process of issuing to show cause notices by other jurisdiction and thus they had intention to evade duty. We find from the factual details about various notices issued in other jurisdictions and that the entire data having been provided to the audit officers of the Department there is no justification to claim suppression of facts in such a situation. Further there is no evidence or any document to indicate that the appellant assessee in any manner had attempted to evade service tax. On the other hand it is found that contrary to the claim of the Department the assessee appellant had paid the service tax of Rs.3, 45, 06, 438/- on various services for which service tax is payable under the Finance Act 1994 - The invocation of extended period for demand of service tax in the present cases is not sustainable. Consequent to this the penalty imposed on the appellants under Section 78 ibid also does not survive on the above grounds. Conclusion - i) The services provided by the appellant did not fall under the Clearing Forwarding Agent service category and were not taxable under this category. ii) The services were taxable under BAS and BSS for which the appellant had already paid service tax. iii) The Commissioner of Service Tax Mumbai-VII lacked jurisdiction over branches outside Mumbai. iv) Extended period of limitation and penalties also set aside. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

(i) Whether the services provided by the appellant are taxable under the category of 'Clearing & Forwarding Agent service' as per the Finance Act, 1994.

(ii) Whether the services fall under the taxable categories of Business Auxiliary Service (BAS) from February 2006 and Business Support Services (BSS) from June 2006.

(iii) Whether the Commissioner of Service Tax, Mumbai-VII has jurisdiction over all branches of the appellant for adjudicating the Show Cause Notice dated 21.10.2008.

ISSUE-WISE DETAILED ANALYSIS

Issue (i): Taxability under 'Clearing & Forwarding Agent service'

The relevant legal framework includes Section 65(25) of the Finance Act, 1994, defining a "clearing and forwarding agent" as someone engaged in services related to clearing and forwarding operations. The Tribunal examined whether the appellant's activities fit this definition.

The Court's interpretation highlighted that the appellant's services involved handling export cargo for an overseas entity, APL Logistics Hong Kong (APLL HK), under an agency agreement. The services included receiving, sorting, and transporting cargo for export, which did not fit the typical clearing and forwarding operations described in the legal definition.

Key evidence included the agency agreement between the appellant and APLL HK, which outlined the scope of work, including cargo handling and logistics services, but not clearing and forwarding operations as defined under the Finance Act.

The Tribunal concluded that the appellant's activities were not taxable under the 'Clearing & Forwarding Agent service' category, as they did not involve the dual activities of clearing and forwarding in conjunction with each other.

Issue (ii): Taxability under Business Auxiliary Service (BAS) and Business Support Services (BSS)

The legal framework for BAS and BSS under the Finance Act, 1994, includes services related to business support and auxiliary functions. The appellant argued that their services were taxable under these categories from February 2006 and June 2006, respectively.

The Tribunal found that the appellant's activities, including marketing, logistics support, and customer management for APLL HK, fit within the definitions of BAS and BSS. The appellant had already paid service tax under these categories, which was appropriated by the Commissioner.

Issue (iii): Jurisdiction of the Commissioner of Service Tax, Mumbai-VII

The Tribunal examined whether the Commissioner had jurisdiction over branches outside Mumbai. The legal framework under Rule 3 of the Service Tax Rules, 1994, limits jurisdiction to specific geographical areas.

The Tribunal found that the Commissioner of Service Tax, Mumbai-VII, did not have jurisdiction over branches outside Mumbai, as the appellant had separate registrations for each branch. The Tribunal upheld the decision to drop demands for branches outside Mumbai, as the centralized registration was obtained only in November 2010, after the issuance of the SCN.

SIGNIFICANT HOLDINGS

The Tribunal held that the services provided by the appellant did not fall under the 'Clearing & Forwarding Agent service' category and were not taxable under this category. The Tribunal stated: "The appellant's activities are not covered under the taxable category of 'clearing and forwarding agent' service."

The Tribunal confirmed that the services were taxable under BAS and BSS, for which the appellant had already paid service tax. The Tribunal acknowledged the payment of Rs. 3,45,06,438/- towards these services.

The Tribunal concluded that the Commissioner of Service Tax, Mumbai-VII, lacked jurisdiction over branches outside Mumbai, affirming the decision to drop demands for those branches.

The Tribunal set aside the impugned order dated 31.12.2015, allowing the appeal filed by the appellant and dismissing the appeal filed by the department. The Tribunal confirmed the payments made by the appellant towards BAS and BSS as credited to the Government Exchequer.