TMI Blog2020 (2) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... mount which the Appellant has paid. The amount is not utilised for the amount of consideration to be paid by the co-user and indeed no document has been produced by the Department to show that this amount has been utilised for the said purpose. The balance sheet also shows the amount as current liability in the books of accounts of the Appellant. What is, however, contended by the learned Authorised Representative of the Department is that the deposit was towards advance for the consideration to be paid by the co-users for Cargo Handling Service . This cannot be accepted because in that case there would be no reason for the Appellant to refund the amount to the co users or pay any amount to the Railways in a case where a co-user commits any default in making the payment. The two issues, namely, payment of consideration by the co-users of the siding to the Appellant for Cargo Handling Services and the amount of freight, demurrage or other charges paid by the co-users to the Railways cannot be mixed. These are two independent issues and whatever payment has been made by the Appellant to the Railways is for the default committed by the co-users in making payment of tollage ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided in favor of appellant. - Service Tax Appeal No. 56434 of 2013, 56009 of 2014, 50131 of 2015 - Final Order Nos. 51746-51748/2019 - Dated:- 22-11-2019 - HON BLE MR. JUSTICE DILIP GUPTA, PRESIDENT AND HON BLE MR. BIJAY KUMAR, MEMBER (TECHNICAL) Present for the Appellant: Shri B L Narasimhan, Advocate Present for the Respondent: Shri Vivek Pandey, Authorised Representative ORDER JUSTICE DILIP GUPTA: 1. Service Tax Appeal No. 56434 of 2013 has been filed to assail the order dated 5 December, 2012 passed by the Commissioner of Customs and Service Tax, Raipur the Commissioner by which the demand of service tax of ₹ 3,84,03,677/- with penalty and interest for the period 1 April, 2006 to 31 March, 2011 has been confirmed. 2. Service Tax Appeal No. 56009 of 2014 has been filed to assail the order dated 12 September, 2014 passed by the Commissioner confirming the demand of service tax of ₹ 1,02,33,593/- with penalty and interest for the period 1 April, 2011 to 31 June, 2012. 3. Service Tax Appeal No. 50131 of 2015 has been filed to assail the order dated 30 September, 2014 passed by the Commissioner confirming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for construction of proposed Railway siding at Silyari. The assumed sum can be invested either at once or in part wise. The assumed sum is interest free. 3. M/s Gopal Sponge Power Pvt. Ltd. will bear proportionately the cost of services including Railway dues and maintenance charges etc. commensurate with the quantum of traffic handled. 4. The association of M/s Gopal Sponge Power Pvt Ltd. and M/s Vimla Infrastructure(India) Pvt. Ltd. shall be long term association. 7. The Appellant received the Railway Transport Clearance approval from the Railways on the basis of the proposed traffic at the siding. 8. The Appellant also entered into a South East Central Railway Logistics Park (siding) agreement with the Railway Administration to construct and operate a Logistic Park (siding) at Silyari from Silyari Station yard of the South East Central Railway as per the terms and conditions set forth in the agreement. The agreement provides that the sidings should not be used by other persons without the prior written permission of Railway Administration. Applications were, therefore, submitted to the Railway Administration for approving the members of the consortium as co-u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence to the discussions we had on the above subject. We are pleased to award the work contract on you for-Handling, Stacking, Loading Unloading of raw material from Railway Wagons at your Silyari/Bhupdevpur Siding on the following terms and conditions:- 1 SCOPE OF WORK a) After placement of Rake at the railway siding, you will immediately start unloading the Raw Material. b) Complete cleaning of the wagon and Physical checking of the wagon so that no material is left out in wagons. c) After unloading the complete Raw Material from wagons, Railway Tracks shall be cleaned by you so that, there is no left over material. d) Raw Material cleaned from the track, will be stacked nearby the unloading platform, within the time prescribed by railways authority 2 RATE- PMT 1- Material Iron ore= ₹ 50/- per tonne 2- Material- Coal= ₹ 50/- per tonne 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 10 VALIDITY OF THE CONTRACT The work order will automatically get cancelled whenever the new and fresh work order placed with you 11. The Appellant has been paying service tax on the amount received by it from the co-users on such Work Orders. 12. Show Cause Notices dated 13 April, 2012, 16 April, 2013 and 21 March, 2014 were issued to the Appellant for the periods 1 April, 2006 to 31 March, 2011, 1 April, 2011 to 30 June, 2012 and 1 July, 2012 to 31 March, 2013 respectively. All the Show Cause Notices were similar, and therefore, facts relating to the Show Cause Notice dated 13 April, 2012 have been stated. The notice mentions that during the course of audit of the books of account of the Appellant, it was noticed that it had received an amount of ₹ 15,31,01,000/- from 21 customers as advances but the Appellant had not discharged the service tax liability on such advances received for rendering services. In this connection Clause 6(1) of the Show Cause Notice is reproduced below: 6.1 As per Memorandum of Understanding reached between the Noticee with their related customers (members o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and interest. Regarding the first issue as to whether the amount deposited by the consortium members would be taxable under the head Cargo Handling Services , the Commissioner observed that the interest free amount was adjusted against the Railway tollage liability such as freight, demurrage charges, siding charges and other charges of the co-users and so they would be considered as a pre-deposit amount/ advance payment to the Railways and could not be treated as interest refundable security deposit. The Commissioner, therefore, held that the Appellant had not paid service tax on the amount received by the Appellant from the consortium members for rendering Cargo Handling Services . In regard to the second issue as to whether the Appellant had correctly paid service tax on the gross amount charged from the member of the consortium as compared to the gross amount charged from independent customers, the Commissioner found that the Appellant had charged ₹ 91 to ₹ 101 per metric ton from the independent customers for loading and unloading, handling, shipping and stacking of coal in comparison to ₹ 51 to ₹ 55 per metric ton charged from the consortium members. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members and in some cases the Appellant has charged lower rates from the non-members as compared to the rates charged from the consortium members. The rates are fixed in the Work Orders after taking into consideration many factors; and (vi) The provisions of the Rules 3 and 4 of the 2006 Rules that have been invoked by the Commissioner in the impugned order are not applicable to the facts and circumstances of the present case since they deal with determination of the value of taxable services only when the consideration received is not wholly or partly consisting of money. 17. Shri Vivek Pandey, learned Authorised Representative of the Department has, however, supported the impugned orders and as has made the following submissions: (i) The Appellant is not justified in asserting that the deposits are refundable as there is nothing in the agreement to so indicate. Merely because it has been stated in the agreement that the investment is interest free would not lead to a conclusion that the amount deposited is refundable as interest free implies that a certain amount, if not paid on a certain date, will not earn interest; (ii) The claim of the appellant that the said d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Pvt. Ltd. (VIIPL) at Silyari, District Raipur (CG) 3. That we will be responsible for the payment of Freight, Demurrage, Siding and Other charges for our traffic dealt in Vimla Logistic Park (the siding) by M/s Vimla Infrastructure (India) Pvt. Ltd. (VIIPL) at Silyari, District, Raipur (CG) 4. That the Railway will not be responsible for any dispute arising between us and the other users of the siding to whom permission has been granted. 5. That the Railway reserve itself the right to withdraw the permission at any time without any notice by giving any reason. 6. That the permission so granted should be of temporary in nature. 7. That as per Clause 19 of the Private Siding Agreement, we will pay all the Tollage Charges (i.e. Maintenance, Land Rent, Freight and siding Charges if any on the behalf of the Vimla Logistic Park ( the siding) by M/s Vimla Infrastructure (India) Pvt. Ltd. (VIIPL) at Silyari, District, Raipur(CG). 8. That over and above we agree to abide by all the Rules and Regulation issued or to be issued from time to time by South East Central Railway. 9. That subject as otherwise expressly provided herein any action to be taken or any notice to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... freight dues of M/s Baldev. 23. It is in this context that it has to be examined whether the amount collected by the Appellant from the consortium members for construction of the siding, is an advance paid by the consortium members for some service to be rendered by the Appellant or is a refundable interest free amount deposited by the consortium members. 24. To examine this issue, it would also be appropriate to refer to the MOU executed between the Appellant and the co-users. Such an understanding between the Appellant and Gopal Sponge has been reproduced above. It mentions that they have joined hands together to construct a railway siding at Silyari on certain points indicated in the understanding. It is for the sake of convenience, again reproduced: Both parties have come to an understanding on the following points. 1. M/s Gopal Sponge Power Pvt Ltd. to join M/s Vimla Infrastructure (India) Pvt Ltd. as a member of consortium with equity participation to the tune of 510 shares. 2. M/s Gopal Sponge Power Pvt. Ltd. will invest a sum of ₹ 50.00 Lakhs for construction of proposed Railway siding at Silyari. The assumed sum can be invested either at once or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contention of the Department. The Appellant had paid the freight charges of Baldev Alloys in terms of the Indemnity Bond which clearly mentions that the Appellant shall indemnify the Railway Administration against the claim of the co-users of the siding if the co-users fail to pay the amount. This fact is also apparent from the communication dated 3 August, 2009 sent by the Senior Commercial Division Manager if the Railways to the Joint Commercial Manager of the Railways. It mentions that Baldev Alloys had submitted ten demand drafts against an invoice dated 31 August, 2008, but eight out of the ten demand drafts were subsequently dishonoured by the Bank as a result of which freight amount of ₹ 28,56,000/- remained unrealised from Baldev Alloys. It also mentions that as per the terms and conditions of the use of the private siding by a co-user, the responsibility for clearance of all tollage liability accrued against a co-user of the siding has to be paid by the siding owner. 29. At this stage it will be useful to provide a summary of the security deposit, the amount refunded and the balance at the end of the Financial Year which is as follows: DE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 107601000 35300000 30. Learned Counsel for the Appellant submitted that against the security amount of ₹ 14.29 crores that was deposited, an amount of ₹ 10.76 crores was refunded and the balance amount of security at the end of the Financial Year 2018 is ₹ 3.53 crores. Learned Counsel, on instructions from the Appellant, has also stated that the only amount paid to the Railways to indemnify a co-user is ₹ 28,56,000/- and in no other case the Appellant was called upon to indemnify the co-users. 31. It is, therefore, clear that the amount deposited by the co-users of the siding was an amount to be utilised for construction of the siding or to make payment to the Railways, if the co-user defaulted, in terms of the Indemnity Bond. The liability to pay the charges to the Railways was of the co-user and the Appellant only indemnifies if there is any default by making payment from the amount deposited by the co-users and in such a situation the amount of deposit will get reduced by that much amount which the Appellant has paid. The amount is not utilised for the amount of consideration to be paid by the co-user and indeed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale proceeds of the tins in which the biscuits were supplied or the bottles in which the beer was sold. 35. In Murli Realtors Private Limited Others. Vs Commissioner of Cental Excise, Pune-III 2015(37) STR 618 (Tri.-Mumbai), a Division Bench of the Mumbai Tribunal made the following observations with regard to the security deposit towards the renting of immovable property and the observations are as follow: 6.1 Section 67 of the Act, reproduced in para 4.1 above, clearly provides that only the consideration received in money for the service rendered is leviable to Service Tax. The consideration for renting of the immovable property is the amount agreed upon between the parties and on this amount the appellant is discharging Service Tax liability. The security deposit is taken for a different purpose altogether. It is to provide for a security in case of default in rent by the lessee or default in payment of utility charges or for damages, if any, caused to the leased property. Thus, the security deposit serves a different purpose altogether and it is not a consideration for leasing of the property. The consideration of the leasing of the property is the rent and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said amount in the agreement itself is there, it has to be considered that the said amount is refundable and was towards security deposits and was not for the purpose of providing any services, so as to levy tax on the same. 37. It is, therefore, clear from the aforesaid decisions that a security deposit for any length of time would not automatically became a sale proceed in the hands of the company and that there is no provision in service tax law for taxing notional interest on a security deposit. 38. Such being the position, the Commissioner was not justified in holding that the amount deposited by the members of the consortium with the Appellant had escaped assessment of service tax, and therefore, the Appellant should include the amount deposited by the consortium members in the gross amount for payment of service tax. 39. The second issue that was examined by the Commissioner is as to whether the Appellant had charged lower rates for Cargo Handling from consortium members who had contributed to the deposits as compared to the rates charged from the non members of the consortium. The Commissioner found from a scrutiny of the invoices raised by the Appellant that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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