TMI Blog2023 (8) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants are not complete just by loading of the goods on a vessel or on an aircraft. They go beyond. If the case of the Department is accepted, the provisions of Section 66F of the Finance Act, 1994 would become redundant. Such an approach is not permissible under the law. Ex-Works (EXW) Services - Providing logistic and allied/ ancillary services to the main service of transportation of cargo - HELD THAT:- Other than alleging that the appellants have rendered Business Auxiliary Service to the ship liners/ airlines, it is not brought forth as to which category of the Business Auxiliary Service is rendered by the appellants. It is also not explained as to how the service rendered by the appellants enhances the business prospects of the ship liners/ airlines. It is a simple case of booking of space and selling of the same by the appellants - the issue stands settled by the Tribunal in the case of Kafila Hospitality and Travels Pvt. Ltd. [ 2021 (3) TMI 773 - CESTAT NEW DELHI ] wherein it has been held that these contentions as to whether the air travel agent is promoting the business of the airlines or the CRS Companies have been dealt with in the earlier portion of this or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The appellants, under an Agreement with their principals i.e. ATA, USA provide services to them and receive services; they bifurcate the charges for ex-work services, handling charges and sea freight charges payable to each other; these services are in the nature of transportation of goods provided to the principals; the appellants were required to discharge Service Tax as the service is rendered in the country. (ii) The appellants book space in the air/ sea crafts and sell the same to their prospective customers; the appellants receive certain commission from the air/ sea liners in respect of this activity; the appellants performed the activity falling under Business Auxiliary Service . (iii) The appellant recovers certain charges, from the Indian exporters, concerning the expenditure, on Custom duty, delivery order charges, port handling etc., at the destination in foreign ports. 2. A show-cause notice dated 24.10.2019 was issued to the appellant seeking to recover Service Tax of Rs.2,80,26,749/- along with interest while seeking to impose penalties under Sections 76, 77 78 of the Finance Act, 1994; the said show-cause notice has been confirmed by the Commissioner ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods at the premises of overseas client; therefore, the service merits to be classified in terms of Rule 10 of POPS Rules, 2012; this contention is supported by Circular No.104/7/2008-ST dated 06.08.2008, wherein it was clarified GTA Service provided is a single composite service which may include intermediary/ ancillary service such as loading/ unloading, packing/ un-packing, transshipment, temporary warehousing; as the services provided to a foreign customer and remuneration is received in convertible foreign exchange, the service merits to be treated as export by virtue of Rule 10 of POPS Rules, 2012 read with Rule 6A of Service Tax, Rules, 1994. He further submits that Rule 4 of POPS Rules, 2012 covers situations where the work is performed on the goods, as in the case of repair of a machineand not with respect to the goods. The services undertaken by the appellant are bundled services where the essential character is given by the main service i.e. GTA rendered to the foreign customers in the instant case. It is not open for the Department to artificially divide the activity into various services and charge tax separately as held in: Larsen Tubro Ltd.- 2006 (3) STR 223. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the impugned order and submits that the appellant s contention on the discount received for booking the space in aircrafts/ vessels is an accrual of gain and not consideration for an activity is mis-placed; there is no stipulation in the act that every activity should be under a contract; the elements of Section 65B (44) are satisfied as the appellant have promoted the sale of space of airlines/ vessels who have achieved the status of a recipient of a service and have paid remuneration to the appellants. He submits that the reliance on Gray Worldwide (I) Pvt. Limited and Mahanagar Gas Limited, Sai Service Station Limited- 2013-TIOL-1436- CESTAT-MUMBAI, M/s Rohan Motors- 2020-110L-1676-CBSTAT-DBL, Kafta Hospitality and Travels Pvt. Limited- 2021 (47) GSTL 140 (Tri. LB), to support the argument that incentives received to achieve a target are not a discount, is misplaced as the facts are different. 9. Adverting to the contentions of the appellant on the destination charges, learned AR submits that the same are incurred post-arrival at the foreign port of destination for services performed therein; the appellant s contention, that Rule 4 of POPS Rules, 2012 is applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice as defined under Clause 44 of Section 65B of Finance Act, 1994; they do not fall under negative list of services; they are chargeable under Section 66D of the Finance Act, 1994; Rule 4 of the Place of Provision of Service Rules, 2012 (POPS Rules). The assessee contends that the ex-work charges received by the appellant are in relation to transportation of goods from India to a place outside India; in terms of the Agreement, the entire activity starting from the premises of the sellers in India to delivery of the goods at the destination outside India is a single item of work; the same is regarded commercially as a single transaction; since it is export of service, it is exempt in terms of Rule 10 of POPS Rules; Circular No.104/7/2008-ST dated 06.08.2008 clarified that GTA Service provided, though includes various intermediary and ancillary services such as loading/ un-loading, packing/ un-packing, transshipment, temporary warehousing, is a single composite service; Rule 10 of POPS Rules prevails over Rule 4 being more specific; in terms of Section 66F, the services though being bundled, essential character is of transportation. 11.1. Learned Counsel submits that the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings against the appellant, as is evident from the contrived segmentation of stages according to geography and from the unarguable existence of recipient outside India; Rule 10 of Place of Provision of Services Rules, 2012 is unambiguously clear about the consequent non-taxability. 11.2. We find that the facts of the case are identical and involve the very same appellant. We find that the Revenue haspicked up some activities, from the bundle of services rendered by the appellants, in a convenient manner. One has to see the nature of the service in total. Segmenting the series of actions involved in the provision of a particular service, would result in ridiculous propositions. The Department has not viewed the service rendered by the appellants in a holistic manner, ignoring the very fact that the services rendered by the appellants are not complete just by loading of the goods on a vessel or on an aircraft. They go beyond. If the case of the Department is accepted, the provisions of Section 66F of the Finance Act, 1994 would become redundant. Such an approach is not permissible under the law. 12. The second issue on which demand is raised pertains to the incentive or com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... target, the air travel agent also receives an additional amount in the form of incentives/commission from the airlines or the CRS Companies. The receipt of incentives/commission would not change the nature of the services rendered by the travel agent. 71. This apart, the definition of BAS would also reveal that the service provider must promote or market the service of a client. As noticed above, it is not a case where the air travel agent is promoting the service of airlines/CRS Companies. The air travel agent is, by sale of airlines ticket, ensuring the promotion of its own business even though this may lead to incidental promotion of the business of the airlines/CRS Companies. Thus, in terms of the provision of Section 65A(2)(a) of the Finance Act, the classification of the service would fall under air travel agent services and not BAS. Whether incentives paid for achieving targets are taxable? 72. he contention advanced by Learned Counsel of the interveners is that incentives cannot be construed as consideration and if it is so, no service tax can be levied on this amount because under Section 67 of the Finance Act, service tax is leviable on considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has to be ascertained for the purpose of calculating the service tax. It is for this reason that the expression such occurring in Section 67 of the Act assumes importance. The Supreme Court, therefore, observed that the authority has to find what is the gross amount charged for providing such taxable services and so any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as the amount is not calculated for providing such taxable service. This, according to the Supreme Court, is the plain meaning attached to Section 67, either prior to its amendment on 1 May, 2006 or after this amendment. 77. Consideration, which is taxable under Section 67 of the Finance Act, should be transaction specific. Incentives, on the other hand, are based on general performance of the service provider and are not to be related to any particular transaction of service. It needs to be noted that commission, on the other hand, is dependent on each booking and not on the target. If the air travel agent does not achieve the predetermined target, incentives will not be paid to the travel agents. 78. In this connection it will be approp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r all, presumably, with the ultimate objective of maximizing their respective commercial positions. As the AP Group put it, the overall relationship contemplates a continuing dialogue between wholesaler and retailer in which promises are routinely exchanged, but to characterize this dialogue as involving supply after supply is unrealistic and impractical. To characterize the payment of the incentives intended to encourage the overall relationship to operate efficiently as involving supplies for consideration equally unpersuasive. A dealer will always wish to sell as many cars as practicable and to move old stock to make way for new stock. So too a dealer will always wish its ordering arrangements to be the most efficient and economically beneficial to it. The manufacture will have the same objectives. It is this context which underpins the Tribunal s conclusion that the payments are not for the supply of anything by the dealer. As the Tribunal said at [86] the dealer (which must be inferred to act in an economically rational manner in the ordinary course) will always want to run the business in this way. The fact that the dealer receives a payment as an incentive when certain thres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re together referred to as destination charges. The appellants claim that they have not paid service tax on destination charges as they are incurred at the foreign port and are not taxable in India; the services rendered to the Indian customers are part of their main service rendered in terms of the Agreement with their foreign principals; moreover, these can be treated as reimbursement of expenses and therefore, are not taxable. We find that the amounts collected by the appellants from the Indian clients is towards the expenditure such as customs duty, delivery order charges, port handling at the foreign ports; as the charges pertain to the activity rendered at a foreign destination, the same cannot be charged in India. Moreover, these are in the nature of reimbursement of expenses. Moreover, we see that under this Head too, Revenue does not specify as to which was the category under Business Auxiliary Service , the services rendered by the appellants fall. We do not find any type of service rendered by the appellants in regards to promotion of the business of their Indian clients. Their activity and the payments received thereof squarely fall under the main activity of goods tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited [(2015) 1 SCC 1] wherein it was observed as under: 27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/nonfiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of interpretation of statutes . Vis-avis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of service is the location of the service provider, the package tours service provided by an Indian tour operator to a foreign tourist will, notwithstanding that some part of it is provided outside India, be treated as service provided in India. As a result no Indian tour operator can expect the service rendered by him to a foreign tourist to be considered as an export of service under Rule 6A as he will never be able to meet the requirement of Rule 6A(1)(d) of the ST Rules. Thus under a combination of Rule 6A of the ST Rules and Rule 9 of the PPSR 2012 something which is non-taxable under the FA is sought to be brought to tax. 48. As already noticed since by virtue of Section 64(3) the whole of Chapter V applies only to taxable services, and Section 66C of the FA falls in that very Chapter, the rules made by the Central Government under Section 66C has to necessarily be only in relation to taxable services viz., services provided in the taxable territory of India. The legal fiction of treating service rendered outside India to be a service rendered in India cannot be introduced by way of rules. That too would partake the character of an essential legislative fun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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