OIO No. 03/JC/2012
Dated 13.01.2012
lhek “kqYd ,oa dsUnzh; mRikn “kqYd vk;qDrky;]
dsUnzh; mRikn “kqYd Hkou]
jsl dkslZ] fjax jksM jktdksV-360001
OFFICE OF THE COMMISIONER OF CUSTOMS & CENTRAL EXCISE
RACE COURSE RING ROAD, RAJKOT-360001
By RPAD/HAND DELIVERY
F.No V.ST/15-152/Adj./2006
Ekwy vkns”k Lka.
Order in Original NO.
03/JC/2012
vkns”k dh frfFk
13.01.2012
Date of Order:18.01.2012
tkjh djus dh frfFk
Date of Issue:-
,e- KkulqUnje
vkns”kdrkZ dk uke :
Passed by:
संयक्
ु त आयक्
ु त
ds0 m-0 “kqYd vk;qDrky;]
jktdksV
ds lanHkZ esa :
M/s. Friends & Friends Shipping Pvt. Ltd.,
Maitri Bhavan, Plot No. 18,
In the matter of
Sector – 8,
Gandhidham – 370 201
dkj.k crkvksa uksfVl la- V.ST/AR-G’dham/ADC/72/2010 Date : 13.04.2010
&frfFk
Show Cause Notice No. & Date.
1;g izfrfyfi ml O;fDr dks futh mi;ksx ds fy, fu%'kqYd nh xbZ gSA ftls ;g tkjh
fd;k x;k gSA
1.
This copy of order is granted free of charges to the person to whom it is issued.
2-
bl vkns'k ls ;fn dksbZ O;fDr vlarq"V gS rks bl vkns'k ds fo:) fuEufyf[kr dks
vihy dj ldrk gSA&vk;qDr ¼vihy½ lhek ,oa dsUnzh; mRikn 'kqYd] jsl dkslZ fjax
jksM jktdksVA
2.
Any person deeming himself aggrieved by this order may appeal against this order to the
Commissioner (Appeals), Customs & Central Excise, Central Excise Bhavan, Race Course Ring Road,
Rajkot.
vihy dk QkeZ ,l-Vh-&4 nks izfr esa Hkjk tk, ,oa mlds lkFk fu.kZ; dh izfrfyfi ;k
lsokdj fu;e] 1994 dh dye 8 esa fofufnZ"V vuqlkj vkns'k ds fo:) vihy dh izfrfyfi
gksuh pkfg,A
3-
3.
The Appeal should be filed in form ST-4 as per Rule 8 of Service Tax Rules, 1994 and it shall be
signed by the person as specified in Rule 3 (2) of the Central Excise (Appeals) Rules, 2001.
ikVhZ }kjk bl vkns'k dks O;fDrxr izkIr fd, tkus dh rkjh[k ls ;k Mkd }kjk izkfIr
dh rkjh[k ls rhu eghus ds vanj vihy Qkby dh tkuh pkfg,A
4-
4.
The appeal should be filed within three months from the date of receipt of this order. [Section 85
of the Finance Act, 1994].
5.
5.
blds lkFk fuEufyf[kr dkxtkr gksuh pkfg,A
The appeal should be accompanied by:
¼v½ ,slk vkns'k dh izfrfyfi ;k nwljs dh d izfrfyfi ftl ij uhps n'kkZ, v?khu fu/kkZfjr
dksVZ dh Qhl LVsEi gksuh pkfg,A
(a)
Copy of this order which should bear court fee stamp as prescribed under Schedule 1 of Article 6
of the Court Fee Stamp Act, 1870, as under:
(i) ;fn lCtsDV eSVj dh jde ;k ewY; ;k ewY; 50 :i; ;k 50 :i;s ls de gks rks :i;s 00-25
gksA
(i)
(ii)
If the amount or value of subject matter is rupees fifty or less, then Rs.0.25;
;fn lCtsDV eSVj dh jde ;k ewY; ;k ewY; 50 :i; ;k 50 :i;s ls v/khd gks rks :i;s 0050 gksA
Page 1 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
(ii) If such amount exceed Rs.50, then, Rs.0.50 paisa.
¼c½ vihy izfrfyfi ftl ij :i;s 2-50 dh dksVZ Qh LVsEi gksuh pkfg,A
(b) A copy of the appeal should also bear a court fee stamp of Rs.2.50.
6.
6.
lsok dj ]naM ¼isuYVh½ vkfn ds Hkqxrku dk izek.k A
Proof of payment of duty, penalty etc., should also be attached to the original form of appeal.
BRIEF FACTS OF THE CASE:
M/s.
Friends
&
Friends
Shipping
Pvt.
Ltd.
Gandhidham
(hereinafter referred to as the noticee) are holder of Registration in
Form ST-2 bearing No. AR/GIM/CHS-03/2002-03 issued under Section
69 of
Chapter V of the Finance Act,1994 (32 of 1994) (hereinafter
referred to as “the Act”) as Cargo Handling Services, Storage &
Warehouse Services, Goods Transport Agency and have undertaken to
comply with the conditions prescribed in the Service Tax Rules, 1994
(hereinafter referred to as “the Rules”).
2.1
During the course of audit, on scrutiny of invoices of output
services, it appeared that they did not pay Service Tax on gross
amount charged. In some invoices, they have shown reimbursable
expenses such as (i) Port Wharfage charges (ii) Terminal Handling
Charges and (iii) Container Agent documentation charges and they
have excluded these reimbursable expenses from the gross amount for
deriving the taxable value.
Sr.
No.
1
2
3
4
5
6
Heading/Activity Period
(such as labour
charges,
CFS
charges,
etc.
whatever)
Cost of Stamp Jan-05
Paper
to Mar05
Port Wharfage
Jan-05
to Mar05
Terminal
Jan-05
Handling
to MarCharges
05
Cost of Stamp Apr to
Paper
Dec-05
Port Wharfage
Apr to
Dec-05
Terminal
Apr to
Amount Service
Reimbursed Tax
(In Rs.) Rate
39270
10.2%
Total
Service Tax
required to
be
recovered
4006.00
1695646
10.2%
172956.00
9332450
10.2%
951910.00
11110
10.2%
1133
10.2%
46771
10.2%
278707
458539
2732420
Page 2 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
7
2.2
Handling
Charges
Container
Repairing
TOTAL
Dec-05
Apr to
Dec-05
5000
1,42,74,435
10.2%
510
14,55,993
Whereas, as per section 67 of the Act, the value of any taxable
service shall be the gross amount charged by the service provider for
such service. It is further clarified vide explanation No. 3 of the said
section that gross amount charged for the taxable service shall include
any amount received towards the taxable service before, during or
after provision of such service. Taxable services which are the part of
their output service have been shown in reimbursable charges in bill
raised by them. All expenditures or costs incurred by the service
provider in the course of providing taxable service form integral part of
the taxable value and are includible in the value. Therefore, the value
of taxable service is the gross amount charged for providing any
service in relation to cargo handling. Hence, it appeared that the
noticee is required to pay Service Tax payable on reimbursable
expenses. Total Service Tax on reimbursable expenses worked out to
Rs. 14,55,993/2.3
Whereas, it appeared that the noticee have neither shown the
value of such services provided by them in their ST-3 returns nor
disclosed such information to the department at any point of time.
Therefore, it appeared that the noticee willfully suppressed the said
facts with sole intention to evade payment of service tax including
Education Cess of Rs. 14,55,993/- which is liable to be recovered from
them by invoking extended period of five years under proviso to subsection (1) of section 73 of the Act alongwith interest under section 75
of the Finance Act, 1994. It appeared they rendered themselves liable
for imposition of penalty under Section 76 of the Act for non payment
of service tax and penalty under section 78 of the Act for suppressing
the correct taxable amount.
3.1
Where as during the course of scrutiny of the records of the
noticee, it also appeared that the noticee have availed input credit
Page 3 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
on input services such as Godown Rent, Weighment Charges, Handling
Charges, Labour Charges, Port Wharfage, KDLB Charges (i.e. labour
charges), Scrap Handling Charges and Sampling/Testing Charges etc;
provided mainly by M/s. A.V. Joshi & Co, Gandhidham. Input credit
availed on above input service is utilized by the noticee for payment of
output services provided in relation to Cargo Handling Services. The
Cenvat Credit availed by the noticee is not admissible as detailed in
the table below on the grounds mentioned against each.
Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
DETAILS OF CENVAT CREDIT TAKEN ON THE INVOICES OF
M/S ARVIND V. JOSHI & CO.
Name of
Name of
Invoice
Invoice
Input
output
output
Period
No.
Date
Service
services
services
exempted
taxable
Cargo
17-06PORT
PORT
71
Jun-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
24-08PORT
PORT
140
Aug-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
24-08PORT
PORT
141
Aug-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
24-08PORT
PORT
142
Aug-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
24-08PORT
PORT
143
Aug-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
14-09PORT
PORT
211
Sep-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
14-09PORT
PORT
214
Sep-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
14-09PORT
PORT
216
Sep-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
14-09PORT
PORT
218
Sep-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
21-09PORT
PORT
233
Sep-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
21-09PORT
PORT
236
Sep-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
21-09PORT
PORT
237
Sep-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
15-10PORT
PORT
249
Oct-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
15-10PORT
PORT
250
Oct-05
Handling
2005
SERVICES
SERVICES
Services
Cargo
15-10PORT
PORT
251
Oct-05
Handling
2005
SERVICES
SERVICES
Services
Amount of
Cenvat
Credit
reversible
3082
16524
23845
23134
12118
1958
10596
922
1636
9088
39245
30363
2215
875
2349
Page 4 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
16
252
15-102005
Oct-05
PORT
SERVICES
17
259
19-102005
Oct-05
PORT
SERVICES
18
266
28-102005
Oct-05
PORT
SERVICES
19
267
28-102005
Oct-05
PORT
SERVICES
20
268
28-102005
Oct-05
PORT
SERVICES
21
269
28-102005
Oct-05
PORT
SERVICES
22
300
11-112005
Nov-05
PORT
SERVICES
23
316
14-112005
Nov-05
PORT
SERVICES
24
317
14-112005
Nov-05
PORT
SERVICES
25
324
19-112005
Nov-05
PORT
SERVICES
26
330
19-112005
Nov-05
PORT
SERVICES
27
331
19-112005
Nov-05
PORT
SERVICES
28
344
30-112005
Nov-05
PORT
SERVICES
29
354
12-122005
Dec-05
PORT
SERVICES
30
374
26-122005
Jan-06
PORT
SERVICES
31
391
30-122005
Jan-06
PORT
SERVICES
32
393
30-122005
Jan-06
PORT
SERVICES
33
394
30-122005
Jan-06
PORT
SERVICES
34
406
07-012006
Jan-06
PORT
SERVICES
35
407
07-012006
Jan-06
PORT
SERVICES
36
430
17-012006
Mar-06
PORT
SERVICES
37
446
31-012006
Mar-06
PORT
SERVICES
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
PORT
SERVICES
100980
PORT
SERVICES
1408
PORT
SERVICES
23134
PORT
SERVICES
22037
PORT
SERVICES
19553
PORT
SERVICES
22032
PORT
SERVICES
22350
PORT
SERVICES
1671
PORT
SERVICES
9302
PORT
SERVICES
7895
PORT
SERVICES
13954
PORT
SERVICES
23134
PORT
SERVICES
2448
PORT
SERVICES
19829
PORT
SERVICES
23400
PORT
SERVICES
15600
PORT
SERVICES
2520
PORT
SERVICES
8496
PORT
SERVICES
1731
PORT
SERVICES
2520
PORT
SERVICES
5469
PORT
SERVICES
15000
Page 5 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
38
499
23-022006
Mar-06
PORT
SERVICES
39
447
31-012006
Mar-06
PORT
SERVICES
40
453
31-012006
Mar-06
PORT
SERVICES
41
454
31-012006
Mar-06
PORT
SERVICES
42
460
31-012006
Mar-06
PORT
SERVICES
43
463
10-022006
Mar-06
PORT
SERVICES
464
10-022006
Mar-06
PORT
SERVICES
45
471
11-022006
Mar-06
PORT
SERVICES
46
472
11-022006
Mar-06
PORT
SERVICES
47
473
11-022006
Mar-06
PORT
SERVICES
48
474
11-022006
Mar-06
PORT
SERVICES
49
500
24-022006
Mar-06
PORT
SERVICES
50
502
28-022006
Mar-06
PORT
SERVICES
51
506
03-032006
Mar-06
PORT
SERVICES
52
522
07-032006
Mar-06
PORT
SERVICES
53
476
11-022006
Mar-06
PORT
SERVICES
54
484
17-022006
Mar-06
PORT
SERVICES
55
483
17-022006
Mar-06
PORT
SERVICES
56
482
17-022006
Mar-06
PORT
SERVICES
57
533
14-032006
Mar-06
PORT
SERVICES
58
536
14-032006
Mar-06
PORT
SERVICES
44
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
PORT
SERVICES
22500
PORT
SERVICES
2400
PORT
SERVICES
4896
PORT
SERVICES
10080
PORT
SERVICES
360
PORT
SERVICES
3600
2520
PORT
SERVICES
PORT
SERVICES
15120
PORT
SERVICES
2400
PORT
SERVICES
5040
PORT
SERVICES
2520
PORT
SERVICES
2400
PORT
SERVICES
2520
PORT
SERVICES
4800
PORT
SERVICES
3480
PORT
SERVICES
2280
PORT
SERVICES
6000
PORT
SERVICES
9600
PORT
SERVICES
2448
PORT
SERVICES
2280
PORT
SERVICES
6840
Page 6 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
59
540
16-032006
Mar-06
PORT
SERVICES
60
544
17-032006
Mar-06
PORT
SERVICES
61
547
20-032006
Mar-06
PORT
SERVICES
62
549
21-032006
Mar-06
PORT
SERVICES
63
561
23-032006
Mar-06
PORT
SERVICES
64
562
28-032006
Mar-06
PORT
SERVICES
65
571
29-032006
Mar-06
PORT
SERVICES
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
PORT
SERVICES
7560
PORT
SERVICES
4560
PORT
SERVICES
4680
PORT
SERVICES
2280
PORT
SERVICES
4560
PORT
SERVICES
14400
PORT
SERVICES
1200
23400
66
572
29-032006
Mar-06
PORT
SERVICES
67
563
28-032006
Mar-06
PORT
SERVICES
68
99
08-082005
Mar-06
PORT
SERVICES
69
102
08-082005
Mar-06
PORT
SERVICES
70
144
24-082005
Mar-06
PORT
SERVICES
71
342
23-112005
Mar-06
PORT
SERVICES
72
595
31-032006
Mar-06
PORT
SERVICES
73
596
31-032006
Mar-06
PORT
SERVICES
74
17
21-042006
May06
PORT
SERVICES
75
32
11-052006
May06
PORT
SERVICES
76
62
29-052006
Jun-06
PORT
SERVICES
77
63
29-052006
Jun-06
PORT
SERVICES
78
72
08-062006
Jun-06
PORT
SERVICES
79
93
07-072006
Jul-06
PORT
SERVICES
80
18
21-04-
May-
PORT
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
Handling
Services
Cargo
PORT
SERVICES
PORT
SERVICES
1411
PORT
SERVICES
15120
PORT
SERVICES
15120
PORT
SERVICES
31500
PORT
SERVICES
4800
PORT
SERVICES
5040
PORT
SERVICES
2280
PORT
SERVICES
1008
PORT
SERVICES
5760
PORT
SERVICES
18720
PORT
SERVICES
2938
PORT
SERVICES
28080
PORT
SERVICES
12384
PORT
14176
Page 7 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
81
99
2006
06
SERVICES
10-072006
Jul-06
PORT
SERVICES
TOTAL
(i)
Handling
Services
Cargo
Handling
Services
SERVICES
PORT
SERVICES
18576
8,96,050
On scrutiny of the Cenvatable invoices issued for output services
by the service provider, it appeared that Cenvat Credit is utilized for
payment of Service Tax on output service provided in relation to Cargo
Handling Service. This Cargo Handling Service is provided for “Export
Cargo” and “Agriculture Products”. Cargo Handling Service provided in
relation to agriculture produce has been exempted from the whole of
the service tax leviable vide Notfn No: 10/2002-ST dated 01/08/2002.
Also as per definition of Cargo Handling Service under section 65(23)
of Finance Act, 1994 Export Cargo is not included in the Taxable
service. Thus, both output services in relation to export cargo and
agriculture produce are exempted services. Hence, it appears that as
these output services are exempted, input credit is not admissible on
these exempted output services as per Rule 6(1) of Cenvat Credit
Rules, 2004.
(ii)
Where as it appeared that as per Rule 2(p) of Cenvat Credit
Rules, 2004, “Output Service” means any taxable service provided by
a service provider. “Taxable service” means any of the service as
defined in Section 65(105) and thereof, service provided in relation to
Agriculture Produce and Export Cargo is not a taxable service.
Notification No: 27/2005-CE (NT) dated 16/05/2005 further clarifies
that credit shall not be allowed on inputs and input services used
exclusively for the manufacture of exempted goods or exempted
services. Therefore, any input credit availed and utilized for payment
of output service in relation to Agriculture Produce and Export Cargo is
not admissible to the Service Provider. The noticee failed to provide
any information, at the time of filing periodical returns or otherwise
about such availment of credit to the department. Therefore, the said
credit appeared recoverable under Rule 14 of Cenvat Credit Rules,
2004 read with proviso to Section 73(1) of the Finance Act, 1994.
4.
It appeared that on the grounds mentioned above, Cenvat Credit
of Rs. 8,96,050/- as per table above, availed by the service provider
Page 8 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
and utilized for payment of exempted services was not admissible
under Rule 14 of Cenvat Credit Rules, 2004 read with proviso to
section 73 (1) of the Act.
Whereas,
it
appeared
that
the
said
noticee
also
contravened the provisions of section 73 of the said act willfully by not
paying Service Tax within stipulated time limit with an intention to
evade the payment of Service Tax and as such the noticee is liable for
penal action under section 78 of the said Act.
5.
Therefore, M/s. Friends & Friends shipping Pvt. Ltd. Gandhidham
were issued a show cause notice No. V.ST/AR.G’dham/ADC/72/2010
dated 13.04.2010 calling upon to show cause to Joint Commissioner,
Central Excise, Rajkot, as to why :I.
Service Tax including education Cess of Rs.14,55,993/(Rupees Fourteen Lakh Fifty Five thousand Nine Hundred
Ninety Three only) should not be recovered from them
under proviso to section 73(1) of the Finance act, 1994.
II.
Wrongly availed and utilized Cenvat credit of Rs. 8,96,050/(Rs .Eight lac, Ninety six thousand Fifty only) should not be
disallowed and recovered under Rule 14 of the Cenvat credit
Rules, 2004 read with section 68 & proviso to section 73(1)
of the Finance act, 1994.
III.
Interest due on I and II above should not be recovered at
the appropriate rate under section 75 of the said Act;
IV. Penalty should not be imposed upon them under section 76
of the said Act
V.
Penalty should not be imposed upon them under section 78
of the said Act.
DEFENCE AND PERSONAL HEARING:
6.
The noticee, vide their letter dated 22.02.2011, submitted
written reply to the show cause notice wherein, it was inter alia,
contended that:
Page 9 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
(i)
In addition to their service charge, they are collecting Port
Wharfage charges, Terminal Handling charges, Cost of
Stamp paper and Container repairing charges, which they
have paid on behalf of importer/exporter of the goods. Port
Wharfage charges are charged by Kandla Port from the
importer/exporter of the goods whose cargo is being
loaded/unloaded or handled within the boundary wall or
area of Kandla Port. The Wharfage entry is prepared only
in the name of importer/exporter of the goods and the
Wharfage charge which is inclusive of the service tax is
collected by Kandla Port either from the importer/exporter
of the goods or on behalf of the importer/exporter of the
goods from their agent. Terminal Handling charges are
charged by the respective Container Line Agency from the
importer/exporter of the goods for unloading the container
from the vessel in which such containers arrived or shifted
and shifting it to/from the plot area allotted to such
container line agency at the respective port. Cost of stamp
paper pertains to purchase of stamp paper on behalf of the
importer/exporter of the goods for giving an undertaking
by the importer/exporter of the goods to Line Agency to
the effect that they will redeliver the containers in the
same form and in the same manner in which container was
delivered to them. If during the course of handling or
stuffing/de-stuffing of cargo or transferring of container,
any
damage
occurred
to
the
container,
then
importer/exporter would be fully liable and responsible for
carrying out necessary repairs to set right the damages
caused to the container. This undertaking is given in a
stamp paper by the importer/exporter of the goods to the
respective line agency.
Container repairing charges are,
those that if during the course of handling of containers,
any
damage
occurs
importer/exporter
of
to
the
the
container,
goods
will
then
be
the
fully
liable/responsible to carry out necessary repairs at their
cost to set-right the damages caused to the container and
put the container in the same form and manner in which
Page 10 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
the container was there at the time when it was delivered
to them.
(ii)
No service is rendered by them to their clients in relation
to such expenses. The transaction of the service if any,
relating to the above expenses, is between the service
provider and the importer/exporter of the goods. It is the
responsibility of the importer/exporter of the goods to pay
such expenses to the respective service provider which in
case would be Kandla Port Trust, respective container line
agency, and respective stamp vendors and at last the
agency that has carried out the repairs of the containers.
The
invoices
are
prepared
in
the
name
of
importer/exporter of the goods and they are acting only as
an agent on behalf of the importer/exporter, making such
payment on their behalf. They enclosed sample copies of
invoices of Wharfage charges and Terminal Handling
charges.
(iii)
As per section 67 of the Finance Act, 1994 taxable value of
any taxable service shall be the gross amount charged by
the service provider for providing such services. Whereas,
the referred expenses are received as pure reimbursement
which is shown separately in the invoice. Therefore no
service tax is required to be charged on the amount of
reimbursement which is not the essential element of
charges for providing the taxable service. Under rule 5(1)
of the Service Tax (Determination of Value) Rules, 2006,
where any expenditure or costs are incurred by the service
provider in the course of providing taxable service, all such
expenditure or cost shall be treated as consideration for
the taxable service provided or to be provided and shall be
included in the value for the purpose of charging service
tax on the said service. In the present case, the expenses
received
by
them
as
reimbursement
are
not
the
expenditure incurred for providing service and therefore,
such reimbursement amounts cannot be considered as
consideration for the purpose of charging service tax.
Page 11 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
(iv)
In following judicial pronouncements, it is held that no tax
can be levied and collected for reimbursement of expenses
incurred on behalf of the importer/exporter of the goods.
Further, there is no section in the statute to say that
incurring/payment of any expenditure on behalf of the
importer/exporter of goods does amount to rendering of
service and no service is rendered for incurring/payment of
expenditure, question of applicability of section 67 of the
Finance Act, 1994 will not arise:

Scott Wilson Kirkpatrick (I) Pvt. Ltd. – 2007 (5) STR 118

Bridgestone Financial Services – 2007 (8) STR 505

GAC Shipping (India) Pvt. Ltd. – 2008 (9) STR 524

Aurobindo Pharma Ltd. – 2008 (10) STR 611

Reliance Industries Ltd. – 2008 (12) STR 345

S. K. Enterprises – 2008(10) STR 171 maintained 2009
(14) STR J20 (SC)

Allapat Business – 2009 (15) STR 423

S. Jayashtree – 2007 (6) STR 389

Sri Sastha Agencies Pvt. Ltd. – 2007 (6) STR 185

Alvares & Thomas – 2009 (13) STR 516

Rolex Logistics Pvt. Ltd. – 2009 (13) STR 147

Apco Agencies – 2008 (10) STR 169
(v)
They
refer
to
circular
No.
B/43/1/97-TRU
dated
06.06.1997 which is issued in connection with Custom
House Agent. Para 2.3 and 2.4 are relevant. Though the
circular is issued in respect of different services, the ratio
of analysis held for reimbursable expenses in these
circulars are equally applicable in the facts of the present
case:
(vi)

119/13/2009-ST dated 21.12.2009

B11/3/98-TRU dated 07.10.1998

B43/7/97-TRU dated 11.07.1997
It is not the case of the department that gross amount
received by them has been shown in the Profit & Loss
account as income. Every amount received from the
client/service receiver does not automatically become
value
of
taxable
service.
The
amount
received
as
Page 12 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
reimbursement of expenses at actual during the course of
providing taxable service does not form an integral part of
taxable service charges. Service charges are subject to
TDS whereas reimbursable expenses are paid as it is
without deducting any TDS therefrom and in the present
case it is evident that no TDS has been deducted in case of
payment
of
reimbursable
expenses.
Service
Tax
(Determination of Value) Rules, 2006 clearly mentions
under rule 5(2)(vi) that expenditure or cost incurred and
paid by the service provider on behalf of the service
receiver which has been separately indicated in the invoice
shall be excluded from the value of taxable services.
(vii)
The demand is barred by limitation as it is issued beyond
the normal period of one year. The SCN dated 13.04.2010
covering the period from January-2005 to July-2006 is
patently time barred and longer period of limitation under
section 73 of the Finance Act, 1994 is not applicable for
recovery. Department was fully aware of their business
activities and their records were audited in past and non
charging of service tax on reimbursable expenses was
known to the department. Therefore, department cannot
raise a ground of suppression of facts and issue SCN
covering longer period. They rely upon the following
decision:
(viii)

Narbada Steel Ltd. – 2007 (217) ELT 469 (Tri.-Del.)

V. Shethia Audio Video P. Ltd. – 2006 – TIOL – 596

Punjab Laminates Pvt. Ltd. – 2006 – TIOL – 109

Tiger Service Bureau – 9 STT 477

Trans Delta Electricals – 2010 – TIOL – 765
They undertake various jobs which include clearing the
documents
from
Customs
(i.e.
CHA
service),
loading/unloading of goods within the port area, cut open
the bags, heaping of bulk/bag cargo, segregation of the
cargo, get the cargo inspected from respective inspection
agency which is collectively known as stevedoring of the
cargo. For all these services they charge a consolidated
amount to the clients. As they are neither a Custom House
Page 13 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
agent nor a stevedoring agent, such activities are subcontracted to M/s. Arvind V. Joshi & Co. who is a Custom
House Agent and Stevedoring Agent. M/s. AVJ is providing
such services to them for which they are charging their
service charges and also collecting service tax from them.
The services provided by AVJ are utilised by them for
rendering consolidated services
as
mentioned
above,
within port area for the goods including goods for export
as well as agriculture produce. Since the services for
handling of export goods/agriculture produce are provided
within the port area, they categorize such service under
the head Port Service under section 65(82) of the Finance
Act, 1994. This classification is also supported by Board
circular
No.
B/1/2002-TRU
dated
01.08.2002.
The
definition of Port Service was amended w.e.f. 01.07.2010
and as per the changed provisions, now any service
provided within the port area by any person come within
the
ambit of “Port Service”. They, therefore, made
payment of service tax on cargo handling service provided
within the port area even in respect of export goods and
agriculture produce. Therefore, the Cenvat credit availed
and utilized by them was correct.
(ix)
They have revealed the factual details about the Cenvat
credit availed and utilized in the respective ST-3 returns
filed by them and therefore the allegation of deliberate
suppression of facts with intent to evade service tax
cannot sustain.
(x)
When there is no justification in demand of service tax, the
proposals to levy interest and impose penalty are not
sustainable. Further, as per the fifth proviso to section 78
of the Act, the provisions of section 76 of the Act shall not
apply if the penalty is payable under section 78 of the Act.
Thus, the proposal of imposition of penalty under section
76 does not hold well in the eyes of the law when there is
proposal of penalty under section 78 of the Act. The
proposal to impose penalty under section 76 as well as
under section 78 of the Finance Act, 1994 simultaneously
Page 14 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
does not hold good since both the provisions are mutually
exclusive and therefore, double penalty cannot be imposed
as per the following decisions:

Silver Oak Garden Resort – 2008 (9) STR 481 (Tri.-Del.)

Shield Security Force – 2008 (9) STR 214 (Tri.-Mumbai)
(xi)
It is well settled principle of law that when the issue is
related to interpretation of the Act and Rules, penalty
cannot be imposed and no interest can be demanded. In
the
present
case,
the
issue
involved
is
bonafide
interpretation of provisions of law. There are plethora of
decisions of Hon’ble Tribunal and High Courts to rely upon,
however, they rely upon the following decisions:

Gandhi & Gandhi Chartered Accountants – 2010 (17) STR
25 (Tri-Bang.)

MIS Delphi Automotive Systems – 2004 (163) ELT 47

Haryana Roadways Engineering Corporation Ltd. – 2001
(131) ELT 662 (Tri)

Syncoin Formulations (I) Ltd. – 2002 (150) ELT 1228 (Tri.Del.)
(xii)
Looking to the bonafide of the case, it is a fit case to
pardon penalty under section 80 of the Act, as there is no
intentional evasion of service tax. Section 80 of the
Finance Act, 1994 provides that no penalty shall be
imposable under section 76, 77 and 78 in cases where the
assessee proves that there was reasonable cause for the
failure to comply with the relevant provisions. They were
under bonafide belief that all the services provided within
the port area are categorized under “Port Services” and
service tax is payable thereon even in respect of export
cargo. In view of the same, they rely upon the decision in
the case of Ashok Security Services – 2008 (9) STR 359
(Tri.-Chennai).
7.
Personal hearing in the matter was held on 27.07.2011 during
which representative of the noticee briefed their defence reply dated
22.02.2011 and requested to decide the case accordingly.
Page 15 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
DISCUSSION AND FINDINGS:
8.
I have carefully gone through the entire case-records, SCN
issued, defence put forth by the noticee in written as well as
contentions raised during personal hearing. I find that there are two
issues to be decided in the present proceedings: (i) Whether the
noticee is liable to pay service tax on account of collection of various
charges like Cost of Stamp Paper, Port Wharfage, Container Repairing
and Terminal Handling charges in the name of reimbursable expenses,
or otherwise, and, (ii) Whether Cenvat credit availed by the noticee on
Port Services is required to be recovered on the ground that the output
service, viz., Cargo Handling Service for export cargo and agricultural
produce were exempted, or otherwise.
9.
Regarding proposal to recover service tax on the various charges
like Port Wharfage charges, Terminal Handling charges, Cost of Stamp
Paper and Container Repairing Charges, it is contended by the noticee
that all these charges are collected by respective service providers,
i.e., Port Authority, Shipping Line, Stamp Vendor and Agency and
since they have not provided any services but have only recouped
these expenses as reimbursement expenses from their service
receivers, they are not liable to pay any service tax on the same. On
the other hand the SCN alleges that as per section 67 of the Finance
Act, 1994, gross amount charged for the taxable service shall include
any amount received towards the taxable service before, during or
after provision of such service and therefore amounts received towards
various charges as mentioned above are includible in the assessable
value and service tax was required to be charged on such amounts.
The noticee has, in their defence, submitted sample copies of some of
the invoices raised by port authorities and container line agency as
well as corresponding invoices issued by them. On going through such
sample invoices, it is found that it is true that port authorities have
charged Wharfage directly from the importer/exporter and paid service
tax on such charges. The noticee has also raised bill for the services
provided by them wherein same amount of port Wharfage charge is
mentioned. For example- Arvind V. Joshi & Co. in their Import
Application No. IC-114770 dated 16.12.04 addressed to the Traffic
Page 16 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
Manager, Kandla Port Trust, Kandla Port have shown total Wharfage
charge including Service Tax of Rs.8,400/- as Rs.9,257/- and the
noticee in their invoice no. FFSPL/STH-963 addressed to importer M/s
Upper India Steel Mfg. & Engg. Company Ltd., Ludhiana have shown
Port Wharfage Charges as Rs.9,254/-. Similarly, Arvind V. Joshi & Co.
in their Import Application No. IC-15131 dated 05.03.2005 addressed
to the Traffic Manager, Kandla Port Trust, Kandla Port have shown
total Wharfage charge including Service Tax of Rs.306/- as Rs.3,306/and the noticee in their invoice no. FFSPL/STH-1143 addressed to
importer M/s Rimjhim Ispat Limited, Kanpur have shown Port
Wharfage Charges as Rs.3,305/-. Thus, it appears that in this case,
the noticee has acted as pure agent as envisaged in Rule 5(2) of the
Service Tax (Determination of Value) Rules, 2006. The Rule 5 of the
Service Tax (Determination of Value) Rules, 2006 is reproduced below:
5. Inclusion in or exclusion from value of certain expenditure or
costs.–
(1) Where any expenditure or costs are incurred by the service
provider in the course of providing taxable service, all such
expenditure or costs shall be treated as consideration for the
taxable service provided or to be provided and shall be included in
the value for the purpose of charging service tax on the said
service.
(2) Subject to the provisions of sub-rule (1), the expenditure or
costs incurred by the service provider as a pure agent of the
recipient of service, shall be excluded from the value of the taxable
service if all the following conditions are satisfied, namely:(i) the service provider acts as a pure agent of the recipient of
service when he makes payment to third party for the goods or
services procured;
(ii) the recipient of service receives and uses the goods or
services so procured by the serviceprovider in his capacity as
pure agent of the recipient of service;
(iii) the recipient of service is liable to make payment to the third
party;
Page 17 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
(iv) the recipient of service authorises the service provider to
make payment on his behalf;
(v) the recipient of service knows that the goods and services for
which payment has been made by the service provider shall be
provided by the third party;
(vi) the payment made by the service provider on behalf of the
recipient of service has been separately indicated in the invoice
issued by the service provider to the recipient of service;
(vii) the service provider recovers from the recipient of service
only such amount as has been paid by him to the third party;
and
(viii) the goods or services procured by the service provider from
the third party as a pure agent of the recipient of service are in
addition to the services he provides on his own account.
10.
Similarly,
in
case
of
Terminal
Handling
Charges
and
documentation charges, it is seen that the noticee has shown the said
amount separately in the invoice raised by them and it reflects the
same amount as mentioned in the invoice of shipping line. For
example- Albatross Shipping Pvt. Ltd. in their receipt no. 751 dated
8.3.2005 have shown amount of Terminal Handling Charges as
Rs.20,000/- and Container Agent Document Charges as Rs. 500/received from the noticee and the noticee in their invoice no.
FFSPL/STH-1143 addressed to importer M/s Rimjhim Ispat Limited,
Kanpur have shown Terminal Handling Charges as Rs.20,000/- and
Container Agent Documentation Charges as Rs.500/-. Similarly,
Intemark Shipping Agencies Pvt. Ltd. in their receipt no.1090 dated
18.01.2005 have shown amount of Terminal Handling Charges as
Rs.50,400/- and Delivery Order Charges Rs.500/- received from the
noticee and the noticee in their invoice no. FFSPL/STH-963 addressed
to importer M/s Upper India Steel Mfg. & Engg. Company Ltd.,
Ludhiana have shown Terminal Handling Charges as Rs.50,400/- and
Container Agent Documentation Charges as Rs.500/-. Therefore, it can
be said that the noticee has acted as pure agent only, so far as
terminal handling charges and documentation charges are concerned.
Page 18 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
11.
Looking to the facts of the case as well as fulfillment of
conditions mentioned in rule 5(2) of the Service Tax (Determination of
Value) Rules, 2006, it is to be concluded that the noticee has acted as
a pure agent so far as the charges like cost of stamp paper, Wharfage,
Terminal Handling Charges and Container Repairing Charges are
concerned. Therefore, the same are excludible from the assessable
value for the purpose of charging service tax. In view of this, the
demand of Rs. 14,55,993/- is found to be not tenable. Since demand
is found not tenable, the question of payment of interest or imposition
of penalty does not arise.
12.
Now coming to the second issue, which pertains to availment of
credit of service tax paid on the input service, i.e., Port Service, it is
alleged in the SCN that since some of the Cargo Handling Services,
viz., CHS for export cargo and CHS for agricultural produce, are
exempted the noticee was required to reverse the credit taken on
account of such exempted services. On the other hand, the noticee
pleaded
that
as
per
Board’s
circular
No. B/1/2002-TRU
dated
01.08.2002, all the services provided within port area were to be
classified under “Port Service” and as there was no exemption to port
service in cases of export cargo or agricultural produce, they have paid
service tax on those categories also, without claiming any exemption
thereof. In order to verify the correctness of the submission made by
the noticee, jurisdictional Deputy Commissioner (Service Tax) was
requested vide letter dated 20.12.2011 to give a report. The Deputy
Commissioner, Service Tax Division, Rajkot, vide letter F. No. IV/1501/ST/ADJ/2010-11 dated 10.01.2012 reported that the noticee has
discharged service tax liability in respect of ‘Cargo Handling Service’
provided by them within Port area in respect of handling of export
goods and agricultural produce for which they have availed Cenvat
credit by treating the same as ‘Port Service’ in terms of Board’s
circular No. B/1/2002-TRU dated 01.08.2002. The relevant para of the
Annexure-II
of
the
Board’s
circular
No.
B/1/2002-TRU
dated
01.08.2002 states that “5. Cargo handling services are provided in the
port also. Whether such service will be covered in the category of port
services or cargo handling service.
In this context it may be
mentioned that port services cover any service provided in relation to
Page 19 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
goods or vessels by a port or a person authorized by the port. This
includes the cargo handling service provided within the port premises.
Therefore to this extent there may be an overlap in cargo handling
service and the port service. However since port services cover all the
service in relation to goods and vessels and therefore more specific to
port, the service provided in a port in relation to handling of goods
would be appropriately covered under port service and no separate
levy will be attracted under the category of cargo handling agency
service.
Similar would be the case in respect of service provided or
storage of goods in the port premises.” Thus, it is clear that the
contention of the noticee is correct. Therefore, rule 6(1) of the Cenvat
Credit Rules, 2004 is not applicable to the present case and the
noticee is not required to pay any amount towards wrong utilisation of
Cenvat Credit under rule 14 of the Cenvat Credit Rules, 2004.
Therefore, the demand of wrongly utilised credit of Rs. 8,96,050/- is
not sustainable.
13.
Since it is found that no demand of service tax or wrongly
availed credit is sustainable, there is no reason for imposition of any
penalty or demanding any interest thereon.
14.
In view of the above, I pass the following order:
ORDER
I drop the proceedings initiated against M/s. Friends & Friends
Shipping
Pvt.
Ltd.,
under
show
cause
notice
No.
V.ST/AR.G’dham/ADC/72/2010 dated 13.04.2010.
(M.GNANASUNDARAM)
JOINT COMMISSIONER
F.No. V.ST/15-152/Adj./06
By. Regd. Post A.D.
M/s. Friends & Friends Shipping Pvt. Ltd.,
Maitri Bhavan, Plot No. 18,
Sector – 8,
Gandhidham – 370 201.
Page 20 of 21
OIO No. 03/JC/2012
Dated 13.01.2012
Copy to:
1. The Assistant Commissioner (RRA), Central Excise, Rajkot.
2. The Deputy Commissioner, Service Tax Division, Rajkot.
3. The Deputy Commissioner, Tax Recovery Cell, HQ, Rajkot.
4. The Superintendent, Service Tax Range-Gandhidham.
5. Guard file.
Page 21 of 21