1
Brief facts of the case-
M/s Sea Air Cargoes, B-106, Ganesh Plaza, Opp-Navrangpura Bus Stand,
Ahmedabad (hereinafter referred to as ‘the said service provider’) are registered with
the service tax under service category “Custom House Agent Service” since Feb2005.
2.
Intelligence received from the Directorate General of Central Excise
Intelligence, Ahmedabad Zonal Unit, which was further developed by the Officers of
Service Tax (Preventive), Ahmedabad revealed that majority of the Custom House
Agents (hereinafter referred to as the “CHA”) were raising two sets of invoices for
reimbursement of various expenses incurred by them at the time of providing
services to their clients viz. importer/ exporter. One invoice was being raised towards
the Services/ Agency charges and the second for the reimbursement of other charges/
expenses; that the invoices issued for Services/ Agency Charges wee being used for
payment of Service Tax, whereas the second invoice was being raised only for reimbursement of expenses incurred by them; that the invoices’ Serial Numbers were
identical with minor differences, such as addition of an alphabet or a number to the
existing invoice serial number of the invoice issued for the reimbursement of other
charges/ expenses incurred by them during the course of services provided by them
to the importer/ exporter. The said procedure of issuing two sets of invoices to
exporter/ importer by CHA started after introduction of Service Tax on CHAs. The
same was done to suppress the actual service/ agency charges and thereby pay less
Service Tax.
3.
It further revealed that the CHAs were taking advantage of Circular
F.No.B43/1/97-TRU dated 06.06.1997 which envisaged “payments made by CHA on
behalf of the client, such as reimbursement expenses incurred are not to be included
for computing the Service Tax”. Accordingly, the procedure of issuing another set of
invoice was initiated. The genuine expenses shown in the invoices were accompanied
by documentary evidences, whereas the other expenses shown in the invoices were
nothing but part of the total service/ agency charges to disguise a part of service/
agency charges. Thus, the CHAs were suppressing the actual service/ agency charges
and thereby paying less Service Tax in respect of such expenses.
4.
The Service of CHA was brought under the Service Tax Net with effect from
15.06.1997 vide Notification No. 17/97-ST dated 06.06.1997. The definition of
2
Custom House Agent provided under Section 65(35) of the Finance Act, 1994 reads
as under:
“custom house agent” means a person licensed, temporarily or otherwise,
under the regulations made under sub-section (2) of section 146 of the
Customs Act, 1962.
As per the provisions of Section 65(105)(h) of the Finance Act, 1994 the
‘taxable service means any service provided or to be provided to a client, by a
custom house agent in relation to the entry or departure of conveyances or the
import or export of goods’.
5.
As per the Customs Act, 1962, no person is entitled to act as a Custom House
Agent unless he is issued a licence under Section 146(2) of the said Act. The issue of
a licence is governed by the Customs House Agents Licensing Regulations, 1984. A
custom house agent is either granted a permanent licence (renewable every 5 years)
or a temporary licence (for 1 year). Both such licence holders shall be liable for
payment of Service Tax. Since Customs Act, 1962 prohibits the business of custom
house agent without licence, such un-licenced agents work under the banner of a
licensed agent and accordingly, the principal licensed agent will be liable for Service
Tax for such transactions even though the transactions may be undertaken by another
person.
6.
It appears that the services rendered by the Custom House Agent are not merely
limited to the clearing of the import and export consignment. The CHA also renders
the service of loading/ unloading of import or export goods from/ at the premises of
the exporter/ importer, the packing, weighment, measurement of the export goods,
the transportation of the export goods to the customs station or the import goods from
the custom station to the importer’s premises, carrying out of various statutory and
other formalities such as payment of expenses on account of Bill of entry charges,
DBK/DEEC submission charges, Documentation charges, examination & sample
testing charges, labour/loading/unloading/stuffing charges, Miscellaneous expenses,
fumigation/pest
controlled
chocking/packing/forwarding
charges,
charges,
supervision
stuff/destuff
on
charges,
service
charges,
GSP/certification
charges, Container Handling charges. The Custom House Agent also incurs various
other expenses such as crane/ fork lift charges, taxi charges, Photostat and fax
charges, bank collection charges, courier service charges, and miscellaneous other
expenses on account of the exporter/ importer. For all the above charges, the CHA is
3
ordinarily reimbursed by the importer/ exporter for whom the above services are
rendered. Apart from the above charges, the CHA also charges the client for his
services
under
the
head/
nomenclature
of
‘Agency
and
Attendance
Charges/commission’ or similar kind of heads which is purported to be his Service
Charges in respect of the service rendered in relation to the import/ export of goods.
Such Agency Charges are liable for Service Tax.
7.
The value of the taxable service is the gross amount charged to the client. Thus,
no deduction is available for various expenses incurred while providing the taxable
service. The Service Tax (Determination of Value) Rules, 2006 have been prescribed
with effect from 19.04.2006. These Rules very clearly enunciate situations in which
an assessee may claim the exclusion of expense recoveries on the grounds of
reimbursement of expenses. Primarily, the expenses will have to be incurred by the
service provider as an agent of the service recipient. The service provider will also
have to specify eight conditions specified in Rule 5(2) of Service Tax (Determination
of value) Rules, 2006.
8.
The claim of various reimbursements of expenses will also need to be governed
by Rule 5(2). For example, the following reimbursable expenditures are not covered
under the ambit of Pure Agent category:
(i)
Bill of entry charges
(ii)
DBK/DEEC submission charges
(iii)
Documentation charges,
(iv)
Examination & sample testing Charges.
(v)
Labour/loading/unloading charges
(vi)
Miscellaneous Expenses
(vii)
Fumigation/pest controlled charges
(viii) Supervision service charges
9.
(ix)
Chocking/packing/forwarding charges
(x)
Stuffing/destuffing charges
(xi)
GSP/Certification charges
(xii)
Container Handling charges.
Acting on the said intelligence, letters dated
23.01.2009, 09.02.2010,
17.03.2010, 09.04.2010, 14.06.2010 were issued calling for relevant documents and
records to M/s. Sea Air Cargoes, B-106, Ganesh Plaza, Opp.Navrangpura Bus
Stop, Ahmedabad (hereinafter referred to as ‘the said service provider’). Further,
4
summons dated 17.02.2009, 05.03.2009, 13.03.2009, 19.03.2009, 27.03.2009,
13.05.2009, 30.07.2009, 01.07.2010 were also issued to the said service provider.
9.1
The said service provider submitted the documents such as photocopies of
balance sheet and S.T.-3 returns for the period from 2005-06 to 2009-10 on date
23.08.2010. Further, details such as invoice wise payment received from the clients
such as agency charges and other re-imbursement expenses with supporting
documents available and without supporting documents pertaining to the period from
2005-06 to 2009-10 were produced on 07.10.2010.
10.
Statement of Shri Hiten Dineshbhai Thakkar, Proprietor of M/s. Sea Air
Cargoes was recorded on 23.08.2010, wherein he, interalia, stated that M/s. Sea Air
cargoes was registered with the Service Tax Department under the service tax
category of “Custom House Agents”, bearing No. AATPT3188KST001 since
February’2005; that they were providing service of clearing export/import cargo of
various clients at I.C.D. Ahmedabad & I.C.D. Vadodara; that M/s. Sea Air Cargo was
a Proprietorship concern and being a sole Proprietor, he looked after all the activities
related to the business. He further stated that they had cliental base only in
Ahmedabad.
10.1
He further stated that they were raising single invoice for agency charges, re-
imbursement of various expenses incurred by them at the time of providing services
to the importer /exporter which included the re-imbursement expenses such as CMC
charges, CWC charges, CONCOR, GSEC, Bill of lading (B/L) charges,
Transportation charges, Air & Sea freight, Customs duty, Terminal Handling charges
etc. All such expenses were having supporting documents of other agencies in
support of these expenses. The other expenses also included labour expenses, Sundry
charges, examination charges, Documentation charges, Fumigation Charges, Agency
charges etc., but there were no supporting documents/receipts for all these expenses.
10.1.1 Out of the invoices issued by them, the Agency charges were considered for
payment of service tax for year 2005-06 and onwards and he further stated that they
were paying the service tax only on the Agency charges as the re-imbursement of
expenses supported by the invoices of other agencies were not liable to service tax as
these expenses are incurred on behalf of their clients.
10.1.12
As regard other re-imbursement expenses, such as handling charges,
labour expenses, sundry charges, Other Misc charges, Documentation charges,
5
Stuffing/destuffing charges, Labour/loading/unloading charges etc., were not
supported by or accompanied with documentary evidences. These expenses were
supposed to be attracting payment of the service tax. As stated earlier, services not
supported by documentary evidences were charged to service tax, based on Service
Tax Circular No. B-1/4/2006-TRU dated 9-04-2006 issued by the Board. He further
stated that presently all above referred items were charged to Service Tax by them.
10.1.3 He further stated that prior to 2006 they were not taking into consideration
certain charges viz labour expenses, Misc charges, Documentation charges, etc.
shown in invoices as reimbursable charge, for computing the taxable value in
addition to the agency charges and as such no service tax was paid on these charges.
In this regard, he clarified that the same was done on the basis of circular No. B43/1/97-TRU dated 6-6-1997 which excluded these items from computation of
service tax by CHA.
10.1.4 On being asked regarding invoice-wise details for reimbursed expenses, he
agreed to furnish a detailed worksheet showing invoice-wise re-imbursement expense
amount, i.e., the details of received and unreceived re-imbursement expenses and in
support of the received amount, he also agreed to produce specimen copies of
relevant documents.
10.1.5 As regards the service tax payment for the period from April’2005, he stated
that on the value of reimbursement expenses having no supporting documents, they
will pay service tax on the same. He further stated that he will produce ST-3 returns
for the period from 2008-09 & 2009-10 within ten days time.
10.2
Shri Hiten Dineshbhai Thakkar, the Proprietor of M/s. Sea Air cargoes,
appeared again on 07.10.2010 along with the information. A statement of Shri Hiten
Dineshbhai Thakkar was recorded on 07.10.2010, wherein he, interalia, produced the
invoice-wise details and proof of service tax payment made during the period 200809 & 2009-10 i.e. photocopies of challans for service tax payments. The gist of the
statement in the question answer form is produced as follows.
Question:1
What was the procedure for issuance of invoices, prior to
introduction of Service Tax on CHAs ? Is it a fact that the
procedure of issuing two sets of invoices in favor of Exporter/
Importer was adopted after introduction of Service Tax on
CHAs ?
6
Answer:1
No. We have been issuing a single invoice to our clients since
from the inception of the company till today.
Question:2
Please describe the heads under which certain charges so
claimed to have been shown in the invoices in addition to
Agency Charges. Whether the same are supported by any
documentary evidences such as Invoice/Bill etc.
Answer:2
We have been collecting certain charges as reimbursements
under the various heads viz. Bill of Entry ; Bill of Lading ;
DEEC Charges; DEPB Charges;
Examination Charges;
miscellaneous Charges but the same is not supported by any
Invoice/Bill of the third party.
Question:3
In the P & L Account of your Balance sheet for the year 200506 onwards income shown under the heading of clearing &
Forwarding Income other than Agency commission income,
please describe such headings shown - What is B/L Fees?
Answer:3
This are Bill of Lading Charges, which is called B/L fees, and
the same have been charged by the Shipping line and the same
will be collected from our shippers.
Question:4
What is Bill of Entry Charges?
Answer:4
This are the charges charged by the CMC / EDI System.
Question:5
What is CWC Charges?
Answer:5
It is a Ware housing charges charged by the Central Ware
Housing Corporation.
Question:6
What is Container Detention Charges?
Answer:6
It is the charges charged by the shipping line for the containers
which was not clear within the free time allotted by them. The
charges have been charge for detaining for more than the time
prescribed.
Question:7
What is DBK/DEEC Submission Charges?
Answer:7
It is the charges charged for the preparation of documentation
and follow up with the custom authority for the audit. The same
are being charged from the shippers/exporters along with the
service tax.
Question:8
What is Examination & Sample Testing Charges?
Answer:8
It is the charge to arrange the labour and open the cargo and
examination of Cargo by the custom authorities.
Question:9
What is Freight & Landing Charges?
Answer:9
It is the charges paid to the shipping line against the Sea freight
7
to the various countries.
Question:10
What is GSEC Charges?
Answer : 10
These are the ware house charges charged by the Gujrat State
Export Corporation for the Air cargo.
Question:11
What is ICD Charges?
Answer:11
These charges are charged by the Container Corporation of
India Limited against Railway Freight up to Port and handling
charges of the Container.
Question:12
What is Labour/Loading/Unloading/Stuffing Charges?
Answere:12
Charged by the labours for the loading & unloading of the cargo
and so far as the stuffing charges is concerned, it is the charges
in some cases like marbles, if concor is not able to stuff the
container due to the specialized kind of labour.
Question:13
What is Measurement GP Charges?
Answer:13
These charges are paid to the surveyor to measure the cargo
(like marbles blocks) to be stuffed inside the containers.
Question:14
What is Miscellaneous Expenses?
Answer:14
The expenses occurred towards the miscellaneous activities at
container depot.
Question:15
What is Repositioning (Repo) Charges?
Answer:15
These charges are charged by the shipping line or transporter to
repositioning of empty container from the port to ICD premises.
Question:16
What is Fumigation / Pest Controlled Charges?
Answer:16
Charges for fumigation of the specific cargo or container.
Question:17
What is Supervision Service Charges?
Answer:17
For the supervision by the Surveyor for stuffing of certain
Cargo.
Question:18
What is Insurance Charges?
Answer:18
Some cargo or containers are needed to be insured on behalf of
shipper. The said cargo are insured by the insurance company
and the actual amount has been recovered from the shipper.
Question:19
What is Transportation Charges?
Answer:19
To transport the empty containers from Container depot to
exporter’s premises and loaded container back to container
depot.
Question:20
What is Terminal Handling Charges (THC)?
Answer:20
THC are charged by the shipping line for the port activities e.g.
unload container at the port from the lorry/train and load the
8
same on the Vessel. These charge are charged by the Port
authority to the shipping line and the same are charged after
adding service tax on us and subsequently we recover the same
from our exporters.
Question:21
What is Chocking/Packing/Forwarding A/c Charges?
Answer:21
Some Cargo like marble blocks required special kind of packing
in side the container is known as chocking and packing. These
charges are charged by the labour for procuring the material
needed for lessing, chocking & Packing and towards doing such
activities.
Question:22
What is Stuff/Destuff/FS/RA Charges?
Answer:22
Some cargo required stuff & destuff- these charges are paid to
labours for such work. FS charges are Factory stuffing
permission charges charged by the various authorities.
Question:23
What is GSP/Certificate/ Original/Textile Charges?
Answer:23
To obtain the Certificate required for exports to the different
countries and issued by the Export Inspection Agencies as well
as chamber of commerce.
Question:24
What is Container Handling Charges?
Answer:24
It is charged by the private container ware house charged for the
lift off and lift on the empty containers. They charged the
service tax from us and the same are charged from the exporters.
Question:25
What is Late B/L Fees?
Answer:25
In some cases shipping line charged penalty for not releasing the
bills of lading during the prescribed time limit. The chare along
with the service tax and the same has been recovered from the
exportes.
Question:26
What is Service Bill for Packages Charges shown in the P & L
of 2008-09?
Answer:26
The said services were provided to international customers in
the form of complete package and in the form of contract and
the payment of the same has been received in term of foreign
currency. I herewith produce the sample copy of the same.
Question:27
Whether the Service Tax was paid in respect of so called
reimbursement charges where no supporting documents found
to be available?
Answer: 27
Prior to 12.05.2007, I admit that we have not been paying
service tax on any of the reimbursed charges. But from
9
12.05.2007 (Invoice No.43) onwards we have started paying on
the reimbursement charges.
Question:28
Why these charges without any supporting documentary
evidence having offered as services, have not been considered
while computing the taxable value for Service Tax purpose?
From when you are paying service tax on Agency charges
received by you?
Answer:28
We have been paying service tax on the Agency charges since
2001. However, as regards the other charges, we were given to
understand that the same does not attract any service tax.
However we have started paying on the same from date
12.05.2007.
Question:29
What are the Charges on which you do not pay service tax?
Answer:29
Since 12.05.07, we are not paying Service tax on ICD (Concor)
charges, sea Freight charges and transportation charges, as
Concor is charging the Service tax on us and the same has been
recovered from the exporters, Sea freight is not liable for service
tax as it comes in foreign currency. So far as Transportation is
concerned, at the time of contract or deal we confirm the
payment of service tax on transportation charges will be born by
the shipper.
Question:30
Today, you have been shown a worksheet annexed as
“Annexure-‘A’” & Annexure-B” prepared on the basis of
information provided by your office in respect of reimbursement charges collected/ received from your various
clients i.e. importer/ exporter and shown your Profit & Loss
Account for the year 2005-06 to 2009-10. In this regard, please
state as to whether you admit and accept the details shown
therein the said worksheet.
Answer: 30
The same is attested by the undersigned as being a reflection of
our books of account on the basis of which the facts and figures
are shown in the said Annexure-“A” & Annexure-B” attached to
this statement of mine.
Question:31
Whether the aforesaid reimbursement charges on the whole/
gross charges as shown in “Annexure-‘A’” have been
shown/reflecting in the Profit & Loss Account of Balance Sheet
in the respective Head of Income/ Other Income.
Answer:31
Yes. The same has been shown in the Profit & Loss, Balance
10
Sheet under the head of Income.
Question:32
During the course of scrutiny of the documents and after being
confronted with various account statements, it has been
observed that you have made short payment of service tax in
respect of Agency charges during the period from 2005-2006 to
2009-10. Do you admit the said fact of short payment, the
details of which has been shown in Annexure “A” separately?
Answer:32
Yes. I categorically admit the said short payment as per the
Annexure “A” and undertake to pay up the same at the earliest. I
put my dated signature on the same in token of its correctness
and authenticity.
Question:33
On perusal of the records submitted by you, why the ST-3
returns pertains to F.Y.2008-09 & 2009-10 are not submitted?
Answer:33
I state that due to some social problems the balance Sheet for
the year 2008-09 & 2009-10 is provisional, and as it is not
mandatory for us to get the accounts audited, I have produced
the provisional Balance sheets for the said years. I further state
that I have not filed any ST-3 returns for the period from 200809 to 2009-10, but I confirm that I have paid all the Service Tax
due on it. In token of evidence I have submitted the challans for
the service tax payment made by us for the period from 2008-09
to 2009-10. On the basis of reverse calculation I provide the ST3 value on which we have paid service tax.
Year
Service
Tax Value of service
payment made (on tax on the basis of
the
basis
of service tax paid
challans)
2008-09
282856
2288479
2009-10
551704
5346282
I assure that within short time I will file the ST-3 returns for the
period for 2008-09 & 2009-10 with the department.
Question:34
Do you keep profit margin in the various income like Bill of
entry charges, CWC charges, Examination & Sample testing
charges,
ICD
charges,
labour/loading/unloading
charges,
Miscellaneous expenses, Repo charges, Fumigation/pest control
charges,
Transportation
charges,
THC
charges,
Chocking/packing charges, Stuffing/de-stuffing charges, late
b/L
fees
&
supervision
charges
recovered
form
the
11
importers/exporters?
Answer:34
Except Repo, transportation charges, THC charges ,ICD charges
& B/L fees, late B/L fees we keep some margin for our
documentation and extra wages paid to labours.
Question:35
Why there is difference in the Agency Commission shown in
the Balance sheet & agency commission shown in the ST-3
returns as filed by you, the same is as under:
Year
2006-07
2007-08
2008-09
2009-10
Answer:35
Income
of
Agency
commission
as per B/s
1737688
2092750
2692850
3978620
Income
of
Agency
commission
as per ST-3
989973
1845573
2288479
5346282
Difference
(-) 747715
(-)247177
(-)404371
(+)1367662
I agree with the above year-wise figures, in the said case I state
that the Service tax is on receipt basis, and hence there is a
difference in Balance sheet & ST-3 returns. The bills issued
during the Financial year are considered as income & shown in
the P&L account and the amount received from the clients are
considered as ST-3 value. Hence, the difference is arise. We do
not receive all the amount for which we raise the bills.
In the
year 2009-10 we received more amount against the bills raised,
which are pertains to the previous years bills. However, as per
our understanding we have settled our Service tax account on
31.03.2010.
Question:36
Why do you not pay Service tax on the Transportation Charges
& Sea/shipping Freight charges?
Answer:36
In the case of Transportation charges, I confirm that the Service
Tax under GTA are being paid by the consigners. So far as the
Sea Freight or shipping freight is concerned, the service tax is
exempted as the same is received in foreign currency.
Question:37
In addition to the above firm/co. do you have any sister concern
or associated firm being operated from the above said business
premises.
Answer:37
11
No. we do not have any.
It appeared that the service provider was raising a single invoice for
three kinds of expenses incurred by them- (i) Agency Commission Charges (ii)
12
Expenses incurred by them on behalf of importer/ exporter with supporting
documents of other agencies in support of such expenses; and (iii) Expenses incurred
by them on behalf of importer/ exporter without supporting documents. Out of these,
the service tax was paid on Agency Commission Charges only.
12.
The ‘taxable service’ under CHA Services, defined under Section 65(105)(h)
of the Finance Act, 1994 is :
“the taxable service” means any service provided or to be provided to a client,
by a Custom House Agent in relation to the entry or departure of conveyances
or the import or export of.
13.
On the basis of information related to service tax payment and ST-3
returns filed, a detailed scrutiny was carried out and a worksheet was prepared.
Another worksheet showing comparison between the income shown under various
heads of balance sheet & service tax payment was also prepared. On scrutiny of the
documents received and submissions made in statement dated 23.08.2010 &
07.10.2010, it revealed that the said service provider was showing in their invoices
the reimbursement of various expenses incurred by them as well as agency charges.
Only the agency charges were considered for payment of service tax. However, the
re-imbursement of expenses supported by the invoices of other agencies such as
CONCOR, GSEC, transportation charges, air & sea freight, customs duty, etc. were
not considered for payment of service tax as these expenses incurred on behalf of
their clients and all supporting documents were attached with the invoices. But the
other re-imbursement expenses such as DBK/DEEC submission charges,
examination
&
sample
testing
charges,
labour/loading/unloading
charges,
chocking/packing charges, misc. expenses, documentation charges, etc. were not
supported or accompanied by documentary evidence. However, they had not paid
service tax on any re-imbursable expenses up to 2006-07 as per their claim. The
service provider stated that they had started paying service tax with effect from
12.5.2007 on agency charges and reimbursement charges with no supporting
documents. But, scrutiny of documents revealed that in so many cases i.e. in the year
2006-07, 2007-08 the service tax payment was less than the agency commission
itself, if the service provider’s claim that they had started paying service tax on
reimbursement charges then the service tax value should be more than the agency
commission shown in the Profit & loss account. It further appeared that as the service
provider had not filed any ST-3 returns for the period from 2008-09 & 2009-10 and
as per the proof of service tax payment, a service tax value had been arrived at on the
reverse calculation as the exact value of the services rendered had not been provided
13
by the service provider. The differential Service tax on comparison between Profit
& loss account and ST-3 came to Rs. 1,80,374/- .
13.1
For the period prior to 19.4.2006, the date of introduction of Service Tax
(Determination of Value) Rules, 2006, it appears that Circular No.B-43/1/97-TRU
dated 6.6.97 was very much in conformity with the definition of taxable service of a
CHA under section 65(105)(h) of the Finance Act, 1994 which clarified that the
service tax had to be charged on gross receipts by whatever head/ nomenclature they
are billed. The circular also clarified that various other reimbursable expenses
incurred by the CHA on behalf of the client are not to be included for computing the
tax. Thus, it was explicitly clear that for non inclusion of reimbursable expenses in
the taxable value, the same had to be incurred by the CHA. The said service provider
had received the amounts from their clients under various heads but had not spent the
said amounts completely for the services utilized on their behalf. The difference
between the amount collected and that spent cannot be said to be an amount incurred
by the service provider on behalf of the clients. Thus, such reimbursable expenses
also appeared to be liable to service tax for the period prior to 19.4.2006.
14.
Further, on examination in light of the definition of pure agent as per the Rule
5 of Service Tax (Determination of Value) Rules, 2006, it appeared that in many
cases the Service provider had recovered the amount on actual basis. However, there
were number of cases where the Service Provider had recovered excess amount from
their client than the actual expense. Such headings where the Service Provider had
recovered more than the actual expenses were B/L Fees, CWC charges, Freight &
Landing, GSEC charges, ICD charges,
Measurement/G pass /Certificate,
Repositioning charges, Transportation Terminal Handling Charges & Late B/L fees.
On comparison the Clearing Forwarding Income head & Clearing Forwarding
Expense head as shown in the Profit & Loss account for the F.Y. 2005-06 to 200910, it was found that the service provider had received above reimbursed charges
which were outside the purview of pure agent. The service provider therefore had
failed to satisfy condition (d) of CBEC Circular No.119/13/2009-ST dated
21.12.2009 and rule 5(2) of the Service Tax (Determination of Value) Rules, 2006 as
the reimbursements were required to be actual basis, i.e., without any mark up of
margin and in case CHA includes and mark up or profit margin on any service, then
the entire charge for that particular activity shall be included in the taxable value.
15.
The
Service
provider
was
issued
summons
dated
27.10.2010,23.11.2010,27.12.2010 and 14.2.2011 to appear and give statement and
also produce the details of income and expenses for the period Oct-2005 to March-
14
2006 but he neither turned up nor did he submit any details till 4.4.2011. It
appeared that instead of cooperating with the Department they were adopting
delaying tactics with an intention to make the demand of tax time barred. But to safe
guard Government Revenue the Department can not sit idle for want of statement.
The said service provider was however given a final opportunity vide letter dtd.
4.4.2011 and summons which was personally delivered wherein he was specifically
informed that if he failed to appear on 8.4.2011, then the show cause notice will be
issued presuming that they have evaded Service tax knowingly but did not intend to
deposit the same due to tax friendly and liberal approach of Service Tax law and
procedure. The service provider again failed to respond to the aforesaid letter dtd.
4.4.2011 and did not turn up to give statement and other required documents as per
the summons attached with the said letter. As the service provider did not provid the
details of income and expenses for the period Oct-2005 to March-2006, despite many
reminders and summons, the amount of income shown in their Profit and loss
account for the whole year 2005-06 is taken into account for consideration as taxable
value.
16.
In his statement dated 7.10.2010, Shri Hiten Dineshbhai Thakkar, Proprietor
of M/s. Sea Air Cargoes, Ahmedabad explained about the nature of reimbursable
charges. It was noticed that in some cases like Freight and Landing, Terminal
Handling Charges, Transportation Charges etc. where the service provider has
recovered more charges than actual expenditure some of the services do not appear to
be covered under the CHA category as they had been provided by other agency and
the said service provider had only facilitated the same. The role of the said service
provider appeared to be of supporting the business of other agency as they have not
provided the said service directly but had engaged other agency for providing the
service. They had also charged the same separately in their invoices. Thus, all such
services which had not been provided by the service provider under CHA services
but the same had been provided by some other agency wherein the said service
provider had only supported the business of such agency can be classified under the
category “Business Support Services”, which has been defined under Section
65(104c) of Finance Act, 1994 as under:“support services of business or commerce” means services provided in
relation to business or commerce and includes evaluation of prospective
customers, telemarketing, processing of purchase orders and fulfilment
services, information and tracking of delivery schedules, managing
distribution and logistics, customer relationship management services,
accounting and processing of transactions, operational assistance for
15
marketing, formulation of customer service and pricing policies,
infrastructural support services and other transaction processing.
Explanation.—For the purposes of this clause, the expression “infrastructural
support services” includes providing office along with office utilities, lounge,
reception with competent personnel to handle messages, secretarial services,
internet and telecom facilities, pantry and security;]
The taxable service is defined in sub-clause ( zzzq) of Section 65(105) as any service
provided or to be provided to any person by any other person in relation to support
services of business or commerce in any manner. The said service became taxable
with effect from 1.5.2006. The said service provider was asked to explain the above
services and also whether they had taken registration under BSS vide letter dated
15.4.2011 by 18.4.2011 but they did not respond. Hence, these services were taken
under BSS from 2006-07 to 2009-10.
17.
From the explanation given by the service provider in his statement dated
7.10.2010 and also from the profit and loss figures submitted by the service provider,
a table was prepared showing the services which fall under CHA services and others
which fall under “ Business Support Services” (BSS). Here only those reimbursement
figures were taken in cases either which were not supported by document or not
covered as Pure Agent as the service provider had recovered more charges than
actual basis.
Sr. Type of ReNo imbursement
.
charges
1
2
Bill of Entry
Chgs.
Bond Stamp
Paper
DBK/DEEC
submission chgs
3
4
Documentation
chgs
Not
supported
by
document
/
Not
covered
as Pure
Agent
Not
supported
by doc
Not
supported
by doc
Nature of Services Explained by SP in
his statement dated 07.10.2010. (Page
123/C)
Category
of service
being
classified
This is the charges charged by the CMC
/ EDI System.
CHA
.
CHA
It is the charges charged for the
preparation of documentation and follow
up with the custom authority for the
Not
audit. The same are being charged from
supported the shippers/exporters along with the
by doc
service tax.
CHA
Not
supported
by doc
CHA
16
It is the charge to arrange the labour and CHA
Not
open the cargo and examination of
supported Cargo by the custom authorities.
5
by doc
Charged by the labours for the loading &
unloading of the cargo and so far as the
Labour/loading/
stuffing charges is concerned, it is the
unloading
Not
charges in some cases like marbles, if
/stuffing chgs
supported concor is not able to stuff the container
6
by doc
due to the specialized kind of labour.
CHA
Not
The expenses occurred towards the
Miscell. Exp.
supported miscellaneous activities at container
7
by doc
depot.
CHA
Not
Charges for fumigation of the specific
Fumigation/pest
supported cargo or container.
controlled chgs
8
by doc
CHA
Not
For the supervision by the Surveyor for
Supervision
supported stuffing of certain Cargo.
Service Chgs
9
by doc
CHA
Some Cargo like marble blocks required
special kind of packing in side the
Chocking/Packi
container is known as chocking and
ng/Forwarding
packing. These charges are charged by
A/c
Not
the labour for procuring the material
supported needed for lessing, chocking & Packing
10
by doc
and towards doing such activities.
CHA
Some cargo required stuff & destuffthese charges are paid to labours for
Stuff/Destuff/FS
Not
such work. FS charges are Factory
/RA chgs
supported stuffing permission charges charged by
11
by doc
the various authorities.
CHA
To obtain the Certificate required for
exports to the different countries and
GSP/Cert..Origi
Not
issued by the Export Inspection
nal/Text.
supported Agencies as well as chamber of
12
by doc
commerce.
CHA
It is charged by the private container
ware house charged for the lift off and
Container
Not
lift on the empty containers. They
Handling chgs
supported charged the service tax from us and the
13
by doc
same are charged from the exporters.
BSS
This are Bill of Lading Charges, which
Not
is called B/L fees, and the same have
B/L Fees
covered
been charged by the Shipping line and
as Pure
the same will be collected from our
14
Agent
shippers.
CHA
Not
It is a Ware housing charges charged by
covered
the Central Ware Housing Corporation.
CWC Charges
as Pure
15
Agent
BSS
Not
It is the charges paid to the shipping line
Freight &
covered
against the Sea freight to the various
Landing
as Pure
countries.
16
Agent
BSS
Not
These are the ware house charges
GSEC Charges
covered
charged by the Gujrat State Export
17
as Pure
Corporation for the Air cargo.
BSS
Examination &
Sample testing
chgs
17
Agent
Not
covered
ICD Charges
as Pure
18
Agent
Not
Measurement/ G covered
Pass/ Certificate as Pure
19
Agent
Not
Repositioning
covered
(Repo) charges
as Pure
20
Agent
Not
covered
Transportation
as Pure
21
Agent
Terminal
Handling Chgs
(THC)
22
Late B/L fees
23
18.
Not
covered
as Pure
Agent
Not
covered
as Pure
Agent
These charges are charged by the
Container Corporation of India Limited
against Railway Freight up to Port and
handling charges of the Container.
These charges are paid to the surveyor to
measure the cargo (like marbles blocks)
to be stuffed inside the containers.
BSS
BSS
These charges are charged by the
shipping line or transporter to
repositioning of empty container from
the port to ICD premises.
To transport the empty containers from
Container depot to exporter’s premises
and loaded container back to container
depot.
THC are charged by the shipping line for
the port activities e.g. unload container
at the port from the lorry/train and load
the same on the Vessel. These charge are
charged by the Port authority to the
shipping line and the same are charged
after adding service tax on us and
subsequently we recover the same from
our exporters.
In some cases shipping line charged
penalty for not releasing the bills of
lading during the prescribed time limit.
The chare along with the service tax and
the same has been recovered from the
exporters.
BSS
BSS
BSS
CHA
From the above, the details of reimbursed charges which had been
recovered from the clients by the said service provider and which fell under the
category of CHA services (as shown in the Annexure-C1 to the SCN), it appeared
that the said service provider had collected reimbursement charges to the tune of Rs.
57,34,213/- from their clients which were either not supported by documents or were
in excess of actual expenditure during the period from 2005-06 to 2009-10. The
Service tax liability on the same worked out to Rs. 6,58,053/- ( including Ed cess &
SHECess).
19.
Further, the details of reimbursed charges, which had been recovered
from the clients by the said service provider and which fell under the category of
Business Support Services (BSS), were as shown in the Annexure-C2 to the SCN).
From the said Annexure, it was seen that the said service provider had collected
reimbursement charges to the tune of Rs.6,11,77,760/- from their clients which were
18
either not supported by documents or were in excess of actual expenditure during
the period from 2006-06 to 2009-10. The service tax liability on the same worked out
to Rs. 73,25,948/- ( including Ed cess & SHECess).
20.
Thus, it appeared that the said M/s. Sea Air Cargoes had contravened the
provisions of:(a)
Section 67 and 68 of the Finance Act, 1994 read with Rule 6 of the Service
Tax Rules, 1994, in as much as they had failed to ascertain taxable value
properly and make payment of Service Tax amounting to Rs. short/not
paid service tax amounting to Rs. 1,80,374/- ( including Edu Cess &
S&HEd cess) under CHA service (As per Annexure-A) as mentioned in
the foregoing paras for the period from 2005-06 to 2009-10; failed to make
payment of Service Tax amounting to Rs. 6,58,053/-( including Edu Cess
& S&HEd cess) under CHA service (As per Annexure-C1) as mentioned
in the foregoing paras for the period from 2005-06 to 2009-10 and also
failed to make payment of Service Tax amounting to Rs. 73,25,948/( including Edu Cess & S&HEd cess)
under “BSS” service (As per
Annexure-C2) as mentioned in the foregoing paras for the period from
2006-07 to 2009-10;
(b)
Section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax
Rules, 1994, in as much as that they had failed to take registration for the
service “Business Support services “
(c)
Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax
Rules, 1994, in as much as that they had failed to file prescribed service
tax returns in form ST-3 in the stipulated time;
21.
The Government has from the very beginning placed full trust on the
service provider so far service tax is concerned and accordingly measures like Self
assessments etc., based on mutual trust and confidence are in place. Further, a taxable
service provider is not required to maintain any statutory or separate records under
the provisions of Service Tax Rules as considerable amount of trust is placed on the
service provider and private records maintained by him for normal business purpose
are accepted, practically for all the purpose of Service Tax. All these operate on the
basis of honesty of the service provider; therefore, the governing statutory provisions
create an absolute liability when any provision is contravened or there is a breach of
trust placed on the service provider. From the evidence, it appears that the said
assessee has not taken into account all the incomes received by them for rendering
taxable services for the purpose of payment of service tax and thereby minimize their
19
tax liabilities. The deliberate efforts in not paying the correct amount of service tax
in utter disregards to the requirements of law and breach of trust deposed on them
such outright act in defiance of law appears to have rendered them liable for stringent
penal action as per the provisions of Section 78 of Finance Act, 1994 for suppression
or concealment or furnishing inaccurate value of taxable service with intent to evade
payment of service tax.
22.
It further appeared that the service provider had not disclosed the facts
regarding the reimbursement charges claimed by them from their clients which were
not supported by documents until the department investigated the matter. The service
provider also did not take into consideration the amount reimbursed from their clients
which was not on actual basis for the purpose of calculating taxable value. The fact
that they were receiving reimbursement charges in excess of expenses incurred was
revealed only from their Profit and loss account submitted by them during the
investigation carried out by the department. They had neither paid Service tax on the
said reimbursed charges nor they reflected the same in their ST-3 returns filed with
the department. The said acts on the part of the said service provider appeared to had
been committed by way of suppression of facts with an intent to evade payment of
service tax and therefore the said service tax not paid was required to be demanded
and recovered from them under proviso to Section 73(1) of the Finance Act, 1994 by
invoking extended period of five years. All these acts of contravention of the
provisions of Section 67, 68, 69 and 70 of the Finance Act, 1994 read with Rules 4, 6
and 7 of the Service Tax Rules, 1994 appear to be punishable under the provisions of
Section 76, 77 and 78 of the Finance Act, 1994.
23.
Therefore, M/s. Sea Air cargoes, Ahmedabad were issued a show-cause notice
(SCN) dated 21.4.2011 vide F.No.STC/4-4/O&A/11-12 by the Commissioner of
Service Tax, Ahmedabad, calling upon them to show cause as to why-
(i)
Services rendered by them should not be considered as taxable service
under the category of Custom House Agent Service as defined under
Section 65 of the Finance Act, 1994, as amended and the amount of
taxable value of Rs. 57,34,213/- as shown in Annexure-C1 should not
be considered as taxable value on which Service tax of Rs. 6,58,053/and Rs. 1,80,374/- as per Annexure –A being the differential
Service tax on comparison of ST-3 returns with Profit & Loss
account thus totaling Rs. 8,38,427/- which includes Ed cess and
SHEd cess for the period from 2005-06 to 2009-10 should not be
20
demanded and recovered from them under proviso to Section 73(1)
of the Finance Act, 1994, invoking the larger period of five years;
(ii)
Services rendered by them should not be considered as taxable service
under the category of “Business Support Services” as defined under
Section 65 (104c) of the Finance Act, 1994, as amended and the
amount of taxable value of Rs. 6,11,77,760/- as shown in AnnexureC2 should not be considered as taxable value on which Service tax
of Rs. 73,25,948/- which includes Ed cess and SHEd cess for the
period from 2006-07 to 2009-10 should not be demanded
recovered from them under proviso to
and
Section 73(1) of the Finance
Act, 1994, invoking the larger period of five years;
(iii)
Interest at the prescribe rate on the service tax liability as shown in (i)
and (ii) above for the period from 2005-06 to 2009-10 should not be
recovered from them for the delay in making the payment, under
Section 75 of the Finance Act, 1994;
(iv)
Penalty should not be imposed upon them under Section 76 of the
Finance Act, 1994 for the failure to make the payment of service tax
payable by them within stipulated time;
(v)
Penalty should not be imposed upon them under Section 78 of the
Finance Act, 1994 for suppressing the value of taxable services
provided by them before the Department with intent to evade payment
of Service Tax as shown above; and
(vi)
Penalty should not be imposed upon them under section 77 of the
Finance Act, 1994 for failure to take registration under of “Business
Support Services”, file prescribed Service Tax Returns properly, and
not responding to summons.
DISCUSSION AND FINDINGS:
24.
I observe from the case file that the said assessee neither filed any defence
reply to the show cause notice nor did they appear for personal hearing on the four
opportunities provided to them on 7.11.2012, 23.11.2012, 17.01.2013 and 14.3.2013.
It is also observed that the assessee had not submitted their written defence though
specifically asked to file within 30 days on receipt of show cause notice. The facts
and circumstances of the case are aptly covered under the provisions as provided in
section 33A of Central Excise Act,1944 made applicable to service tax matters vide
section 83 of the Finance Act,1994. The provisions of section 83 of the Finance
Act,1994 and section 33A of the Central Excise Act,1944 are reproduced as under.
21
“SECTION 83. Application of certain provisions of Act 1 of 1944. — The
provisions of the following sections of the [Central Excise Act, 1944 (10 of
1944)], as in force from time to time, shall apply, so far as may be, in relation
to service tax as they apply in relation to a duty of excise :-
[9A, 9AA, 9B, 9C, 9D, 9E, 11B, 11BB, 11C, 12, 12A, 12B, 12C, 12D, [12E,
14, 15, 31, 32, 32A to 32P, 33A, 35EE, 34A, 35F]], [35FF,] to 35O (both
inclusive), 35Q, [35R,] 36, 36A, 36B, 37A, 37B, 37C, 37D [38A] and 40.
Section 33A : Adjudication procedure.
(1) The Adjudicating authority shall, in any proceeding under this Chapter or
any other provision of this Act, give an opportunity of being heard to a party
in a proceeding, if the party so desires.
(2) The Adjudicating authority may, if sufficient cause is shown, at any stage
of proceeding referred to in sub-section (1), grant time, from time to time, to
the parties or any of them and adjourn the hearing for reasons to be recorded
in writing :
Provided that no such adjournment shall be granted more than three times to
a party during the proceeding.”
24.1
The validity of exparte proceedings under the circumstances mentioned above
is also validated by various appellate forum and various courts. In this regard I rely
on following decisions.
In the case of departmental appeal filed by the Commissioner of Central
Excise, Delhi I in the case of M/s Radhika Containers Pvt.Ltd reported at 2012(276)
ELT (Tri-del) wherein Hon’ble CESTAT while admitting an appeal in para 1,2,3 it
held as under:
“1. At the outset we may note that the respondent in this case has been served through
publication, as reflected in the order dated 1-4-2011. Thereafter, the matter was posted for
hearing on 18-7-2011. Since the Division Bench did not assemble on the said date, the
matter was posted for today, i.e., 1-9-2011. There is no appearance on behalf of the
respondent even today, despite the matter being passed over once. In these circumstances,
the respondent is proceeded ex parte.
2. Mr. Anand, learned counsel for the revenue, submits that the appeal can be heard on the
basis of the material available on record. He further submits that the appeal be admitted and
decided as it has been pending for a considerable period of time on a short issue, which is
covered by the judgment of the Supreme Court.
3. In view of the above circumstances, the appeal is admitted.”
In the case of V.P.Tampi Vs. Commissiner, Customs & Central Excise Cochin
reported at 1988(33) ELT 424 Tribunal observed as under:
“Adjudication - Confiscation and penalty - Adjudicating authority justified in passing order
on basis of Material on record when show cause notice not replied to despite adequate
opportunities to person concerned -Another notice not required to be issued under Rule
233A of the Central Excise Rules, 1944. –
When the adjudicating authority has given enough opportunities to the appellant and
22
when the appellant having received the earlier communication as well as the reminder has
not responded to the same, there is no other alternative to the adjudicating authority except
to pass an order with reference to the materials available on record. The plea that one more
opportunity should have been afforded to the appellant in terms of Rule 233A is not legally
tenable. The show cause notice clearly specified the statutory requirements mentioned
therein, and asked the appellant to show cause within the stipulated time against the
proposed action of confiscation or imposition of penalty. He was specifically requested to
state whether he wished to be heard in person. The inaction on the part of the appellant in not
responding to the show cause notice and his not expressing a desire for a personal hearing
for a month and more would only indicate that the appellant by necessary implication had
waived the right of reply to the show cause notice as well as the personal hearing. This
circumstance before the adjudicating authority left no other option except to decide the issue
on the basis of the materials available on record. [para 7]
Natural justice - Show cause notice - Personal hearing - Rule of audi alteram partem Requirement of reasonable opportunity of being heard satisfied when person not appearing
despite notice - Section 33 of the Central Excises and Salt Act, 1944 - Rule 233A of the
Central Excise Rules, 1944. –
The salutary rule of show cause has been enacted in conformity with the principles
of natural justice in that a man should be heard before he is proceeded against in action of
confiscation or penalty and afforded a reasonable opportunity of being heard. One cannot
make a fetish of this concept of the principles of natural justice by making it a ceremonial
formality stretching it to a ritualistic rigmarole as ritual as it were. The plea, therefore, that
the requirement regarding personal hearing and an opportunity to submit written
representation could not be clubbed with the show cause notice is without any substance.
The audi alteram partem rule embodies the principle that a reasonable opportunity of being
heard is to be given to the interested person. This requirement is satisfied if in spite of an
adequate notice by the authority to him to present his case, he does not come forward to take
advantage of the opportunity. [Order in O.P. No. 5638/86-U (Ker.), AIR 1974 SC 1896, AIR
1962 SC 646 and AIR 1957 SC 842 relied upon; 1986 (25) E.L.T. 574 and 1987 (27) E.L.T.
474 inapplicable]. [paras 7, 8 & 5]
Adjudication - Ex parte proceeding - When justified - Section 33 of the Central Excises and
Salt Act, 1944. –
An adjudicating authority is entitled to proceed ex parte if the person concerned
does not appear before it in response to a notice issued by it. (AIR 1962 SC 646 relied upon;
AIR 1957 SC 882 reiterated therein, referred). [para 7]”
Similar observations were made by the CESTAT Principal Bench, New Delhi
in the case of Commissioner of C.Ex. Chandigarh v/s New Tech Electronics reported
at 2011 (24) S.T.R. 681 (Tri. - Del.)
24.2
I have followed the cardinal principles of natural justice but since the said
assessee has not availed any opportunity to present his defence before me, I proceed
to decide the case exparte in support of the above provisions of law and the cited
decisions on the basis of the subject show cause notice acknowledged by the said
assessee on 21.4.2011 and the evidences available on record.
25.
I find that the issue to be decided in the case are:
i) Whether, the amount excluded by the said service provider from the taxable value
is in relation to the CHA service and liable to service tax of Rs. 6,58,053 (As per
Annexure- C-1 to the show cause notice) or the same is in the nature of reimbursable
23
expenses incurred by the said service provider on behalf of the exporters/importers
and liable to be excluded from the taxable value?
ii) Whether, the said service provider is liable to pay differential service tax of Rs.
1,80,374/- (As per Annexure-A to the show cause notice) under the category of CHA
service?
iii) Whether, service tax of Rs.73,25,948/- (As per Annexure C-2 to the Show cause
notice) is recoverable from the assessee under the category of ‘Business Support
Service”?
26.
I find that the definition of Custom House Agent provided under Section
65(35) of the Finance Act, 1994 reads as under:
“custom house agent” means a person licensed, temporarily or otherwise,
under the regulations made under sub-section (2) of section 146 of the
Customs Act, 1962.
Definition of taxable service of custom house agent under Section 65(105)(h) of the
Finance Act, 1994 reads as :
“the taxable service means any service provided or to be provided to a client,
by a Custom House Agent in relation to the entry or departure of conveyances
or the import or export of goods”.
In view of the above definition, I find that a service would become taxable as custom
house agent’s service, when:
a. the service is provided by a custom house agent;
b. the service is provided in relation to the entry or departure of conveyances or
the import or export of goods;
c. the service is provided to any client.
In the background of the above definitions, I find that the issue can be
dealt properly by dividing it into two parts. The first one being for the period from
1.4.2005 to 18.4.2006 i.e. prior to enactment of Service Tax (Determination of Value
) Rules, 2006 and second part for the period from 19.4.2006 to 31.3.2010 i.e. after the
enactment of the said rules.
27.
I first take up the period from 1.4.2005 to 18.4.2006.
As regards, the period from 1.4.2005 to 18.4.2006 i.e. prior to
enactment of Service Tax (Determination of Value) Rules, 2006, the valuation of
24
CHA service was determined by Section 65(105) (h) read with Section 67 of the
Finance Act, 1994.
Prior to enactment of Service Tax (Determination of Value) Rules,
2006, Section 67 of the Finance Act,1994, read as below:
'67. Valuation of taxable services for charging service tax.-For the purposes of this Chapter,
the value of any taxable service shall be the gross amount charged by the service provider for
such service provided or to be provided by him.
Explanation 3[I].-For the removal of doubts, it is hereby declared that the value of a taxable
service, as the case may be, includes,(a) the aggregate of commission or brokerage charged by a broker on the sale or
purchase of securities including the commission or brokerage paid by the stockbroker to any sub-broker;
(b) the adjustments made by the telegraph authority from any deposits made by the
subscriber at the time of application for telephone connection or pager or facsimile or
telegraph or telex or for leased circuit;
(c) the amount of premium charged by the insurer from the policy holder;
(d) the commission received by the air travel agent from the airline;
(e) the commission, fee or any other sum received by an actuary. or intermediary or
insurance intermediary or insurance agent from the insurer;
(f) the reimbursement received by the authorised service station from manufacturer for
carrying out any service of any motor car, light motor vehicle or two wheeled motor
vehicle manufactured by such manufacturer;
(g) the commission or any amount received by the rail travel agent from the Railways or
the customer,
but does not includei.
initial deposit made by the subscriber at the time of application for telephone
connection or pager or facsimile (FAX) or telegraph or telex or for leased
circuit;
ii.
the cost of unexposed photography film, unrecorded magnetic tape or such
other storage devices. if any, sold to the client during the course of providing
the service;
iii. the cost of parts or accessories, or consumable such as lubricants and coolants, if
any, sold to the customer during the course of service or repair of motor cars, light
motor vehicle or two wheeled motor vehicles;
iv. the airfare collected. by air travel agent in respect of service provided by him;
v.
the rail fare collected by rail travel agent in respect of service provided by him;
vi. the cost of parts or other material. if any, sold to the customer during the course of providing
maintenance or repair service;
vii. the cost of parts or other material, if any, sold to the customer during the course of providing
erection. commissioning or installation service; and
viii. interest on loans.
Explanation 2.-Where the gross amount charged by a service provider is inclusive of service tax
payable, the value of taxable service shall be such amount as with the addition of tax payable. is
equal to the gross amount charged.
Explanation 3.-For the removal of doubts. it is hereby declared that the gross amount charged for
the taxable service shall include any amount received towards the taxable service before, during or
after provision of such service.
27.1
On plain reading of Section 67, I observe that the service tax liability is on the
gross amount received towards the services rendered. Thus, the gross receipts would
include the amounts which are recovered towards provision of services.
25
27.2 I find from the combined reading of section 67 and the definition of taxable
service of a Custom house Agent under section 65(105)(h) of the Finance Act, 1994
that any amount to be made taxable must have nexus with the CHA services. It is
explicitly clear that the taxable services rendered by a Custom House Agent means
any service provided to a client by a Custom House Agent in relation to the entry or
departure of conveyance or the import or export of goods. Thus, all amounts received
by the Custom House Agent in relation to the entry or departure of conveyance or the
import or export of goods would be includible in the gross receipts as per section 67
and chargeable to service tax.
27.3 I find from para 17 of the show cause notice that the said service provider in
his statement dated 17.10.2010 has provided the nature of services in respect of
which they claimed reimbursement of expenses for the period from 1.4.2005 to
18.4.2006. I have examined the same and find that various charges incurred by the
CHA were maintained under different ledger heads. On careful study of the
description of the nature of services rendered as specified in the said table at para 17,
I find that the said charges can be directly related to the provision of CHA services
as per Section 65(105)(h) of the Finance Act, 1994 and thus chargeable to service tax
under Section 67 of the Finance Act, 1994.
27.4
For better clarity of the issue, with regard to the payments made by the
service provider to the third party I cite an example of Bill of Entry charges
recovered by the said CHA from the clients. Preparing and filing a Bill of Entry with
the Customs is one of the core functions of a CHA. If the CHA collects Rs.100/from the client under this head and then out-sources this work to a third party and
pays Rs. 60/- to the third party then Rs.100/- and not Rs.40/- would be treated as the
gross receipt for charging service tax irrespective of whether the work was outsourced to a third party or was done by the CHA himself. Thus for the purpose of
charging service tax under CHA services, the basic requirement is that the particular
activity must be the activity having nexus with CHA service and not whether the
activity was out-sourced to a third party. Had the said service provider been able to
prove that any of the said heads had no nexus with the provision of CHA service, I
would have been inclined to tax only the differential amount between that received
from the exporter/importer and that expended by the said service provider.
27.5
I observe that to ascertain the taxability of reimbursable expenses, the show
cause notice relies on CBEC Instruction letter F. No.B43/1/97-TRU dated 6.6.1997
regarding taxability of reimbursable expenses. Para 2.3 of the aforesaid letter is
reproduced below:
26
“The services rendered by the Custom House Agent are not merely limited to the
clearing of the import and export consignment. The CHA also renders the service of
loading/ unloading of import or export goods from/ at the premises of the exporter/
importer, the packing, weighment, measurement of the export goods, the
transportation of the export goods to the customs station or the import goods from
the Customs station to the importer’s premises, carrying out of various statutory and
other formalities such as payment of expenses on account of Octroi, destuffing,
pelletization, terminal handling, fumigation, drawback/ DEEC processing, survey/
amendment fees, dock fees, repairing and examination charges, landing and
container charges, statutory labour charges, testing fees, drug control formalities,
sorting/ marking/ stamping/ ceiling on behalf of the exporter/ importer. The Custom
House Agent also incurs various other expenses such as Crane/ forklift charges, taxi
charges, photostate and fax charges, bank collection charges, courier service charges
and miscellaneous other expenses on account of the exporter/ importer. For all the
above charges, the CHA is ordinarily reimbursed by the importer/ exporter for
whom the above services are rendered. Apart from the above charges, the CHA also
charges the client for his service under the head/ nomenclature of ‘agency and
attendance charges’ or similar kind of heads which is purported to be his service
charges in respect of the services rendered in relation to the import/ export of
goods.”
27.6 It is clarified in the said circular that in addition to CHA services the CHA
also renders various other services a few of which are illustrated in para 2.3 for which
he is ordinarily reimbursed by the exporter/importer. It is then clarified at para 2.4 of
CBEC Instruction letter F.No. B43/1/97-TRU dated 6.6.1997 that
“in relation to Custom House Agent, the service tax is to be computed only on the gross service
charges, by whatever head/nomenclature, billed by the Custom House Agent to the client. It is
informed that the practice is to show the charges for services as “agency commission”,
“charges”, “agency and attendance charges”, “agency charges” and some familiar description.
The service Tax will be computed only with reference to such charges. In other words payments
made by CHA on behalf of the client, such as statutory levies (cess, customs duties, port dues,
etc) and various other reimbursable expenses incurred are not to be included for computing the
Service Tax”.
27.7 I find that the said circular is very much in conformity with the definition of
taxable service of a custom house agent under Section 65(105)(h) of the Finance Act,
1994 and clarifies that the service tax has to be charged on the gross receipts, by
whatever head/nomenclature they are billed. The said circular also specifically
clarifies that various other reimbursable expenses incurred by the CHA on behalf of
the client are not to be included for computing the service tax. Thus, it is explicitly
clear that for non inclusion of reimbursable expenses which do not have nexus with
the provision of CHA service, in the taxable value the same have to be incurred by
the CHA. I find that the said service provider has received amounts from their clients
under various heads but has not produced any evidence to show that the said amount
have been spent completely for services utilized on behalf of the exporters/importers.
27.8
In view of the above discussion, I find that the said amounts will not qualify as
reimbursable expense as also clarified vide CBEC Instruction letter F.No. B43/1/97TRU dated 6.6.1997. Circulars issued by the Board are binding on the departmental
27
officers as has been held by the Hon’ble Supreme Court in the case of Ranadey
Micronutrients Vs 1996(87)ELT19(SC) and Paper Products Ltd Vs CCE
1996(112)ELT 765(SC).
27.9 CBEC Circular No. 119/13/2009-ST dated 21.12.2009 reaffirms the above
findings as it is clarified at para 7 that for the prior period, the taxable value should
be determined in accordance with the prevailing instructions issued by the Board as
referred to in foregoing para 03 of the circular.
Para 03 of CBEC Circular No. 119/13/2009-ST dated 21.12.2009 is
reproduced here under:
“ Issue was raised at the initial stage itself as to whether the charges, which are said to be paid by
the CHAs and later recovered from the customers (i.e. reimbursable charges) should be added to
the value for charging service tax from CHAs. Through the circular F.No. B-43/1/97-TRU, dated
06.06.1997 the Board had clarified that the service tax would be charged on the ‘service charges
only’ and statutory levy and other reimbursable charges would not be included in the taxable
value. It was also provided that in case there are lump sum payments towards the reimbursable
as well as service charges, service tax would be charged on 15% of the gross value only”.
27.10
Therefore, for the said period the charge in the show cause notice sustains.
27.11
I now take up the later period i.e. from 19.4.2006 to 31.3.2010. Section 67 of
the Finance Act, 1994, as amended w.e.f 18.4.2006 is reproduced below:
“Section 67 of the Finance Act,1994:
(1)Subject to the provisions of this chapter, “service tax chargeable on any taxable service with
reference to its value shall,--(i)
(ii)
(iii)
In a case where the provision of service is for a consideration in money, be the gross
amount charged by the service provider for such service provided or to be provided
by him;
In a case where the provision of service is for a consideration not wholly or partly
consisting of money, be such amount in money, with the addition of service tax
charged, is equivalent to the consideration;
In a case where the provision of service is for a consideration which is not
ascertainable, be the amount as may be determined in the prescribed manner;
(2) Where the gross amount charged by a service provider, for the service provided or to be
provided is inclusive of service tax payable, the value of such taxable service shall be such
amount as, with the addition of tax payable is equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any amount received towards
the taxable service before, during or after provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in
such manner as may be prescribed.”
28
27.12
I find from sub-section (4) that the value of taxable service shall be
determined in such manner as may be prescribed. Thus during the period from
19.4.2006 to 31.3.2008, the said service provider must qualify as a “Pure Agent” in
terms of Rule 5(2) of Service Tax (Determination of Value ) Rules, 2006, effective
from 19.4.2006 and CBEC Circular No. 119/13/2009-ST dated 21.12.2009 so as to
claim exclusion of expenses from the taxable value. The basic principle remains the
same that the service tax liability is on the gross amount received towards the
services rendered. Thus, all amounts received by the Custom house agent for services
provided in relation to the entry or departure of conveyance or the import or export of
goods would be includible in the gross receipt and chargeable to service tax.
Whereas, for non inclusion of reimbursable expenses, for the period from 19.4.2006,
the said service provider has to satisfy the conditions specified in Rule 5(2) of
Service Tax (Determination of Value ) Rules, 2006 and CBEC Circular No.
119/13/2009-ST dated 21.12.2009 for each service charge.
27.13 The said service provider has failed to produce any evidence to show
fulfillment of condition of CBEC Circular No. 119/13/2009-ST dated 21.12.2009 and
Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006. Therefore, for
the said period also the charge in the show cause notice sustains.
27.14 In view of my above findings, I hold that for the period from 1.4.2005 to
18.4.2006, as well as for the period from 19.4.2006 to 31.3.2010, the said service
provider in addition to payment of service tax on agency charges was also required to
pay service tax of Rs. 6,58,053/- on charges for the CHA functions related to the
entry or departure of conveyance or the import or exports of goods as mentioned
above. Therefore service tax of Rs. 6,58,053/- as detailed in Annexure-C-1 to the
show cause notice on the taxable value of Rs. 57,34,213/- is recoverable from the
said service provider for the said period under proviso to sub-section (1) of Section
73 of the Finance Act, 1994.
28.
As regards the demand of Rs. 1,80,374/- worked out in Annexure-A to the
show cause notice, I observe that the same has resulted on account of reconciliation
with the income in P&L account of the service provider and the taxable value shown
in the ST-3 Return. The said service provider has not submitted any reconciliation
rebutting the working of the said differential demand. In absence of this, I do not
otherwise find any infirmity in the reconciliation in Annexure-A to the show cause
notice.
29
28.1
In view of my above findings, I hold that for the period from 1.4.2005 to
31.3.2010, the said service provider has short paid service tax of Rs. 1,80,374/- under
the category of CHA service on charges for the CHA functions related to the entry or
departure of conveyance or the import or exports of goods as mentioned above.
Therefore service tax of Rs. 1,80,374/- is recoverable from the said service provider
for the said period under proviso to sub-section (1) of Section 73 of the Finance Act,
1994.
29.
I now take up the demand of service tax of Rs. 73,25,948/- under the category
of ‘Business Support Service’ as detailed in Annexure-C2 to the show cause notice.
The demand is on the following heads:
i)
Freight & Landing
ii)
ICD charges
iii)
Measurement/G Pass certification
iv)
Repositioning Charges
v)
Transportation
vi)
Container Handling charges
vii)
Terminal Handling charges
29.1
I jointly decide the taxability of all the above heads. Looking at the nature of
these heads and as described by the said service provider in his statement dated
7.10.2010, I find that these heads directly or indirectly pertain to the amounts
received by the service provider from exporters/importers with respect to booking of
space in ‘ocean going vessels’. I find that the said service provider himself is not
engaged in transportation of ocean going vessels which is actually done by the
shipping line but his role is that of facilitating freight booking of ocean going vessels.
Exporters and importers do not directly go to the transporters/shipping line for freight
booking of ocean going vessels but approach the persons like the said service
provider for getting the said work done. In this situation, the system followed by the
persons like the said service provider is that either they ask the shipping line to
provide space in the ocean going vessels which they had booked in advance
anticipating such customers or they make such bookings with the shipping line on
behalf of the exporters/importers whenever there is such request. The amount paid to
the shipping line for such freight booking of ocean going vessel is termed as
‘purchase value’ and the amount collected from the exporters/importers is termed as
‘sale value’ by the said assessee. However, service can neither be purchased nor it
can be sold. The usage of such words is misleading and adversely affects the
taxability of the service provided. There is no denying the fact that ‘Ocean freight’
30
itself is not liable to service tax and therefore there is neither any service tax
liability on the shipping line nor the entire amount of ‘Ocean freight’ is included
in the taxable value of the said service provider. However, the differential amount
earned by the said assessee is not ‘ocean freight’ but an amount for facilitating the
exporters/importers in booking the ‘ocean going vessels’. This is precisely the
reason, I am not inclined to treat the entire amount of ‘Ocean freight’ as taxable value
but only the amount earned by the assessee for said facilitation as taxable value.
29.2
The expenses incurred by the said service provider on account of occupying
space for ocean freight on behalf of their customers i.e. importer/exporters was in
fact reimbursable expenses which they should have collected on actual basis from
their customers as ‘reimbursement expenses’ and should have charged service
charges separately in their invoice. Instead, in the instant case the service provider in
order to hide the difference, chose to raise a consolidated bill, , which included such
expenses as well as their service charges which they referred to as their profit on
purchase and sale of space for Ocean freight on behalf of their customers. In fact
such difference on account of purchase and sale of Ocean/Air freight was their
consideration/remuneration for rendering service for facilitating ocean/air freight for
their customers. This service was in relation to supporting the business of their
customer i.e. importer/exporter. Service as such can neither be traded as it is
intangible in nature nor it is subjected to VAT as ocean freight/ air freight is not a
commodity . Therefore, the services can only be rendered or provided. Whereas in
the case on hand the service provider have termed their service charges as the profit
on purchase and sale of Ocean freight just to circumvent Service tax on such charges.
They disguised their modus operendi by submitting that they are engaged in purchase
and sale of ocean/air freight to show it as trading of ocean/air freight.
29.3
The term “support services of business or commerce” has been defined under
the provisions of Section 65(104c) of the Finance Act, 1944 as under:
“support services of business or commerce” means services provided in relation to business or
commerce and includes evaluation of prospective customers, telemarketing, processing of purchase
orders and fulfilment services, information and tracking of delivery schedules, managing distribution
and logistics, customer relationship management services, accounting and processing of transactions,
[Operational or administrative assistance in any manner], formulation of customer service and
pricing policies, infrastructural support services and other transaction processing.
Explanation.—For the purposes of this clause, the expression “infrastructural support services”
includes providing office along with office utilities, lounge, reception with competent personnel to
handle messages, secretarial services, internet and telecom facilities, pantry and security;
31
“As per section 65 (zzzq) taxable service means any service provided or to be provided to
any person, by any other person, in relation to support services of business or commerce, in any
manner;
On perusal of the above definition, I find that the expression “services
provided in relation to business or commerce” is all encompassing and includes every
service provided in relation to business or commerce. Furthermore, the said
definition is an inclusive definition and covers various services. In view of the above
discussion, it clearly comes out that the said service provider has supported the
business of various persons i.e. importers & exporters by acting as a facilitator in
arranging and managing the space in the ocean going vessels which appropriately
gets covered in the definition of “support services of business and commerce”.
29.4
in
This differential amount out of the amounts under the various heads as given
Annexure-C2
to
the
show
cause
notice
is
nothing
but
the
remuneration/consideration earned by the assessee for providing “support services of
business or commerce” to such exporters/importers who are in need of procuring
space in the ‘ocean going vessels’ and is therefore taxable. I observe that the margin
money collected by the said service provider are his facilitation charges for arranging
the services for the exporters/importers from various service providers. However, the
said service provider has neither provided any data of the differential value between
their purchase and sale nor such purchase value is before me on record to enable me
to work out such a difference. I have no option other than to confirm the entire
demand of Rs. 73,25,948/- on the taxable value of Rs. 6,11,77,760/- under the
category of “support services of business or commerce”. Therefore, service tax of Rs.
73,25,948/-
is recoverable from the said service provider under the proviso to
Section 73(1) of the Finance Act, 1994 along with interest under Section 75 of the
Finance Act, 1994.
30. In view of the above discussion, I find that the said service provider has declared
less taxable value in the statutory ST-3 Returns filed by them during the period
1.4.2005 to 31.3.2010 resulting in short payment of service tax under the category of
‘CHA Services’ & ‘Business Support Services’. This suppression of value and
resultant short payment of service tax has rendered the said assessee liable to penal
action under Section 78 of the Finance Act 1994. The above said short payment of
service tax has arisen out of the investigation conducted by the officers of Service
Tax Ahmedabad. Had they not detected the same the short payment of service tax
would have remained unnoticed. Therefore it appears that this is a case of improper
assessment amounting to deliberate non-declaration and suppression of vital
information with a willful intention to evade payment of service tax. Accordingly the
32
ingredients for invoking the extended period under proviso to Section 73(1) of the
Act exist.
31. Penalties under Section 76,77 and 78 :Penalty under section 76:As discussed in the foregoing paras, the said assessee has not paid service tax under
“CHA Service” and “Support services of business or commerce” during the period
from 1.4.2005 to 31.3.2010 within the stipulated time period as prescribed under
Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994.
However, with regard to the issue of imposition of penalty under Section 76 of the
Finance Act, 1994, I observe that penalty under Section 76 and 78 of the Finance
Act, 1994 are mutually exclusive w.e.f 10.5.2008 and once penalty under Section 78
is imposed, no penalty under Section 76 can be imposed in terms of the proviso
inserted in Section 78 w.e.f 10.5.2008 in this regard. Therefore, no penalty under
Section 76 is imposable for the period from 10.5.2008 onwards. In the case before
me, the demand of service tax is for the period from 1.4.2005 to 31.3.2010.
Therefore, I hold that the said assessee is liable to penalty under Section 76 of the
Finance Act, 1994 for the period from 6.5.2005 to 9.5.2008 as the due date of
payment of tax is 5.5.2005 for April’2005.
Penalty under section 78:I further find that this is a clear case of suppression as the said assessee had not
declared the said value in their statutory ST-3 returns until pointed out by the
department. Therefore, bonafide of the said service provider does
not get
established. This is a case of deliberate suppression of facts with a willful intention to
evade payment of service tax. I find that the said service provider has suppressed the
facts from the service tax authorities with intention to evade payment of service tax,
penalty under Section 78 of the Finance Act, 1994 is mandatorily imposable as has
been held by the Apex court in the case of Dharmendra Textile Mills Ltd-2008 (231)
ELT 3 (SC) and Rajasthan Spinning & Weaving Mills Ltd-2009 (238) ELT 3 (SC).
Therefore, I deem it a fit case to impose penalty on the said service provider under
Section 78 of the Finance Act, 1994.
Simultaneous Penalties under section 76 & 78:As regards imposition of simultaneous penalty under section 76 and 78 of the
Finance Act, 1994, I place my reliance on the judgment of Hon’ble High Court of
Kerala in the case of Assistant Commissioner of Central Excise v. Krishna Poduval
as reported at [2006] 3 STT 96 (KER) which is aptly applicable to the present case. I
33
find that the imposition of penalty under sections 76 and 78 of the Act is for non
payment of service tax and suppression of value of taxable service respectively which
are two distinct and separate offences attracting separate penalties. I find that the said
assessee has committed both the offences and therefore penalties under section 76
and 78 of the Finance Act, 1994 are imposable on the said service provider upto the
period of 9.5.2008.
Penalty under section 77:As regards imposition of penalty under section 77 of the Finance Act, 1994, I
observe that as discussed above the said service provider was liable to pay service tax
under the category of “Support services of business or commerce” under Section 65
(zzzq) of the Finance Act, 1994 as provider of service from 2005 onwards, but they
failed to get their ST-2 registration certificate amended under the said category as
required under section 69 of the Finance Act, 1994 read with Rule 4 of the Service
Tax Rules, 1994. The said contraventions have made the said service provider liable
to penalty under section 77(1) (a) of the Finance Act, 1994.
Benefit under Section 80:As regards invoking Section 80 of the Finance Act, 1994 for waiver of
penalty, the said assessee has not produced any reasonable cause for the failure to
pay service tax. As observed in earlier part of this order, I find that the short payment
of the service tax is found to be with intention and their bona-fide belief does not
established. Accordingly, I am unable to consider the benefit of Section 80 for
waiver of penalties under section 76,77 and 78 of the Finance Act,1994.
32.
In view of the foregoing discussion, I pass the following order.
ORDER
i).
I confirm the demand of Service Tax amounting to Rs. 6,58,053/- (Rupees
Six lakh fifty eight thousand fifty three only) (including education cess and
secondary & higher education cess) on the taxable value of Rs. 57,34,213/and Rs. 1,80,374/- (Rupees One lakh eighty thousand three hundred
seventy four only) (including education cess and secondary & higher
education cess) as detailed respectively in Annexure-C-1 and Annexure A to
the show cause notice under the category of “ CHA Service” under Section
73(2) of Finance Act, 1994;
ii).
I confirm the demand of Service Tax amounting to Rs. 73,25,948/- (Rupees
Seventy three lakh twenty five thousand nine hundred forty eight only)
(including education cess and secondary & higher education cess) on the
34
taxable value of Rs. 6,11,77,760/- as detailed in Annexure-C-2 to the show
cause notice under the category of “Support services of business or
commerce” under Section 73(2) of Finance Act, 1994;
iii).
I order to recover interest on the above confirmed demand of Rs. 6,58,053/(Rupees Six lakh fifty eight thousand fifty three only) (including education
cess and secondary & higher education cess), Rs. 1,80,374/- (Rupees One
lakh eighty thousand three hundred seventy four only) (including
education cess and secondary & higher education cess) and Rs. 73,25,948/(Rupees Seventy three lakh twenty five thousand nine hundred forty eight
only) (including education cess and secondary & higher education cess) at the
prescribed rate from the said service provider under Section 75 of the Finance
Act, 1994;
iv).
I impose penalty of Rs.100/- (Rupees One hundred only) per day for the
period during which failure to pay the tax continued, upon the said service
provider under Section 76 of the Finance Act, 1994, for the period from
1.4.2005 to 17.4.2006;
I impose penalty of Rs.200/- (Rupees Two hundred only) per day for the
period during which failure to pay the tax continued, or at the rate of 2% of
such tax, per month, whichever is higher, starting with the first day i.e.
18.4.2006 after the due date till the date of actual payment of the outstanding
amount of service tax upon the said service provider under Section 76 of the
Finance Act, 1994, for the period from 18.4.2006 to 9.5.2008;
provided that the amount of penalty payable in terms of this section shall not
exceed the service tax payable by the said service provider for the period from
1.4.2005 to 9.5.2008;
v).
I impose penalty of Rs. 81,64,375/- (Rupees Eighty one lakh sixty four
thousand three hundred seventy five only) on the said service provider
under section 78 of the Finance Act, 1994 for suppressing the value of taxable
services provided by them before the department with intent to evade payment
of service tax.. In the event of the said assessee opting to pay the amount of
service tax along with all other dues as confirmed and ordered to be recovered,
within thirty days from the date of communication of this order, the amount of
penalty liable to be paid by them under Section 78 of the Finance Act, 1994
shall be 25% of the said amount. However, the benefit of reduced penalty
shall be available only if the amount of penalty is also paid within the period
35
of thirty days from the communication of this order, otherwise full penalty
shall be paid as imposed in the above order.
vi).
I impose penalty under section 77(1)(a) on the said service provider, of five
thousand rupees or two hundred rupees for every day during which such
failure continued, whichever is higher, starting with the first day after the due
date, till the date of actual compliance as required under section 69 of the
Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994;
( Tejasvini P. Kumar)
Commissioner
Service Tax
Ahmedabad.
F.No.STC/4-4/O&A/11-12
Date: 30/05/2013.
By Hand Delivery.
To
M/s Sea Aircargoes,
B-106, Ganesh Plaza,
Opp. Navrangpura Bus Stop,
Ambica Chambers
Ahmedabad-380009.
Copy to:
(1)
The Chief Commissioner Central Excise & Service Tax Ahmedabad Zone
Ahmedabad.
(2)
The Additional Commissioner (P) Service Tax Ahmedabad.(Attn.
Superintendent (P) Gr.IV Service Tax Ahmedabad)
(3)
The Deputy Commissioner Service Tax Division-III Ahmedabad.
(4)
The Superintendent Service Tax A.R.-XIII Division-III
Ahmedabad.
(5)
Guard File.