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F.No.STC/4-5/O&A/11-12 OIO No.STC/17-19/Commr./AHD/2013

BRIEF FACTS OF THE CASE :-

Based upon an intelligence, office premises of M/s Jasvant B. Shah, Custom House Agent, located at 4th Floor, Visharad Complex, Behind Old High Court, Navrangpura, Ahmedabad was searched on 26/08/2008 and certain documents were withdrawn under Panchnama dated 26.08.2008. During the course of search, Shri Samir J. Shah, Partner of M/s Jaswant B. Shah, informed the officers that apart from the above said firm, other business activities of Private Limited Company in the name & style of M/s Star Freight Pvt. Ltd. and M/s Seagull Maritime Agency Pvt. Ltd., were also being operated from the same premises. He also informed that shares of both Private Limited companies were held by the same persons who were Partner in M/s Jaswant B. Shah. Shri Samir J. Shah further explained that M/s Star Freight Pvt. Ltd. (here-in-after referred to as the said service provider) is an IATA Agent and International Freight Forwarders working on Commission/brokerage basis and was registered with the Service Tax Department bearing Registration No. AAACS6297AST001 under the category of “Business Auxiliary Service” & “Business Support Service”. Certain documents/records were withdrawn pertaining to the said service provider listed at Serial No. 7 to 10 in Annexure A to the Panchnama referred to above, for further investigation.

2. Thereafter, summons dated 19.08.2009, 16.09.2009 and 23.09.2009 were issued to them to give evidences. The said service provider had, vide their letters dated 24.08.2009, 25.09.2009 & dated 29.09.2009 sought extensions, by citing certain reasons. They were further asked vide this office letter dated 16.10.2009 to provide nature of activities/services which in their opinion were covered under the taxable services as per Finance Act, 1994 They were also asked to provide details of other services provided in addition to these taxable services They were also asked to state as to whether the activities/services provided which have not been covered under Business Auxiliary Service & Business Support Service, are standalone services or otherwise. A List of activities/services was enclosed alongwith the above said letter.

3. In response to this office letter as mentioned above, the said service provider furnished, the nature of activities (ledger head-wise), category of service alongwith the other details. While replying to this office letter dated 28.10.2009 regarding not considering activities viz. AD Charges, DAD charges, DBR charges, BAF charges for payment of service tax they vide their letter dated 25.11.2009 submitted that “where the services are covered under the category of taxable services, the service tax is charged and paid thereon under respective category. In case of amounts like AD Charges, DAD charges, BAF charges etc., which are not covered under taxable services, they have not recovered service tax as the amount received was not taxable.” The said service provider had not furnished the copies of invoices along with their above letter eventhough, they were asked to furnish the same. On being reminded by this office vide letters dated 19.03.2010, 05.04.2010 and Summon dated 13.04.2010 to produce the photocopies of the invoices representing all services/activities for the year 2005-06 to 2009-10 (atleast one invoice of each activities in a month), the said service provider then furnished few copies of invoices under their letter dated 20.04.2010.

4. Preliminary scrutiny of the documents withdrawn under the above said panchnama revealed that:-

I. They were registered with the service tax department under the category of Business Auxiliary Service & Business Support Service bearing Service Tax registration No.AAACS6297AST001 and were filing the ST-3 Returns under the category of Business Auxiliary Service and Business Support Service.

II. They were operating from Ahmedabad, Baroda and Nagpur.

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III. The credit balances (i.e. excess of credits over debits) of all the ledgers representing service charges/income, have been carried forward to the Profit and Loss account under the Head “Income” in the Balance Sheets of the respective financial year.

IV. The said service provider had chosen few of the service charges from their total income Heads (as detailed in the Schedule attached to the Financial Accounts of the respective year) and started to make the payment of service tax at appropriate rates after classifying some of them in Business Auxiliary Service and others in Business Support Service. On being asked about the reasons for doing so, they stated in their letter dated 16-10-2009 & 25-11-2009 that

“Where the services were covered under the category of taxable service, service tax was charged and paid thereon under respective categories. In case like AD CHARGES, DAD CHARGES, CHOKING CHARGES, DETENTION CHARGES etc. which were not covered under any category of taxable service, they did not recover the service tax as the amount received was not taxable.”

“they are freight forwarders and in course of their business, they buy various freight related services and then sell the same to their customers and hence precisely they do not know whether it can be termed as reimbursement or not”

V.(a) They had considered “Amendment charges, Surrender Charges, via Charges for payment of service tax under the category of Business Auxiliary Service during the year 2006-07 whereas in the financial year 2005-06, these charges have not been taken into account for the payment of service tax.

(b) They had not considered any service charge(s) for the payment of service tax for their Branches at Baroda and Nagpur whereas they had paid service tax on such service charges pertaining to Ahmedabad Branch during the years 2005-06 to 2009-10 respectively.

VI. On comparing the receipts shown at credit side of the Ledger Abstracts pertaining to the service charges with the Taxable value/ Billed value of those service charges which have been considered for the payment of service tax under the category of Business Auxiliary Service & Business Support Service in their Service Tax Returns filed for the period from October’2005 to 2009-10, it was noticed that in most of the cases, the value representing receipts in credit side reflected in the Ledgers was higher than that of the value reflected in the respective ST-3 Returns.

VII. They had not considered various Service Charges or Income Account Heads (in their words) for discharging service tax liability for all their Branches viz. Ahmedabad, Baroda and Nagpur. On being asked as to whether such services provided by them were stand alone services or otherwise, they stated that they had not recovered service tax on those charges which were not covered under category of taxable service and the elements of profit of such charges had been carried forward to the Profit & Loss Account in their Balance Sheets prepared for respective years.

5. Vide this office letter (e-mail) dated 30.06.2010, they were further asked to produce the detail/documents viz. (i) Reconciliation of Billed amount as per ST-3 Returns; (ii) Balance Sheets for the financial years 2008-09 & 2009-10; & (iii) Ledgers.

6. On the basis of the documents/records viz. Balance Sheets, ledgers & ST-3 Returns, the following Annexures were prepared:

(i) Details of those service charges which have not been considered for the payment of service tax upon which they were already discharging the

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service tax liability in a particular year for their particular branch during 2005-06 to 2009-10;

(ii) Detailed calculation of the amount of undervaluation during the years 2005-06 to 2009-10 calculated on the basis of the value shown in ledgers as well as in ST-3 Returns and

(iii) List of those activities/ledger heads which have not been considered for payment of service tax by the service provider and have been proposed to be classified under the category of Business Auxiliary Service & Business Support Service by the investigation.

7. Shri Samir J. Shah, Director of the said service provider was asked to remain present in this office on 21.10.2010 to give evidence in the matter but he was out of station for 2 days i.e. for 22.10.2010 to 23.10.2010.

8. However, on the written request made by the said service provider vide letter dated 19.10.2010, this office had vide letter dated 19.10.2010 itself provided the Annexures prepared as mentioned in para supra. The said service provider had furnished their detailed reply dated 01.03.2011 with reference to this office letter dated 19.10.2010 and its subsequent reminders.

9. Regarding Annexure showing the figures of undervaluation resulting in short payment of service tax, the service provider had brought down the amount of difference shown in the Annexure prepared, by furnishing their calculation sheet and by mentioning the reason (in support of their calculation) that:

(i) the service tax on Business Support Service was introduced from May’2006 but they have started paying the service tax on Business Support services afterwards i.e. from June/July’2006,

(ii) the difference had arisen mainly due to department not considering the amount debited in respective ledger accounts. They added that in many instances though proper service tax was paid on taxable services, the accounts are credited twice in respect of same service due to system of accounting adopted to streamline transactions, the system requires journal entries at latter date for cancellation of earlier entries resulting into crediting an income account twice for one transaction and these amounts cannot be taxed twice. For example, when they purchase service, they may not get bill from their supplier but they charge their clients for such service based on agreed rates, at that time they pass provisional entry at provisional amount for purchase of service to keep track of bills yet to be received and final entry for sale of service by them to their clients has been passed by crediting their income account once at this stage, when final bill for such service is received from their service supplier, they again reverse the provisional entry and credit the amounts to income accounts again resulting into two credits to income account for one transaction. At this stage they credit their vendor’s account with the amount of bill received from them. They explained the above accounting method by quoting the actual transaction which is given below.

On 18-04-2009 they purchased forwarding, bill of lading, ACD Charge and Palletisation activities and sold the same to Parikh Packaging P. Ltd. and passed following entries in their books of account.

Date Particulars Debit Rs. CreditRs.Entry for Sale of Service18-04-09 PPPL A/c Dr. 10056

To Forwarding A/c Cr. 6649 To ACD Charges A/c Cr. 1318

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To BL Charges A/c Cr. 1000 To Service Tax Payable 924 To Pallatisation Charge A/c 165

Provisional Entry for Purchase of Service pending receipt of Bill18-04-09 Forwarding A/c Dr. 4987

ACD Charges A/c Dr. 1318BL Charges A/c Dr. 500 To Bill Pending from Forwarders 6805

Entry for Purchase of Service when bill/DN received from VendorFor Cancellation of Provisional Entry13-05-09 Bill Pending from Forwarders A/c

Dr6805

To Forwarding A/c Cr. 4987 To ACD Charges A/c Cr. 1318 To BL Charges A/c Cr. 500

For actual bill/DN amounts from Vendor13-05-09 Forwarding A/c Dr. 4943

ACD Charges A/c Dr. 1283BL Charges A/c Dr. 500Palletisation A/c Dr. 165Service Tax (CENVAT Credit) A/c Dr.

564

To Safe Water Lines… A/c Cr. 7455

It could be seen from the above entries for one transaction that an amount gets credited twice to income account for one transaction due to provisional entries. Hence such amounts credited twice needs to be deducted from total of credit side to arrive at correct value. By deducting the amount so credited twice. Accordingly, the difference between ST-3 Returns and Income figures is negligible and not as shown in the Annexure provided (as mentioned in para supra). In support of their above claim, they furnished detailed statement showing month-wise calculation of each service alongwith Journal Vouchers/Entries & have tried to justify their claim that there was no short payment of service tax on account of suppression or intent to evade payment of service tax as every transaction has been duly accounted for in their Audited Books of Accounts which have been submitted to the department.

Regarding activities/Ledger Heads on which service tax was paid in a particular branch and in a particular year was observed by the investigation, the said service provider furnished the nature of each such Account Head/ service charges which was reproduced below:-

Sr. No.

Account Head/Service Charges

Nature of Activity

1 ACD Amendment Charges If any amendment done in Advance Cargo declaration

2 ACD Charges

Advance Cargo declaration charges for filing ACD in US custom for any cargo moving from India to USA. It is been paid either to Shipping line or Forwarder being used for booking

3 Air Freight MarginDifference Between Air Freight charged to Client and Payment made to Air Line. Difference is a buy-sell difference

4 Air way bill fees Preparation charges of Documentation 5 Amendment Charges collected for sea import shipment

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6 Bill of Lading Charges Documentation charges for preparing of bill of lading

7 Certificate of Origin Charges

Every consignment which moves internationally is normally required to be accompanied by a Certificate of Origin. This document is issued by Chambers of Commerce. Chamber of Commerce has a preprinted stationary on which all details are to be typed. The same is to be submitted to the Chamber along with Bill of Lading copy (Bill of Lading is issued after shipment has left the country). Chamber of Commerce collects its fees and releases the document.

8 Coloading Charges cargo hand over to other consolidator for loading

9 Custom Clearance Charges Charges for Custom Clearance.10 Delivery Order Charges Documentation charges for import container

11 DEPB Charges

After effecting export exporters need certification of their export under special schemes of the Govt. Normally exporters employ consultant or their own staff to handle the same. In cases where we are asked to do this post export formality we would undertake the same and recover expenses.

12 Destuffing Charges Handling charges of consolidation.

13 Door Delivery Charges destination charges for ex work shipment/door delivery shipment

14 EDI Charges Charges for registration of client with Customs

15 EDI Registration Charges Charges for registration of client with Customs

16 Ex Work Charges

For shipment on Exwork basis- For shipment where job given right from the cargo pick up from the exporter factory / site to the Destination

17 Examination Charges

During the process of Custom clearance the packages have to be removed from the cargo lot ; opened and contents shown and packages repacked. This involves cost of labour ; carpenter ; materials etc which is charged under this head. This is a related activity and often done by exporters in case of special cargoes or labour contractors. We outsource the same to outside contractors.

18 Forwarding Charges Local Expense for LCL Shipment19 GSP Charges GSP - stands for Generalized Scheme of

Preferences. Certain consignments which move internationally require to be accompanied by a Certificate of Origin or GSP issued by a Govt Agency. This enables importer at other end receive some concessions from his Govt. This document is issued by Agencies like - Export Inspection Agency; Texprocil etc. They have a preprinted stationary on which all details are to be typed. The same is to be submitted to them along with Bill of Lading copy (Bill of

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Lading is issued after shipment has left the country). Said Agency would collect its fees and releases the document.

20 Handling Charges fees being charged for the handling of container

21 Inland Haulage Charges transportation charges by rail or road for movement to any inland destination from port

22 Labour Charges Same is being charge of Labor for handling of cargo etc

23 Lasing & Choking Charges cargo being lashed with rope or string so that cargo remain intact

24 Miscellaneous Charges Miscellaneous expenses, etc. incurred charged

25 Office Administration Charges

Handling fees from Principals

26 Phyto Certificate Charges

Post export Documents are to be certified by the Phytosanitary department as per overseas customer requirement. The same is done by the exporters. Often we are called upon to do the same for which this difference is there to cover courier charges / Xerox / conveyance. Bill of Lading or Air Way Bill has to be submitted with these documents.

27 Repo ChargesTransportation charges for moving empty container by road / rail from port / empty yard to icd

28 Shifting Charges Shifting of cargo/container from one place to other

29 Shipping Bill ChargesAmount is charge for Preparation of S/B in case of Export Shipment. This also includes cost of stationary.

30 Surrender Charges original documents surrender to shipping line locally

31 THC Terminal Handling charges for container handling at port

32 Unloading Charges Charges for unloading of cargoes from container

33 Via ChargesIf containers reaches at port affected cut off and special request made to load the container on current vessel

They had mentioned that, infact none of the above charges fall under either “Business Auxiliary service” or under “Business Support Service” based on the following facts and considering the nature of charges given above:

1. Any of the above charges were not for promotion or marketing of or sale of goods produced or provided by or belonging to the client, 2. None of above charges was for promotion or marketing of service provided by the client. 3. They also do not provide any customer care service on behalf of the client in any of the above listed activities as was evident from the nature stated above.4. They do not procure any goods or service which were inputs for the client.5. In any of the above stated activities, they do not carry out any production or processing of goods for or on behalf of the client.6. They were not providing any service on behalf of the client.

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7. None of the above stated activity was a service incidental or auxiliary to those specified in 1 to 6 above.

8. Brokerage was received by them as certain percentage of freight amount from shipping line for bookings made for cargo space/container. They further added that till 15-06-2005, they were not covered under the definition of ‘commission agent’ as given under Notification No. 13/2003-ST, dated 20-06-2003, moreover they are also not covered under the ambit of commission agent as defined in section 65(19) itself which means a person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for consideration. While they book cargo space or container, they do not act on behalf of any other person but they deal on principal to principal basis and hence the brokerage does not come within the purview of definition of ‘commission agent’ and hence the same should not be taxable under the category of business auxiliary service.

9. None of the above charges were for evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing. Hence these charges were also not taxable under the category of business support service that has been made taxable w.e.f. 01-05-2006.

10. In respect of the ledger-heads/activities which have not been considered as taxable service by the said service provider, the detailed description of each account-head/activity has been given which is reproduced below:

SR. NO

ACCOUNT HEAD Descriptions

1 ADMINISTRATION CHARGES

Administration charges for payment to govt for stamp duty etc for Import Shipment -Applicable in Maharashtra state, This is a statutory payment.

2 AIR FREIGHT CHARGES Air freight 3 AWB & TOLL CHARGES

( DEST.)Destination charges for ex work shipment/door delivery shipment - in foreign country.

4 BAF FEES Part of Ocean Freight ( Bunker Adjustment Factor - related to the Fuel charges), Payable to Steamer Company.

5 BOND CANCELLATION CHARGES

Charges for the cancellation of the Bond

6 BOND EXECUTION CHARGES

Charges for the preparation of Bond

7 BREAKBULK Charges by Airline.8 C C CHARGES Part of ocean freight. On Freight collect

shipment, these are charged as a part of ocean freight

9 CARTAGE CHARGES Transportation charges for the container / cargo movement from one place to another .

10 CFS CHARGES Container Freight Station ( Warehouse /

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Godown ) charges for the handling / storage / movement of cargo / container

11 CLEANING CHARGES For cleaning the empty container12 CMC CHARGES Govt Agencies charges for submission of

document to the EDI system of Customs13 COMMUNICATION

CHARGESColleted from principal as agreed towards communication expenses to be incurred.

14 CONCOR CHARGES Custodian - CONCOR charge for using their services

15 CONSULTING CHARGES Charges for consultancy / guidance for export - import

16 CONTAINER CLEANING CHARGES

For cleaning the empty container/repairing

17 CRANE CHARGES Charges for using Crane for loading / unloading of cargo / container

18 CUSTOM PROCESSING & RELATED CHARGES

CHA Charges for the custom clearance of cargo

19 CWC CHARGES Custodian - Central Warehousing Corporation charge for using their services

20 DESTINATION CHARGES Destination charges for ex work shipment/door delivery shipment. In case of USA shipment is the statutory charges. If consignee has annual bond than same is not applicable

21 DESTRUCTION CHARGES Destination charges - when consignee do not take delivery and accordingly charges for storage and destroy of the cargo

22 DFRC CHARGES Part of custom clearance charges - For processing of the shipment done in DFRC.

23 E-MAIL CHARGES Communication charges from the Principal24 EMERGENCY BUNKER

CHARGESSurcharges charge by shipping - normally when there is fluctuation in the fuel charges

25 ESTABLISHMENT CHARGES

Charges for providing table space in our office

26 FUEL SURCHARGES Part of Freight charges27 FUMIGATION CHARGES Charges for the fumigation of container /

cargo - chemical treatment for bacteria free etc

28 GROUND RENT CHARGES Rental charges of container / cargo at CFS / Port

29 HANDLING CHARGES – GSEC

Handling charges paid to custodian - Gujarat State Export Corporation for handling for cargo at Air Cargo Complex

30 HAZARDOUS CHARGES Surcharge for hazardous /dangerous goods31 HEAVY LIFT CHARGES Surcharge for the heavy cargo32 IGM CHARGES Charges being charged for filling manifest

Import shipment33 INCENTIVE CHARGES Profit Share from overseas agent for handling

of lcl shipment34 INLAND FREIGHT

CHARGESTransportation charges by road

35 INLAND FUEL CHARGES Fuel surcharges charge by Shipping line when cargo is moving inland from Port to Inland Destination by road

36 INLAND TRANSPORTATION

Transportation charges by road

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CHARGES37 INSURANCE CHARGES Container goes to factory for stuffing or de

stuffing it is shipper/consignee/booking party responsibilities if any damage to container and to safe guard same insurance been taken

38 ISPS, TSF & CSF CHARGES International port facilities security charges

39 IT DOC CHARGES Destination Charges - Documentation charges for submission of documents online with custom / port / shipping line / airline etc

40 LEGALISATION CHARGES Post export Documents are to be legalized with foreign embassy as per overseas customer requirement. Bill of Lading or Air Way Bill has to be submitted along with these papers. The same is done by the exporters. Often we are called upon to do the same for which this difference is their to cover courier charges / Xerox / commute /

41 LINE CHARGES Shipping line charges42 LINE SERVICE CHARGES Charge of shipping line for using their

services43 LOADING & UNLOADING

CHARGESFor cargo unloading or loading at the CFS / ACC the truckers bring their own labour. Additionally they undetake stacking and unstacking also both in lorry and warehouse. Often they ask us to arrange this pre / post Custom clearance activity - we arrange same. Difference would be expenses for commute or refreshments for labour.

44 LOCAL CARTAGE Transportation charges by road45 LOCAL CHARGE AT

DESTINATIONCharges applicable at Destination once container offloaded from vessel like handling / documentation / processing / transportation etc

46 MICT CHARGES MICT is port - Mundra International Container Terminal - Port charges for handling of container / cargo

47 OCEAN FREIGHT Ocean freight48 OPEN TOP SURCHARGE When container used which is open from the

top mainly for machinery or over dimension cargo and surcharges charge by shipping line being a special container

49 ORIGIN TRANSFER FEES For Exwork shipment Fees for shifting the cargo from one point to another mainly for Airline for shifting from warehouse to Airline terminal etc

50 OVERLOAD CHARGES Transportation charges - for the overload of the cargo

51 OVERWEIGHT CHARGES Transportation charges - for the overload of the cargo

52 PALLASITATION CHARGES

Packaging charges

53 PEAK SEASON CHARGES Peak season charge is additional surcharge being charge when there is peak season of movement cargo for that sector

54 PICK UP CHARGES Transportation charges for picking cargo from

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factory/shipper site55 PORT CONGESTION

CHARGESSurcharges being levied by Port / Shipping line when there is heavy congestion in the port

56 POSTAGE CHARGES Charges for the courier of documents57 RAIL FREIGHT Container movement charge between Icd and

Port by rail58 REPAIRING CHARGES Charges for the repairing of the container etc

59 REWORKING CHAR Charges for reworking of the cargo from one point to another / from one container to another etc

60 SECTOR FREIGHT For Air shipment inland freight for Moving cargo from inland Destination to Airport

61 SECURITY & FUEL SURCHARGE

Charges by Airline

62 SHIPPING LINE CHARGES Charges by shipping line

63 STRIPPING CHARGES Destination charges for ex work shipment/door delivery shipment

64 SUZE CANAL SURCHARGE

Part of Ocean Freight and mainly charge of USA shipment and mainly for the vessel passing thru the Suez Canal

65 TERMINALCHARGES(AIR) Terminal charges for the movement of cargo at Airport

66 TRANSPORTATION CHARGES

movement of cargo/container by truck

67 TRUCKING CHARGES Movement of cargo / container by truck68 TSF & CSF CHARGES Security charges charge by shipping line / port

69 VOID CHARGES Cancellation charges for Airway bill70 WAREHOUSE CHARGES Destination charges for ex work

shipment/door delivery shipment. Mainly charges for handling and storage of cargo in CFS / Warehouse

71 WAREHOUSE STUFFING CHARGES

Stuffing of the cargo inside the warehouse

72 WARFRAGE CHARGES One type of port demurrage 73 WASHING CHARGES Charges for Washing of the container

11. They further reiterated that none of the above charges fall under either taxable category viz. Business Auxiliary Service & Business Support Service based on the facts and considering the nature of charges. They had again taken here the shelter of definition of Business Auxiliary Service & Business Support Service and added that they were licensed Multi Modal Transport Operator and work as such.

12. They provided the names and addresses of their main service receivers which are reproduced below:-

Name Address Telephone No.

Bloom Dekor Ltd 267 OranTal:Prantij 079-26841916

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N.H. 8Dist:SabarkanthaNorth Gujrat 383205

CABB Karnavati Rasayan

325/A Platinum PlazaNr.Shakti EnclaveJudges BunglowBodakdevAhmedabad

079-26859016

Colour Flex LaminatorsLL 4 Martui CentreNr.Gurukul TowerAhmedabad-380052

02764-286321

Deepkiran Foods Pvt Ltd

227-228/2,Dantali Ind EstateGota,Vadsar RoadNr.Lapkaman GamKalolDist:Gandhinagar

9904401001

Patel Alloy Steel Pvt Ltd297/300 Phase IIGIDC,Vatva Ahmedabad

079-40264646

13. They added that there was also a bonafide belief that none of their activity was covered under Business Support Service and there was lot of confusion prevailing in the field and later on to avoid litigation and to buy peace of mind, they started charging service tax on these activities as advised by there Association, from June’2006. Further the amount paid earlier by mistake cannot be refunded to them as they had already charged the same to service receivers.

14. On being summoned, Shri Samir J. Shah, Director of M/s Star Freight Pvt. Ltd., appeared before the Superintendent (Preventive), Service Tax, Ahmedabad and his statement was recorded on 31.03.2011 under Section 14 of Central Excise Act, 1944 read with Section 83 of Finance Act, 1994, wherein he stated that :-

the registered address of the office of the Company was 103, Paras, Prathna Samaj Road, Vile Parle (East), Mumbai-400057, the operational branches in addition were Ahmedabad, Baroda, Gandhidham and Nagpur.

the Company was incorporated in 1993. They operate as International Freight Forwarders, Multimodal Transport Operators, IATA Cargo agents. In International Freight Forwarding, the Company undertakes movement of cargoes both in bound and ex bound for air and sea movement being responsible for all/ most intermediary formalities. As multimodal transport operators, they were issued necessary licence for MTO Operations by DG-Shipping, India.

M/s Star Freight Pvt. Ltd. was registered with the service tax Commissionerate- Ahmedabad under the category of Business Auxiliary Service (Date of Registration Certificate is 08.09.2005) and Business Support Service (Date of Registration Certificate is 25.07.2006). The same registration covered their Ahmedabad, Baroda, Gandhi Dham and Nagpur Branches.

On being asked as to on what basis their company had treated some of the activities e.g. Air Way Bill Fees, Surrender Charges, Via Charges, Certificate of Origin Charges, Destuffing Charges, Door Delivery Charges, Shipping Bill Charges, Custom Clearance Charges, Factory Stuffing Permission, Inland Haulage Charges, Port Charges, Port THC being taxable service and on what basis these services had been classified under BAS and BSS he stated that they

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were members of the various Trade Associations and they issue advisories to them as members and they would have followed the same with regard to the service tax.

They work for exporters, importers, CHAs and other Forwarders. Short list of our major clients are here as under:

Name Address Telephone No.

Bloom Dekor Ltd

267 OranTal:PrantijN.H. 8Dist:SabarkanthaNorth Gujrat 383205

079-26841916

CABB Karnavati Rasayan

325/A Platinum PlazaNr.Shakti EnclaveJudges BunglowBodakdevAhmedabad

079-26859016

Colour Flex LaminatorsLL 4 Martui CentreNr.Gurukul TowerAhmedabad-380052

02764-286321

Deepkiran Foods Pvt Ltd

227-228/2,Dantali Ind EstateGota,Vadsar RoadNr.Lapkaman GamKalolDist:Gandhinagar

9904401001

Patel Alloy Steel Pvt Ltd297/300 Phase IIGIDC,Vatva Ahmedabad

079-40264646

.On being asked that their Company was registered with the S. Tax department, Mumbai under the category of BAS only and explain what types of activities were being covered by them under this category in Mumbai he stated that the company was registered under the category of BAS only (since 02.05.2006)

They were not separately registered for service tax at Baroda and Nagpur. They followed centralized billing for Ahmedabad, Baroda and Nagpur. All service tax charging and payment to department were done at Ahmedabad only. Activities offered at all cities remained more or less the same. More specifically, they were discharging service tax liability for the service provided at their Baroda, Nagpur at Ahmedabad only. Additionally he stated that since volume of activity at Gandhi Dham was very less the same was not shown separately in their books but activities and billing functions were being covered in Ahmedabad Unit.

Most of the time, all quotations were given orally and followed by raising bills which were settled in full. This was taken by them as agreed. In a few cases, e-mail correspondences, precedes, handling of the shipment. For regular clients, handling happens basis either of the above on repeated basis.

They had considered only those services which can be construed as service under the notified services for service tax purposes.

They were availing CENVAT CREDIT on the basis of the invoices under which they were charged service tax by their vendors.

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On being asked that the sheet showing various service charges recovered by their company during 2005-06 to 2009-10 which had not been considered for service tax purposes, provided to them under this office letter dtd. 19.10.2010 he stated that he had already provided the details and nature of the activities to this office vide his letter dtd. 01.03.2011.

On being asked that it appeared from the Services provided by them (As detailed in Annexure A attached) and bills raised to them, have been provided to support the Business/ commerce of your clients he stated that their role was to support their client- Exporters, Importers and other forwarders in movement of their cargos.

He further stated that they were operational at Ahmedabad, Baroda, Gandhi Dham and Nagpur. They had closed down their operation in Nagpur since over 2 years. The shipments handled would have originated or terminated at various places – factory, warehouse, ports/airports both international and within India.

On being asked as to whether the services provided by their company which have not been considered under BAS and BSS, are standalone services or related to any other service he stated that they provide multiple services. On consignment to consignment basis it was decided how many services need to be provided to complete the same. Number of services provided per consignment can be seen from the invoices raised for the same.

The year wise sheets i.e. from 2005-06 to 2009-10, prepared separately for the category of BAS & BSS showing the comparison of Billed amount between ST-3 Returns and Ledgers concerned. Sheets show that the Billed amount considered for payment of service tax in ST-3 Returns filed has been taken less which have been provided to him vide this office letter dated 19.10.2010. The year wise difference is shown below:

YEAR DIFFERENCE2005-06 33517072006-07 401346602007-08 474353272008-09 431137402009-10 36899365TOTAL 170934799

He was asked the reasons of this undervaluation to which he stated that he can immediately only state that service tax under B. A. S. has been charged by them effective August, 2005 as advised to them by the trade associations and their Chartered Accountant. Furthermore, they also follow a system of raising bills immediately on completion of job to our clients. The amounts against the same were paid to their vendors by crediting the same services’ ledger accounts. These could be the reasons for the differences in values. He has already submitted detail reply vide their letter dated 01.03.2011 along with explanations and calculation.

The year wise sheets i.e. from 2005-06 to 2009-10 showing the details of service charges which have not been considered for payment of service tax though considered in Ahmedabad for discharging the tax liability, which have been provided to him vide this office letter dated 19.10.2010. He was asked to go through the same and state the reasons for not paying the service tax on the service charges upon which their company was already discharging the service

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tax liability. He stated that he has already submitted detail reply vide their letter dated 01.03.2011 along with explanations and calculation.”

15. Further, careful study of their above said submissions compels the investigation to think afresh in the matter as they have shown their clear intention to keep away from the tax net by mentioning that they were engaged in purchase and sale of various activities and were booking profits, the service tax already been discharged by them on some of the activities classified by themselves under the category of Business Auxiliary Service & Business Support Service has been paid mistakenly by them due to confusions prevailing in the field and all their activities were not at all taxable services for the reasons given by them as mentioned in para supra. It was further noticed during the course of investigation that they had themselves got registered with the service tax department in Ahmedabad under the category of Business Auxiliary Service & Business Support Service since 2004-05, started paying the service tax at appropriate rates by filing the ST-3 returns by choosing some of their activities/services at their own. Not only that, they have in so many instances started paying service tax on such activities at their will very late, say the service tax was leviable under the taxable service of Business Auxiliary Service w.e.f. 10.09.2004 and on Business Support Service w.e.f. 01.05.2006. Whereas on so many occasions they had started paying service tax from the month of October/January’2006 and onwards. Such act of the said service provider clearly indicates that they had made a mockery of the liberty given by the government to the taxpayers to self assess the tax and discharge the tax liability properly by mentioning that they have acted according to the advisories received from various Trade Associations in which they are the members.

16. Before looking into the matter of taxability it is necessary to see again as to what they were and what type of activities they are doing and whether such activities are covered under the ambit of “service” or otherwise. M/s Star Freight Pvt. Ltd., Ahmedabad, had claimed that they were freight forwarders and Multi Modal Transport Operators. The meaning/definition of freight forwarders is given below:

17. The definition of “Freight Forwarder” as defined in GIA – Trading Dictionary of Foreign/International Trade Terms: F to emphasize upon the interconnected nature of “forwarding” and “clearing”

“Freight Forwarder.... Freight forwarders handle many of the formalities involved in importing such shipments.A forwarder will also advise on suitable packing for the particular journey or commodity. He can prepare the various documents required for the different countries, giving advice on those, which the exporter must by law prepare himself. Freight forwarders are often called clearing agents or act as a clearing agent when dealing in imports.”

In view of above definition, “Freight Forwarders” evidently end up performing the functions of a clearing agents or act as “Clearing Agents”, and hence a forwarding agent cannot extricate himself from being branded as a clearing agent, due to the inter-connection or inter-dependency that exists between these two activities.

Website Publication called “Trade point Tanzania – Dar e Salaam” which acknowledges that “professional forwarders (popularly known as “Clearing Agents”) are to process documentation and other procedures for clearing goods”. Further, IIATA an International Association of “Freight Forwarders” situated in Switzerland have also adopted an official description of “Freight Forwarding and Logistics Services”, which can be tailored to meet the flexible application of the services provided:

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“Freight forwarding and Logistic Services means services of any relating to the carriage (performed by single mode of multimodal transport means), consolidation, storage, handling, packing or distribution of the Goods as well as ancillary and advisory services in connection herewith, including but not limited to customs and fiscal matters, declaring the Goods for official purposes, procuring insurance of the Goods and collecting or procuring payment or documents relating to the Goods. Freight forwarding services also include logistical services with modern information and communication technology in connection with the carriage, handling or storage of the Goods, and de facto total supply chain management. These services can be tailored to meet the application of the services provided.”

18. Further, the `Freight Forwarding Service’ basically relate to handling of documents for import/export of goods by Air or Sea. These services are provided based on the Import/Export permission granted by the Ground Handling Service at the Airport / Sea Port Custom Authority. These activities are carried out at the Air Cargo Complex or Sea Port Area which is a Customs Area, by an authorised agency. For providing the Freight Forwarding Service the Freight Forwarder recover various charges such as CCX Fee, Currency adjustment factor, Air Land Handling Fees, Delivery Order Fees, Custom processing and related charges etc from the Consignee / Service Recipient. Unless the Freight Forwarding Activities are completed the Custom Clearance activities cannot commence. The customer either arrange for Custom clearances through their Custom House Agent or ask the freight forwarder to arrange/perform such functions. In this instant case M/s Star Freight Pvt. Ltd., Ahmedabad, exposing themselves as International Freight Forwarders, Multi Modal Transport Operators and IATA cargo agents, had performed number of activities (as listed in para supra to the SCN alongwith their nature and also listed in Annexure ‘A’ attached to the statement dated 31.03.2011 of Shri Samir J. Shah, Director of the company) which were necessary for the completion of export/import activities.

19. The meaning of ServiceThe word and expression SERVICE has not been defined in the Finance Act 1994. However The CESTAT, PRINCIPAL BENCH, NEW DELHI in case of COMMISSIONER OF CENTRAL EXCISE, RAIPUR versus BSBK PVT.LTD. [2010(253) E.L.T. 522 (Tri.-LB)] has defined the word and expression “service” as under:

“The term ‘service’ means service of any description made available to potential user and includes provision of facilities – Service may mean any benefit or any act resulting in promoting or serving interest of recipient - Service may be contractual, professional, public, domestic, legal or statutory.”

The definition of “Service” as available in Business Dictionary is as under:-Service means:-1. Valuable action, deed, or effect performed to satisfy a need or to fulfill a demand.2. Aspect of maintenance.

20. The definition of service given above clearly speaks that the activity of provision of facilities is also called service to any one. Such term has varieties of meaning, it may mean any benefit or any act resulting in promoting or serving interest of recipient. It may be contractual, professional, public, domestic, legal, and statutory etc. In the instant case M/s Star Freight Pvt. Ltd., Ahmedabad had performed the activities for their customers for the consideration i.e. they had charged their customers for each and every activity which they had provided. Hence, all such activities performed by the said service provider were squarely covered under the definition of service.

21. They had charged their customers for filing Import General Manifest, for arranging transport for picking cargo from factory/ shipment site, getting container

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cleaned, Bill of Entry, EDI charges, loading, unloading, fumigating the container, preparing/obtaining various documents viz. Bill of Lading, Amendments to be done, handling the cargo, Customs clearance for processing of the shipment done in DFRC etc. The said service provider had arranged the space in Airways as well as in Shipping Lines and paid Ocean Freight, Air Freight and had also got Air Commission, Additional Air Commission, Brokerage charges & Supervision charges etc. from concerned Agencies.

22. To examine the pattern of invoicing, sample copies of the invoices raised during the year 2005-06 to 2009-10 by the said service provider, were called for; the details of some of them is given below :

S.No. Invoice No. & date Service receiver’s name Amount (Rs.)

1 13/LI/ACM/94 dated 25.02.2006

M/s Ashima Dyecot Pvt. Ltd., Ahmedabad

26,553/-

2 14/OE/FWDG/330 dated 31.08.2006

M/s Deepkiran Foods Pvt. Ltd., Gandhinagar

2,39,593/-

3 14/AIR/SFPL/120 dated 06-03-2007

M/s. Jasvant B. Shah, Ahmedabad 25,232/-

3 14/FE/MCS/YML/487 dated 29.03.2007

M/s Bloom Dekor Ltd., Ahmedabad 23,439/-

4 15/OE/FWDG/798 dated 03.03.2008


18,073/-

5 16/OE/FWDG/55 dated 25.04.2008


18,463/-

6 16/OE/FCL/WCA/321 dated 05.03.2009

M/s Patel Alloy Steel Pvt. Ltd., Ahmedabad

60,694/-

7 17/OE/FWDG/US/001 dated 01.04.2009


21,746/-

8 17/OE/FWDG/OTH/196 dated 01.09.2009

M/s CABB Karnavati Rasayan Ltd., Ahmedabad

78,595/-

23. Scrutiny of the above invoices revealed that they were engaged in providing a chain of services to various exporters/importers as well as to Custom House Agents etc. These invoices had been issued for handling an export shipment for which Air Freight charges, Air Way Bill Fees, Handling Charges, Ocean Freight, BAF Fees, ACD Charges, Bill of Lading Charges, Destuffing charges, Transportation charges, Documentation charges, IGM charges etc. had been recovered by them. They had issued these invoices job-wise and export consignment-wise by putting a note in this regard, e.g. “Invoice No. 15/OE/FWDG/798 dated 03.03.2008 issued to M/s Deepkiran Foods Pvt. Ltd., Gandhinagar, contains the following note “being amount charged for job no. 15/OE/FWDG/US/370 Cont No. : APRU-5032619/40 Pod: Chicago Inv No. : 297/07-08 dated 26.02.08(hpv)”.” Shri Samir J. Shah, Director of the said service provider, in his statement dated 31.03.2011, recorded during the investigation has accepted that they work for exporters, importers, CHAs and other forwarders and were operational at Ahmedabad, Baroda, Gandhidham and Nagpur. The shipments handled would have originated or terminated at various places viz. factory, warehouse, ports/airports both international and within India. Shri Samir J. Shah, further accepted that they were providing multiple services on consignment to consignment basis and the number of services to be provided depends upon the requirement of exporter/importer. Shri Shah has categorically accepted while replying to question No. 12 in his statement that their role was to support their client i.e. exporters, importers and other forwarders in movement of their cargoes.

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24. From the above facts and investigation conducted it appeared that the said service provider while performing the various activities as listed in Annexure ‘A’ attached to the statement dated 31.03.2011 of Shri Shah, Director, including above mentioned activities supported the business of exporters, importers, CHAs etc. on principal to principal basis and had also earned commission or brokerage for booking space in aircrafts and shipping lines for their customers. It thus appeared that the said service provider had provided “Business Auxiliary Service” as defined in section 65(19) of the Finance Act, 1994 and had provided “support services of business or commerce” as defined in section 65(104c) of the Finance Act, 1994, which were taxable under the respective sub-sections of section 65 of Finance Act, 1994, relevant definition of above two services are reproduced below:

Definition of Business Auxiliary Service as defined under Section 65(19) of The Finance Act, 1994 –

“business auxiliary service” means any service in relation to, — (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or(ii) promotion or marketing of service provided by the client; or Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of chance, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;[Explanation inserted vide Finance Bill 2008 w.e.f. 16th May, 2008] (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or

Explanation.— For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client; (v) production or processing of goods for, or on behalf of the client; or(vi) provision of service on behalf of the client; or(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include [* * * * ] any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).[Omitted vide Finance Bill 2008 w.e.f. 16th May, 2008]

Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this clause, —

(a) ”commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person —

(i) deals with goods or services or documents of title to such goods or services; or

(ii) collects payment of sale price of such goods or services; or (iii) guarantees for collection or payment for such goods or services; or(iv) undertakes any activities relating to such sale or purchase of such goods

or services;(b) “excisable goods” has the meaning assigned to it in clause (d) of section

2 of the Central Excise Act, 1944 (1 of 1944);

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(c) “manufacture” has the meaning assigned to it in clause (f) of Section 2 of the Central Excise Act, 1944(1 of 1944)

Definition of taxable service as per Section 65(105) (zzb) of Finance Act, 1994 :

As per Section 65(105) (zzb) “taxable service” means any service provided or to be provided to a client, by [any person] in relation to business auxiliary service;

Definition of Business Support Service As defined under Section 65(104c) of The Finance Act,1994

“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 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; (section 65(104c) of the Finance Act, 1994)

Definition of taxable service as per Section 65(105) (zzzq) of Finance Act, 1994 : As per section 65(105) (zzzq) of the Finance Act, 1994 - “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 mode;

The number of services provided by the said service providing company the details of which had been shown alongwith their nature in para supra as well as in Annexure ‘A’ attached to the statement dated 31.03.2011 of Shri Samir J. Shah, Director, indicates that they had provided various types of services viz. “Business Auxiliary Service”, “Business Support Service”, “Transport Service”, somewhere “Port Services”, “Cargo Handling Service”, “Warehousing Service” etc. but in composite manner to support the business or commerce of their customers viz. Importer/exporter/CHAs etc. Looking to the circumstances it was necessary to classify these services appropriately by keeping in view the provisions regarding classification of taxable services

Provisions regarding Classification of taxable services:

25. Section 65 A of finance act 1994 provides the manner for the classification of taxable services. The relevant statutory provisions are reproduced below:-

(1) For the purposes of this Chapter, the classification of taxable services shall be determined according to the terms of the sub-clauses of clause (105) of section 65.

(2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, the classification shall be effected as followed.

(a) The sub-clause which provides the most specific description shall

be preferred to sub-clauses providing a more general description.

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(b) Composite service consisting of a combination of different services which cannot be classified in the manner specified in clause (a) shall be classified as if they consist of a service which gives them their essential character, in so far as this criterion is applicable.

(c) When a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration.

26. On perusal of the above definition of “support services of business or commerce”, it appears 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 activities. Therefore, for exclusion it is necessary to show the exact nature of service provided. As mentioned in the foregoing paras that M/s Star Freight Pvt. Ltd. Ahmedabad had provided their services to the exporters, importers, manufacturers and CHAs on principal to principal basis although comprising so many chain of standalone services. They had managed these services and had provided the same to support the business or commerce of their clients.

27. On the basis of the above facts and discussions, it appeared that the services provided appeared to be classifiable most appropriately in the manner as mentioned in proviso 2 (b) of section 65 A of Finance Act 1994 under the category of “Business Support Services” (BSS) and “Business Auxiliary Services” (BAS) as these services give essential characters of the said taxable service.

28. On the basis of the above, the activities alongwith the nature of services provided by the said service provider had been categorized most appropriately in two taxable services viz. “Business Support Services” and “Business Auxiliary Services” in Annexure ‘B’ attached to the Show Cause Notice.

VALUATION OF TAXABLE SERVICES

29. On scrutiny of ledger abstracts provided by the said service provider, it was noticed that in most of the cases they had received higher amount reflected at credit side then that of the expenditure shown in debit side of the respective ledgers from their customers and they had carried forward the closing balances (excess of credit on debit side) to their financial accounts under the Head “income”.

30. On being asked regarding the reasons, the said service provider in their written reply dated 16.09.2009, had stated that they were freight forwarders and in the course of their business they buy various freight related services and then sell the same to their customers of which income detail have been shown in the balance sheet of the respective years.

31. Scrutiny of the documents withdrawn under the panchnama dated 26.08.2008 and other documents called for during the investigation revealed that they had undervalued their taxable services the details in this regard have been elaborated in earlier paras in the show cause notice.

32. Before proceeding further in the matter of valuation it was felt necessary to mention some of the provisions of Service Tax (Determination of Value) Rules, 2006. The relevant provisions are reproduced below –

Inclusion in or exclusion from value of certain expenditure or costs.

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Rule 5(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.

Rule 5(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 service provider 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; (iv) the recipient of service authorizes 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.Explanation 1. – For the purpose of sub-rule (2), “pure agent” means a person who-(a) enters into a contractual agreement with the recipient of service to act

as his pure agent to incur expenditure or costs in the course of providing taxable service;

(b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

(c) does not use such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or

services.Explanation 2. – For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice.

33. Clause 2 of Rule 5 as mentioned above clearly states that the expenditure or costs incurred by the service provider as a ‘pure agent’ of the recipient of the service shall be excluded from the value of the taxable service if all the above said (viii) conditions are satisfied.

34. Scrutiny of the financial accounts and documents provided reveals that the said service provider had not fulfilled all the conditions as mentioned above and hence not appears to be acted as pure agent for the reasons given below:

(i) they have acted on principal to principal basis while providing the services to their customers as they have purchased the activities first and then sold the same to their customers latter. In these circumstances it appears that all the bills raised by their vendors must have been in the name

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of M/s Star Freight Pvt. Ltd., Ahmedabad. Hence they have not procured goods or services for their customers;

(ii) they were required to receive only the actual amount incurred to procure goods or services while acting as pure agent whereas they have collected excess money from their customers as reflected in their financial accounts;

(iii) every service provider who acts as a pure agent is required to mention the amount received/charged as pure agent in their ST-3 returns. In the instant case ST-3 Returns filed during 2005-06 to 2009-10, reveals that no amount has been received/charged in the capacity of pure agent by the said service provider because of the fact that they have not acted as a pure agent and have thus not received/charged any amount as pure agent from their customers.

35. It was further noticed that they had even recovered more money on those taxable activities/services which appeared to be in the nature of reimbursable expenses. Some of such charges were ADC Charges, Transportation/Trucking charges, Rail Freight, Ocean Freight, Insurance Charges, Ground Rent Charges, Air Freight Charges, CFS Charges, Concor Charges, CWC Charges, DFRC Charges, Fuel Surcharge, CC Charges, BAF Fees, Suez Canal Charges etc.

36. From the facts mentioned here-in-above it could be understood here that the said service provider had split its consideration into taxable and non taxable portion, e.g. they had categorized “Ocean freight” recovered from the clients as non taxable portion by showing it as sale of service and during the period October, 2005 to March, 2010, they have recovered the amount of Rs.25,00,46,136/- [Rs.25,50,68,689/- (gross) – Rs.50,22,553/- (representing journal entries)] under the head “Ocean Freight” and had showed expenses worth Rs.24,40,98,230/- under the said head and hence had recovered an excess amount of Rs.59,47,906/- under the head of “Ocean Freight”. Whereas, it appeared that “Ocean Freight” was part of the composite activity which had been undertaken to accomplish export/import for a particular client. Thus, it appeared that the said service provider had vivisected the composite activity into various activities resulting into artificial fragmentation of value with an intention to evade the payment of service tax.

37. Investigation has not considered debit side of the ledgers because it is clearly mentioned under Rule 5(1) of provision of Service Tax (Determination of Value) Rule, 2006, that all 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.

38. The valuation of all the taxable services as classified in Annexure ‘B’ to the Show Cause Notice has been done by keeping in view the clarification given under Explanation 2 below Rule 5(2) of Service Tax (Determination of Value) Rule, 2006, by taking the total amount of consideration of taxable services consisting of all components of the taxable services i.e. the total amount received from the clients. The service-wise and year-wise valuation is shown in Annexure ‘C’ to the Show Cause Notice.

39. Proviso 2 to Sub Rule 1 of Rule 6 of the Service Tax Rules, 1994 states that the payment of service tax shall be at the time of receipt of payment toward the value of services. In view of this the billed amount and received amount shown in respective ST-3 Returns filed by the said service provider, have been compared with the financial records viz. profit and loss and Balance Sheet of the respective financial year and it appears that the said service provider have received almost all the billed amount of the taxable services as the amount outstanding with sundry debtors and bad

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debts are negligible in all the years. Hence the calculation of service tax liability has been done on the billed amount as per their financial records.

40. From the facts and discussions mentioned here-in-above, it appeared that all the activities performed by M/s Star Freight Pvt. Ltd., Ahmedabad, during 2005-06 to 2009-10 were very well covered under the ambit of taxable services and they had deliberately chosen some of the taxable activities from their total taxable activities, which they were providing to their customers viz. Exporters/importers/ CHAs etc. while supporting their business or commerce and when the investigation picked up the matter, they took U-turn and stated that they have mistakenly paid the service tax on some of their activities by classifying them under the taxable category of “Business Auxiliary Service” & “Business Support Service” which were not at all taxable services. They had further mentioned that they had paid service tax on some of these charges in some years due to lot of confusion prevailing in the field about taxability of these charges and merely because, they had paid service tax in some years due to bona fide mistake, the same cannot be charged to tax for some other period merely because in one period when the activity itself is not taxable and is not covered in any of the taxable services during the relevant period and they had deliberately mis-interpreted the definitions of “Business Auxiliary Service” & “Business Support Service” provided under the law to support their claim, which were very much clear. They had thus not disclosed all their taxable activities to the department.

41. They had suppressed the correct value from the department by not considering the actual receipts as has been discussed above in relevant paras, further they appeared to have not acted as pure agent and were required to consider total receipts (i.e. receipts shown in credit side of their ledgers of taxable services) even for such charges which appeared reimbursable in nature as discussed in relevant paras above in the SCN. ST-3 returns filed, during the period under question, by them also supported the above facts as no receipts/charges paid as pure agent appeared in the said Returns.

42. Thus the correct taxable value of their taxable services as detailed in Annexure ‘B’ to the Show Cause Notice was calculated to Rs.53,46,90,245/- (Rs.3,09,06,882/- under the category of “Business Auxiliary Service” plus Rs.50,37,83,363/- under the category of “Business Support Service”), for the period from 2005-06 (October’2005 to March’2006) to 2009-10, which has been shown in Annexure ‘C’ to the Show Cause Notice, upon which the said service provider were required to pay Service Tax of Rs.6,37,09,845/- the calculation of which has been shown in Annexure ‘D’ to the Show Cause Notice. However, the said service provider had already paid service tax of Rs.1,81,63,750/- during the Financial year 2005-06 (October’ 2005 to March’ 2006) to Financial year 2009-10. Therefore, the differential service tax of Rs.4,55,46,095/- was the service tax short paid by the said service provider which was required to be recovered from them under the proviso to Section 73(1) of the Finance Act, 1994 along with interest under Section 75 ibid.

43. Thus, it appeared that they had not discharged their service tax liability properly by suppressing the facts from the department regarding the value of their taxable service. The total service tax liability, short paid, comes to Rs.4,55,46,095/- On the total taxable value which has been calculated to Rs.53,46,90,245/-.

44. It further appeared that they had not disclosed to the department about their services being provided by them at Baroda, Nagpur & Gandhidham. They had also not obtained the service tax registration for these three locations/branches. It has been admitted by Shri Samir J Shah in his statement dated 31.3.2011 that they follow centralized billing pattern for all their branches at Ahmedabad.

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45. It further appeared from the details elaborated herein above that M/s Star Freight Pvt. Ltd., Ahmedabad had contravened the provisions of:-

(i) Section 67 & Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994 in as-much-as they have failed to value their taxable services and to pay the service tax amounting to Rs.4,55,46,095/- as mentioned in para supra for the period from 2005-06 (October, 2005 to March, 2006) to 2009 -10 to the credit of the Government as specified in Section 66 of the Finance Act, 1994 in such manner and within such period as may be prescribed.

(ii) Section 69 of the Finance Act, 1994 read with the Service Tax Rules, 1994 as that they have neither obtained centralized registration at Ahmedabad for all the branches in view of their centralized billing nor have obtained the individual service tax registration for their branches located at Baroda, Nagpur & Gandhidham at these places.

(iii) Section 70 of the Finance Act, 1994 as amended read with Rule 7 of the Service Tax Rules, 1994 in as much as they have failed to self – assess the Service Tax on the taxable value received by them and to file ST-3 returns for the said service provided during the period from Financial Year 2005-06 (October, 2005 to March, 2006) to 2009-10 and have thereby rendered themselves liable to penalty as provided under section 77 of Finance Act, 1994.

46. From the evidence, it appeared that the said service provider had not correctly assessed their taxable value. They had also failed to include the correct value of the taxable services in their ST-3 Returns. They had also not paid the service tax at appropriate time due on the taxable service rendered by them. This was in disregard to the requirements of law and breach of trust deposed on them. Such outright act of 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 of taxable service with intent to evade payment of service tax.

47. All the above acts of contravention on the part of the said service provider appeared to have been committed by way of suppression of facts with an intent to evade payment of service tax as discussed in the foregoing paras and therefore, the said amount of service tax amounting to Rs.4,55,46,095/- not paid was required to be demanded and recovered from them under the proviso to Section 73(1) of the Finance Act, 1994 by invoking extended period of five years for the reasons stated herein foregoing paras. All these acts of contravention of the provisions of Section 67, Section 68, Section 69 and Section 70 of the Finance Act, 1994 read with Rule 4, Rule 6 and Rule 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of Section 77 and Section 78 of the Finance Act, 1994 as amended from time to time.

48. In addition to the contravention, omission and commissions on the part of the said service provider as stated in the foregoing paras, it appeared that, they had suppressed the facts, nature and value of service provided by them viz. Business Auxiliary Service and Business Support Service with an intent to evade the payment of Service Tax rendering themselves liable for penalty under Section 78 of the Finance Act, 1994.

49. Every person liable to pay the service tax in accordance with the provisions of Section 68 or Rules made there under, if fails to credit the tax or any part thereof to the credit of central government within the prescribed period, shall pay interest at the rate notified by the government time to time. Since the said service provider had failed to pay the service tax, they were liable to pay the interest at the

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prescribed rates recoverable from them under the provisions of Section 75 of the Finance Act, 1994.

50. Therefore a show cause notice bearing F.No.STC/4-5/O&A/11-12 dated 21.04.2011 was issued to M/s Star Freight Pvt. Ltd., Ambica Chambers, Behind Old High Court, Navrangpura, Ahmedabad to show cause to the Commissioner of Service Tax, 1st Floor, Central Excise Building, Nr. Panjrapole, Opp. Polytechnic, Ambawadi, Ahmedabad -15 as to why:

i. The services rendered by them during the period 2005-06(October, 2005 to March, 2006) to 2009-10 should not be classified afresh under the taxable category of Business Auxiliary Service and Business Support Service as defined under Section 65(105)(zzb) & Section 65(105)(zzzq) of the Finance Act, 1994 respectively as detailed in Annexure-B to the show cause notice.

ii. Services rendered by them should not be considered as taxable services under the category of Business Auxiliary Service and Business Support Service as defined under Section 65 of the Finance Act 1994, as amended, and the amount of taxable value of Rs.53,46,90,245/- received as payment/recovered by them from their customers should not be considered as taxable value and Service Tax amounting to Rs.4,55,46,095/- (inclusive of Edu. Cess) not paid/short paid for the period from F.Y. 2005-06 (October’2005 to March’2006) to F.Y. 2009-10 should not be demanded from them under proviso to section 73(1) of the Finance Act, 1994, invoking extended period of five years as discussed hereinabove.

iii. Interest as applicable on the amount of service tax liability of Rs.4,55,46,095/- should not be recovered from them for the delay in making the payment, under Section 75 of the Finance Act, 1994 as amended;

iv. Penalty should not be imposed upon them under Section 76 of the Finance Act, 1994 as amended for the failure to make the payment of service tax within the prescribed time limit under the law;

v. Penalty should not be imposed upon them under Section 77 of the Finance Act, 1994 as amended for the failure to take centralized registration at Ahmedabad and to file prescribed service tax returns for their other branches as mentioned above;

vi. Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994 as amended for suppressing the value of taxable services provided by them before the Department with intent to evade payment of service tax amounting to Rs.4,55,46,095/- for the period from 2005-06 (October’2005 to March’2006) to 2008-09.

Thereafter, the following two show cause notices were issued for the subsequent periods :-

Sr. No.

Show cause notice No. Date Service Tax demanded

Period involved

1 STC/4-87/O&A/11-12 21.10.2011 1,19,23,240/- 2010-112 STC/4-35/O&A/12-13 22.10.2012 1,12,45,570/- 2011-12

DEFENCE REPLY

51. M/s Star Freight Pvt. Ltd vide their letter dated 19.08.2011 submitted reply to show cause notice bearing F.No.STC/4-5/O&A/11-12 dated 21.04.2011. They submitted that on the following grounds, they objected to the below given proposals in the said show cause notice:

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i) classification of their activities as taxable services under the above mentioned two categories.

ii) to impose service tax on the above said amount. iii) to impose interest under Section 75 iv) and to impose penalties under Section 76, 77 and 78 of the Finance Act

1994 as amended on the following grounds:

52. At the outset, they stated that the proposal to demand service tax for the period October 2005 to March 2010 was barred by limitation in terms of proviso to Section 73(1) of the Finance Act 1994 as amended.

1. They submitted that that in terms of Section 73(1) of the Finance Act, 1994 as amended, a Show Cause Notice can only be issued within a period of one year from the relevant date.

2. However, in terms of proviso to Section 73(1) of the Finance Act, 1994 as amended notice can be served at any time within five years, if the Officer has reasons to believe that any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of:

(a) Fraud; or(b) Collusion; or (c) Wilful misstatement; or(d) Suppression of facts; or (e) Contravention of any of the provisions of this Chapter

or of the Rules made there under with intent to evade payment of service tax.

3. It was their contention that none of the above mentioned ingredients that are required for invoking the extended period of 5 years were present in the instant case.

Therefore, no show cause notice should have been issued covering the extended period as has been done.

Thus, the Show Cause Notice was time barred and liable to be set aside on this count itself.

4. They drew attention to Para No.41 of the Show Cause Notice, alleging that they had suppressed the facts by not considering the actual receipts.

This allegation was neither sufficient for proving suppression of facts nor sustainable for invoking the extended period, since only the consideration received for taxable service need to be disclosed to the Department.

5. They stated that mere change of an opinion cannot be equated with suppression that too with intent to evade payment of tax is against the settled principles of law.

6. They stated that the entire facts were known to the department and therefore there was no justification for invoking extended period of limitation on the ground of suppression, fraud, collusion, wilful misstatement, contravention with intent to evade payment of tax.

7. They stated that Para No.2 of the Show Cause Notice makes it clear that the Department has issued summons dated 19.08.2009 ,16.09.2009 and 23.09.2009 and they had given the particulars to the Department.

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8. They stated that Para No.4 of the Show Cause Notice makes it abundantly clear that they had given the particulars vide their letter dated 16.10.2009 and 25.11.2009.

9. They stated that Para No.5 of the Show Cause Notice talks about an email dated 30.06.2010 directing them to produce the documents and Para No.6 admits the fact that the Annexure to the Show Cause Notice are being prepared based on the details given by them. Further, Para No.8 of the Show Cause Notice deals with the communications exchanged between them and the Department.

10. They stated that having knowledge about their activities and having the quantified data on hand, the Department has not chosen to issue a Show Cause Notice within the time limit prescribed under the Act.

Further, the allegation of suppression justifying the availability of extended period of limitation is contrary to para No. 2,4,5,8 of the Show Cause Notice

11. They stated that a plain reading of the proviso to Section 73(1) makes it clear that the extended period of limitation can be invoked only when there is a fraud, collusion, wilful misstatement, suppression of facts with an intention to evade payment of tax and merely because the department officials verified the data and are not in agreement with the legal position adopted by the assessee, the same cannot be a reason for invoking extended period of limitation.

12. They stated that the Supreme Court in the case of Jaiprakash Industries Ltd. Vs. Commissioner of Central Excise (2002) 146 ELT 481 has held that bona fide doubt as to non-excisability of goods, in such circumstances extended period of limitation is not invokable as there is no evidence of any fraud, collusion, wilful misstatement or suppression of fact available with Department. Mere failure or negligence in not taking licence or not paying duty not sufficient to invoke extended period. The Court in Para 6 has held as under:

The law on this point is well-settled.

In the case of Padmini Products v. Collector of Central Excise reported in 1989 (43)ELT195 (S.C.), this Court has held that wherever there is the scope for believing that the goods are not excisable to duty and, therefore, no licence is required to be taken out, then the extended period of limitation for demand under Section 11A is inapplicable. This Court has held that mere failure or negligence on the part of the manufacturer in not taking out a licence and in not paying duty does not attract the extended period of limitation. This Court has held that there must be evidence to show that the manufacturer knew that the goods were liable to duty and that he was required to take out a licence. This Court has held that for invoking the extended period of limitation duty should not have been paid, short levied or short paid or erroneously refunded because of either fraud, collusion, wilful mis-statement, suppression of fact or contravention of any provision or rules. This Court has held that these ingredients postulate a positive act and, therefore, mere failure to pay duty and/or take out a licence which is not due to any fraud, collusion or wilful mis-statement or suppression of fact or contravention of any provision is not sufficient to attract the extended period of limitation.

13. They stated that the Supreme Court in the case of M/s. Continental Foundation Joint Venture Vs. CCE (2007) 216 ELT 177 has held that the expression suppression has been used in the proviso to Section 11A of the Act accompanied by very strong words as ‘fraud’ or ‘collusion’ and therefore has to be construed

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strictly. Mere omission to give correct information is not suppression of fact unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render suppression. The burden is on the revenue to prove suppression of fact. An incorrect statement cannot be equated with a wilful misstatement. The latter implies making an incorrect statement with the knowledge that the statement was not correct. Misstatement of fact must be wilful.

14. They stated that the Hon’ble Supreme Court in the case of Pushpam Pharmaceuticals Company Vs Collector of C. Ex. Bombay (1995) 78 ELT 401, has held that extended period of five years cannot be invoked unless there is a deliberate attempt to evade the payment of duty. The Supreme Court observed as under:

“A perusal of proviso to Section 11A indicates that the expression ‘suppression of facts’ has been used in company of such strong words as fraud, collusion or willful default. In fact, it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done does not render it suppression

15. They stated that the Supreme Court in the case of Collector of Central Excise Vs. Chemphar Drugs & Liniments Ltd (2002) TIOL 266 has held that extended period is not available if the Department had full knowledge about the facts.

16. They stated that the Tribunal in the case of Catvision Products Ltd (2006) 194 ELT 126 has held that if the fact is known to the department, extended period of limitation is not available.

17. They stated that the Supreme Court in the case of Nestle India Limited Vs. CCE (2009) TIOL 26 has held that extended period of limitation is applicable only when there is some positive act other than mere inaction or failure on the part of the manufacturer. There must be conscious or deliberate withholding of information by the manufacturer to invoke larger period of limitation. The Supreme Court has followed the decision in the case of Padmini Products Vs. Collector of Central Excise (2002) TIOL 289 and Collector of Central Excise Vs. Chemphar Drugs and Liniments (2002) TIOL 266

18. They stated that the High Court of Kerala in the case of Commissioner of Customs Vs. Cochin Minerals & Rutiles Ltd. (2010) 259 ELT 182 has held as follows after relying upon the decision in the case of Continental Foundation, Nestle India Ltd., and Rajasthan Spinning & Weaving Mills.

“An examination of the above three judgments makes it abundantly clear that it is not in every case where there is short levy or short payment or non levy, etc. that the extended period of limitation is made available to the department for recovery of the amount of tax which escaped assessment. It is only in those cases where there is willful and deliberate suppression of the fact, such extended period of limitation is available to the department. An ‘element of

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deception or malpractice’ is a necessary concomitant of willful and deliberate suppression of fact. The Supreme Court also opined that in order to invoke the extended period of limitation under the proviso to Section 11A(1) of the Act, there must be some positive act other than mere inaction or failure on the part of the manufacturer”.

19. They stated that the Hon’ble Supreme Court in the case of CCE Vs. Ballarpur Industries (2007) 8 SCC 89 has applied the principles laid down in Continental case cited supra and held that the term ‘suppression’ should be construed strictly and therefore, the extended period is not applicable.

20. They stated that the Supreme Court in the case of Collector of Central Excise Vs. H.M.M. Ltd. (1995) 76 ELT 497 has held that the limitation for extended period cannot be invoked unless the show cause notice puts assessee to notice specifically as to which of the various commissions or omissions stated in the proviso to the Section had been committed.

21. They stated that the Hon’ble Mumbai Tribunal in the case of Sands Hotel Pvt. Ltd. Vs CST (2009) TIOL 441 has held that mere detection by the Department does not mean that non-payment was with intention to evade unless the Department brings out clear facts that we were in the know that service tax was payable on such services but still the assessee chose not to pay the tax in order to evade the same.

22. They stated that the Hon’ble Tribunal in the case of Rolex Logistics Pvt Ltd Vs Commissioner of Service Tax (2009) 13 STR 147 has held that larger period cannot be extended as the Show Cause Notice is based on balance sheet and other documents and service tax has been regularly paid and returns filed.

Thus extended period was not invokable since there was no suppression of facts or malafide intent to evade payment of tax on their part. It was a settled law that in case of bonafide belief, also extended period of limitation was not invokable.

They placed reliance on the following case laws:

1. Binlas Duplex V/s CCE (Tribunal) reported in 7 STR 561-(Reference pages 110 to 113 of the case law compilation.

2. NRC Ltd V/s CCE (Tribunal) reported in 5 STR 308 as confirmed by Hon’ble High Court-(Reference pages 114 to 116 of the case law compilation.

It was therefore submitted that the notice be dropped on this ground alone.

Additionally they also stated that.

23. It is evident from the facts that the department had withdrawn their all records comprising of ledger accounts, profit and loss account, balance sheet, ST-3 returns and other relevant papers vide Panchnama dated 26-08-2008. It did not issue SCN within a period of acquiring knowledge of their activities and hence relying on decision of Hon. Supreme Court in case of Nizam Sugar Factory V. CCE [2008 (9) STR 314 (SC)], the demand was time barred. Hon. Supreme court in this case observed as follows. “Allegation of suppression of facts against the appellant cannot be sustained. When the first SCN was issued all the relevant facts were in the knowledge of the authorities. Later on, while issuing the second and third show cause notices the same/similar facts could not be taken as suppression of facts on the part of

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the assessee as these facts were already in the knowledge of the authorities. They agreed with the view taken in the aforesaid judgments and respectfully following the same, hold that there was no suppression of facts on the part of the assessee/appellant.” Sir, following the ratio laid down in Nizam Sugar (supra), as all the relevant facts were in the knowledge of the authorities, the same/similar facts could not be taken as suppression as wrongly alleged in the SCN. In their case the SCN was issued after about 33 months on 21-04-2011. This fact makes the SCN hopelessly time barred as all the facts about their activities were reflected in their audited accounts and there was no suppression or intention to evade payment of service tax on their part when their activities were in the knowledge of department since the date of their registration on 17-08-2005 and more particularly on 26-08-2008 when their records were withdrawn.

24. They had paid due service tax in respect of BAS and BSS where payable and accordingly to the trade practice as also based on the advisories provided by Trade Association and our Chartered Accountants from time to time. However, since the amount of freight and activities incidental to freight were not taxable in their hands, they did not charge or recover service tax on this amount under a bona fide belief that the service tax was not payable thereon. Further, their bona fide belief was based on trade practice followed by other players in the market, advisory by trade associations, advise from our chartered accountants and the facts of not charging of service tax on such activities by them to their customers stand reflected in the invoices raised by them and all their records which were perused by the department.

25. Their bonafide belief was also based on a series of decisions of different Tribunals holding that freight element cannot be included for service tax and profit from other activities were not taxable. Some of these decisions are Bax Global India Ltd. v. CST [2008 (9) STR 412 (Tri.-Bang.)] and Gudwin Logistics v. CCE [2010 (18) STR 348 (Tri.-Ahmd.)]

26. They had provided all the information to the department as and when asked for. They had never suppressed any information. They had no intention to evade payment of service tax and there was not an iota of evidence to this effect. Department was aware about their nature of activity since the date of our registration on 17-08-2005 and more particularly on 26-08-2008 when their records were withdrawn. True and complete account of transactions is otherwise available in the specified records including our bills and books of accounts about the freight and other charges recovered by them and the fact that they had not charged or recovered service tax thereon makes it amply clear that there was no suppression or intent to evade payment of tax on their part.

27. They were paying service tax under BAS and BSS regularly, where payable by them. Department was accepting this service tax since then and has not raised any issue in the past based on our returns. Under the circumstances, merely based on presumptions, extended period of limitation cannot be invoked.

28. Theirs is a limited company, their accounts are audited by statutory auditors and the Balance Sheets and other related documents are publicly available for verification under provisions of Companies Act, 1956. Under the circumstances, it was not proper to allege suppression on their part without even a whisper of evidence to this effect.

29. They had filed their periodical ST-3 returns regularly since the date of registration showing the value of taxable services therein and this also proves

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that there was no suppression or intent to evade payment of service tax on our part.

30. The SCN does not talk about the circumstances why it can invoke the provisions of extended period of limitation except routinely alleging suppression with intent to evade payment of service tax. It only depicts wrong attitude of routinely invoking the extended period of limitation. We draw your attention to CBEC Circular No. 5/92-CX.4, dated 13-10-1992 – (1993) 63 ELT T7, wherein Board has taken note of such attitude. Board has stated that such attitude only increased fruitless adjudication with the gamut of appeals and reviews, inflation of outstanding figures and harassment of assesses. Board has warned that such casualness in issuance of show cause notices will be viewed seriously. It further clarifies that mere non-declaration is not sufficient for invoking larger period, but a positive mis-declaration is necessary, as per decision of Supreme Court in Padmini Products and Chemphar Drugs. They stated that they had provided all the information required by the revenue officers as and when demanded and have not concealed anything from them nor is there any allegation about any specific suppression. In view of there being reasonable and correct belief that service tax was not payable on freight and other incidental charges, they had not paid the same and their bonafide belief was also based on a series of decided cases in this regard. They had not violated any provisions of law nor was there any willful suppression.

As noted in paragraph 9 of the SCN, they had also sought to know from the department the service categories of their activities categorically informing them that as per their bonafide belief, none of the activities fall under any category of taxable service where they had not paid service tax.

31. They stated that the dispute in the present case as regards inclusion of value of freight and other incidental activities in the value of taxable service under the category of BSS is a pure question of interpretation at a nascent stage of imposition of a completely new levy viz. service tax on BSS w.e.f. 01-05-2006.

This is also evident from the majority of decisions holding that amount charged for freight and freight related activities are not taxable under different services proposed by department in different cases. The fact that the department had demanded service tax on freight and other incidental charges under different heads also prove that even department is in dilemma as to the precise classification of these activities. The following decisions and departmental clarifications support our view that the question of interpretation is involved in the present issue.

(i) Bax Global India Ltd. v. CST [2008 (9) STR 412 (Tri.-Bang.)] wherein department had sought to tax receipts for freight forwarding activities like air that of freight, storage and warehousing, freight revenue, cartage revenue, MSIL/JWG charges, Due carrier charges, Liner charges, examination fees, DO fees, Bill of Lading fee, CFS charges, ‘Charges Collect Fee’, ‘Currency Adjustment Fee’ (CAF) etc. under customs house agent (CHA) service. Hon. Tribunal held that these air exports, air imports, ocean exports, ocean imports, logistics are not taxable under CHA service as the services are rendered by the third party despite there being profit or loss on such activities. It further held that even if any profit has been made in respect of those activities they cannot be subjected to service tax.

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(ii) Gudwin Logistics v. CCE [2010 (18) STR 348 (Tri.-Ahmd.)] wherein activities of ocean freight, getting goods fumigated, loading and unloading, stuffing of containers, facilitation of clearance of cargo etc. in port area were proposed to be taxed under Clearing and Forwarding C&F) Service. Tribunal held that impugned activities are not C&F services. Tribunal also noted that substantial portion of the total amount collected by the appellants relates to ocean freight which itself is not liable to Service tax at all. The decision of the Tribunal in the case of DHL Lemuir Logistics Pvt. Ltd. relating to air freight is applicable to the facts of this case also and therefore the decision of the Commissioner that ocean freight also should be included for the purpose of Service tax levy on the appellants prima-facie appears to be wrong.

(iii) DHL Lemuir Logistics (P) Ltd. v. CST [2010 (17) STR 266 (Tri.-Bang.)] where department sought to tax activity of freight forwarding under CHA service and Tribunal holding that all activities conducted by the appellants cannot be categorized under one category and charged to service tax and that activities relating to freight forwarding cannot be brought under CHA. It held that freight charges collected for transportation service by airlines, Charge Collect Fees, Break Bulk Fees, profit share, unallocated income, Currency Adjustment Factor, Air/Sea freight rebate, commission/brokerage, expenses reimbursement explained etc can not be included in taxable value of CHA service.

(iv) Jet Airways (India) P. Ltd. v. CCE [2010 (17) STR 94 (Tri.-Bang.)] where department sought to tax charges for transportation of cargo from one place to another by the airways under cargo handling service and Tribunal held that it would not amount to cargo handling services.

(v) Jet Airways (India) Ltd. v. CST [2008 (11) STR 645 (Tri.-Ahmd.)] where department sought to tax charges for transport of goods by aircraft by the airways under cargo handling service and Tribunal held that it would not amount to cargo handling services.

(vi) Lee & Muir Head Pvt. Ltd. v. CST [2009 (14) STR 348 (Tri.-Bang.)] wherein department sought to tax on freight collection and receipt of commission therefore, import console charge, charge collected fee, delivery order fee etc. under CHA service and Tribunal held that it can not be taxed under that service. Further department had sought tax transportation under Cargo Handling service and Tribunal held that mere transportation is not covered under cargo handling service.

(vii) Kin-Ship Services (India) P. Ltd. v. CCE [2008 (10) STR 331 (Tri.-Bang.)] wherein stevedoring activity was sought to be taxed under port service by the department and Tribunal held that it cannot be taxed under port service. Further, department also sought to tax transportation charges under CHA service Tribunal held that it cannot be included in CHA service.

(viii) CBEC letter F. No. 137/131/2004-Cx.4, dated 12-12-2007 clarified that delivery order charge and inland haulage charges collected by shipping companies for conveyance of outwards surface Indian Postal Mails to various foreign countries and handling of export cargo or passenger baggage etc. is covered under ‘business support service. Such clarification issued by the department shows that there was a doubt on this issue though the service tax is imposed under BSS since 01-05-2006 and hence the issue involves question of interpretation.

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It can be seen from only some of the decisions stated above that department had sought to tax the activities of freight forwarding under varying services like that of CHA, C & F agent, Cargo Handling, Port, etc. This proves that even departmental officers are not at uniformity in concluding about the correct classification. Apart from above decisions, there are series of other interim and final orders on the issue of these charges which clearly prove that the question of interpretation is involved.

32. They stated that there is no positive suppression or mis-statement with intent to evade payment of service tax on their part so as to invoke the longer period of limitation. They stated that there was no violation of any provisions of service tax law as wrongly alleged in the SCN. They relied on the following judgments which clearly lay down that under such circumstances extended period of limitation cannot be invoked.

(i) Padmini Products v. CCE [1989 (43) ELT 195 (SC)] wherein it was held that extended period of 5 years is inapplicable for mere failure or negligence of the manufacturer to take out license or pay duty when there was scope for doubt that the goods were not dutiable. Sir, in our case, a series of decisions have held that ocean freight and air freight and a series of other incidental charges are not to be included in taxable value.

(ii) Stone & Webster International Inc. v. CCE [2011 (22) STR 467 (Tri.-Ahmd.)] holding that any bona fide lapse not to make inquiries about its obligation to pay duty/tax, cannot be made reason for invocation of extended period unless there is evidence to show that such lapse was on account of mala fide intention and with guilty mind of avoiding payment of tax. In absence of any instance or evidence to show that the appellants have knowingly suppressed the facts from the department with mala fide intention not to pay tax, extended period of limitation cannot be invoked. It held that the extended period of 5 years is available to the Revenue only when the service tax is not paid or less paid on account of mala fide on the part of the assessee. It stands held by various decisions of the Tribunal that mis-statement or suppression or contravention of any provisions has to be with intent to evade payment of duty.

(iii) CCE v. Chemphar Drugs & Liniments [1989 (40) ELT 276 (SC)] holding that extended period of 5 years is applicable only when something positive other than mere inaction or failure on the part of manufacturer is proved. Conscious or deliberate withholding of information by manufacturer is necessary to invoke large limitation of five years. If department had full knowledge or manufacturer had reasonable belief that he is not required to give a particular information, larger period of limitation cannot be invoked. Sir, in our case, also department had full knowledge about our activity since 2005 and more particularly since 2008. Further, we had reasonable belief that we are not liable for payment of service tax on ocean freight, air freight and other freight related incidental activities.

(iv) Bridgestone Financial Services v. CST, Bangalore [2007 (8) STR 505 (Tri.-Bang.)] wherein it was held that where statements and records were given, bonafide belief of non-liability as per statement was claimed, there was no finding of willful suppression with intent to evade payment of service tax, demand was not sustainable on ground of time bar as the SCN was issued after normal period.

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(v) NRC Ltd. v. CCE, Thane-I [2007 (5) STR 308 (Tri.-Mum)]: Appellants under bona fide belief that they are not covered by definition of clearing and forwarding agents, hence not applied for service tax registration and not followed subsequent procedures and there is no evidence to show that appellants suppressed information with an intention to evade payment of duty, the demand is barred by limitation.

(vi) Hon. Supreme Court has, in its decision in Tamilnadu Housing Board v. CCE – 1994 (74) ELT 9 (SC), held that where there was scope of doubt whether duty was payable or not, it is not ‘intention to evade payment of duty’.

(vii) Hon. Gujarat high Court has, in the case of Apex Electricals (P) Ltd. v. UOI – 1992 (61) ELT 413 (Guj.) held that there can be no suppression if facts which are not required to be disclosed are not disclosed.

(viii) Pahwa Chemicals P. Ltd. v. CCE, Delhi [2005 (189) ELT 257 (S.C.)] It was held that mere failure to declare does not amount to misdeclaration or willful suppression but some positive act on part of party to establish either willful misdeclaration or willful suppression is must.

(ix) Continental Foundation Jt. Venture v. CCE, Chandigarh-I [2007 (216) ELT 177 (SC)]: Extended period not invokable for mere omission to give correct information. Incorrect statement is not equivalent to willful misstatement.

(x) In CCE, Delhi v. Soni & Toni Electrical [2007 (217) ELT 457 (Tri.-Del.)], Hon. Tribunal held that larger period of limitation was not invocable and had rightly observed that if Tribunals and other judicial forums could be divided on an issue despite the ready availability of well stocked libraries of law and cerebral counsels at their disposal, how could a layman assessee of a small scale outfit could be treated as harboring malafide particularly where there is no supporting evidence against him.

(xi) In Dalveer Sing v. CCE, Jaipur [2008(9) STR 491 (Tri.-Del.)] it was held that in the absence of suppression or mis-declaration of facts with intent to evade payment of service tax, extended period of limitation cannot be invoked. Relevant quotation from the judgment stated “I find that the demand is barred by limitation inasmuch as show cause notice for the period 16-8-2002 to 31-10-2004 was issued on 12-9-2005. The service tax having being introduced for the first time was in lost of confusion and doubt. Merely because the appellant did not apply for registration and did not pay tax is no ground to come to a finding that the same was done with a mala fide intention. Keeping in view the confusion prevailing in the field as regards the liability of service tax, the appellant is to be extended benefit of doubt and it is to be held that there was not intention to suppress or mis-declare the facts with intent to evade payment of duty. As such, I hold that the demand is barred by limitation also.”

(xii) Zee Telefilms Ltd. v. CCE [2006 (4) STR 349 (Tri.-Mum.)] holding that even when repeated reminders sent by department to an entity to get itself registered, extended period is not invocable especially as department had full knowledge of activities of the entity.

(xiii) CCE v. Nadeshwari Packaging [2009 (235) ELT 697 (Tri.-Ahmd.)] holding that order setting aside demand as barred by limitation is sustainable when the SCN was issued after period of six months from the

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date of search and even after completion of investigations relying on decision of Hon. Supreme Court in the case of C.C.E, Chandigarh-II v. Bhalla Enterprises - 2004 (173) E.L.T. 225 (S.C.) holding that the limitation for issue of show cause notice is to run from the date of search and seizure of documents or from date of completion of investigation. The Commissioner (Appeals) had, in this case, observed that “there had been un explainable, callous and fatal delay in issuing the SCN in question. The department has not made any meaningful investigation or turned out any milestone in consuming more than 4 and half years in completing the investigation. Therefore, I have no hesitation in holding that the demand notice issued by the Additional Commissioner as late as on 9-7-04 is hopelessly time barred.”

(xiv) CCE v. Pals Microsystems Ltd. [2009 (234) ELT 428 (Kar.)] upholding that premises of the respondent is visited by departmental officer on 25-10-1996 and show cause notice is issued on 26-6-200, the same is barred by limitation.

(xv) Steel Cast Ltd. v. CCE [2009 (14) STR 129 (Tri.-Ahmd.)] holding that where appellant had reflected their income from services in their financial statements and had collected by it by raising invoices and where there was confusion with regard to the applicability of service tax on the service provided by the assessee, as also there has been no specific finding as regards suppression by the revenue, the extended period of limitation cannot be invoked. Hon. High Court upheld the Tribunal’s decision of non-invocation of larger period of limitation on the ground that there was no attempt on the part of appellant to suppress or hide the fact from the Revenue as reported at CCE v. Steel Cast Ltd. [2011 (21) STR 500 (Guj.)]

They stated that the facts of their case were similar to the facts in the above judgments. In view of these facts, they vehemently deny the charge of suppression and state that the demand was barred by limitation also and was not sustainable. Hence, they requested to drop the demand under SCN on the ground of limitation also.

Without prejudice to their submission that the demand for the period October 2005 to March 2010 was barred by limitation, they submitted the following on merits:

33. It must be appreciated that they were basically engaged in the activity of freight forwarding, multi-modal transport etc. They submitted that they had discharged service tax in accordance with the provisions of law.

34. They stated that the expenses such as AD charges, DAD charges, choking charges, detention charges etc. reimbursed by the client and hence it cannot be considered as consideration for the taxable service. Further, the Board has clarified that container detention charges is not liable to service tax. (cite authority).

35. It is to be noted that the service is not taxable hence cannot be levied to under service tax under any circumstances.

36. They stated that it was their bonafide belief that the difference between purchase price and selling price of ship space was not liable to service tax. The main allegation in the Show Cause Notice in Para No.10 that certain amounts recovered would form part of taxable value and hence liable to service tax is on the basis of the one sided interpretation of the details submitted by us to the

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investigating authorities. They had never admitted taxability of the said activities.

37. They stated that from the table given in Para No.10 of the Show Cause Notice it is clear that service tax was not applicable on these items as it does not represent the consideration for taxable service.

38. They stated that Section 65(19) of the Finance Act 1994 as amended defines ‘Business Auxiliary Service’ and the definition reads as under:“Business Auxiliary Service means any service in relation to

(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) promotion or marketing of service provided by the client; or

(iii) any customer care service provided on behalf of the client; or

(iv) procurement of goods or services, which are inputs for the client; or

[Explanation – For the removal of doubts, it is hereby declared that for the

purposes of this sub-clause,” inputs” means all goods or services intended for use

by the client]

(v) production or processing of goods for, or on behalf of the client; or

(vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified to sub-clauses

(i) to (vi) such as billing, issue or collection or recovery of cheques payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to “manufacture” within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944.

Explanation. – For the removal of doubts, it is hereby declared that for the purposes of this clause, -

(a) “Commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person –

(i) deals with goods or services or documents of title to such goods or services; or

(ii) collects payment of sale price of such goods or services; or

(iii) guarantees for collection or payment for such goods or services; or

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(iv) undertakes any activities relating to such sale or purchase of such goods or services;

“Information technology service” means any service in relation to designing, developing or maintaining of computer software, or computerized data processing or system networking, or any other service primarily in relation to operation of computer systems

39. They stated that Section 65(104c) of the Finance Act 1994 as amended defines Business Support Service and the definition reads 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 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”.

40. They stated that the definition of taxable services as per Section 65(105)(zzzq) of the Finance Act, 1994 as amended defines ‘taxable service’ as under:

“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”.

41. They stated that a reading of the definition of Business Auxiliary Service as well as Business Support Service make it clear that the items which are separately recovered (as detailed in Para No.10) cannot be called as consideration.

42. It appears that the show cause notice has proceeded with the assumption that the “Business Support service” includes every service provided in relation to business or commerce, which may or may not fall under any other category.

However, this can not be the intent of the law as had this been the case, there was no need for any other category of taxable service.

Therefore, it was submitted that “Business Support Service” can not be treated as a residuary category of taxable service.

In other words, in case a service is covered under a specific category and gets excluded from there because of some specified exclusion, it can not be taxed under this category, nor a service not covered under any other taxable category can be taxed hereunder.

43. They stated that 65(19)(i) of the Finance Act, 1994 as amended provides for promotion of marketing or sale of goods produced or provided by or belonging to the client.

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They stated that in the instant case, they were are not promoting or marketing any kind of goods produced or provided or belongs to the client and therefore 65(19)(i) has no application.

44. They stated that Section 65(19)(ii) provides for promotion or marketing of services provided by the client.

In the instant case, they were not promoting any sort of service provided by any person.

45. They stated that Section 65(19)(iii) provides for any customer care service provided on behalf of the client.

In the present case, they were not providing any customer care services on behalf of the client.

46. They stated that Section 65(19)(iv) provides for procurement of goods or services, which are inputs for the client.

In the instant case, they were not procuring any sort of goods or services, which are inputs for the client to attract the provisions of Section 65(19)(iv).

47. They stated that Section 65(19)(v) provides for production or processing of goods for or on behalf of the client.

They are not either producer or processor on behalf of the client. Further, in the instant case, there was no goods involved, therefore, Section 65(19)(v) has no application.

48. They stated that Section 65(19)(vi) provides for provision of services on behalf of the client. In the instant case, they were not making any provision of services on behalf of the client in order to attract Section 65(19)(vi).

Additionally it was submitted that.

49. Based on following submissions and facts they stated that the fresh classification as suggested in the SCN was not correct in so far as it relates to certain non-taxable activities as also the activities which are not taxable under the categories of BSS as wrongly presumed in the SCN.

49.1 They were registered with the department since 17-08-2005 under service tax registration number AAACS6297AST001 and department has never raised any issue of classification in the past.

49.2 Their Ledger abstracts, copies of audited balance sheets and profit and loss account, ST-3 returns and other relevant details about nature of their activities were provided to the department on 26-08-2008.

No questions were raised for more than 11 months after the withdrawal of all these records and getting all the relevant information about our activities during the visit of our office on 26-08-2008 and it appears that the SCN is issued to us after a gap of about 33 months hurriedly classifying certain activities under BSS without still properly understanding the nature of their activity which is mainly related to freight.

49.3 They had, vide their letter dated 01-03-2011 explained in detail nature of 73 activities on which service tax was not payable by them as freight

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forwarders either under BAS or BSS. The said submissions of theirs get reflected in Paragraphs 10 to 11 of the SCN. They had explained in detail how they were not liable to pay service tax either under BAS or BSS on any of these activities.

However, the SCN proposes to classify all these activities under BSS without giving any specific cogent reason for coverage of each activity and by merely stating in Annexure ‘B’ of the SCN the classification as BSS based on presumption.

49.4 BSS is not a residuary service to cover each and every service provided in relation to business or commerce but it includes those services in relation to business or commerce which are specifically included in the definition of ‘support services of business or commerce’ as given in section 65(104c) of the Act. As per the said definition, support services of business or commerce means –

(a) Services provided in relation to business or commerce, and(b) Includes

(i) evaluation of prospective customers;(ii) telemarketing;(iii) processing of purchase orders and fulfillment services;(iv) information and tracking of delivery schedules;(v) managing distribution and logistics;(vi) customer relationship management services;(vii) accounting and processing of transactions;(viii) operational assistance for marketing;(ix) formulation of customer service and pricing policies;(x) infrastructural support services; and (xi) other transaction processing.

49.5 None of the charges of 73 activities stated in paragraph 10 of the SCN are for evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.

Hence these charges were not taxable under the category of business support service that has been made taxable w.e.f. 01-05-2006 as wrongly presumed by the SCN.

If the classification as proposed by the SCN was to follow there is no need for specifying 119 different taxable services under section 65(105) of the Act most of which were in relation to business or commerce. The category of BSS proposes to cover within its ambit only 11 specified services stated above if they were provided in relation to business or commerce.

If the service was not falling under any of the specific 11 activities specified above, they cannot be covered under the category of BSS. Even the SCN has not been able to point out any specific activity out of those 11 activities covered within the scope of BSS, making SCN bad in law.

49.6 Their activity of buying and selling does not attract service tax. For example, buying the space in a ship and selling to their customer, there was no service tax liability on their part as they did not provide any service.

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The shipping line or the airline provide such service relating to freight and in terms of provisions of Finance Act, 1994, a service provider is liable to pay service tax in terms of provisions of section 68(1) of the Act. Further, for such service they were also not made liable to pay service tax as recipient of service in terms of provisions of section 68(2) of the Act.

They earn only a margin of profit on sale of such space to their customers. It has been categorically held in the case of Bax Global India Ltd. v. CST [2008 (9) STR 412 (Tri.-Bang.)] that freight collected towards air freight for the customers and paid to airlines cannot be taxed under Custom House agency activity. An order seeking to tax this activity was held to be without application of mind by the adjudicating authority to the details of the various activities undertaken by the appellants and how they relate to the amount collected by them. It was also held therein that the profit or loss incurred in respect of activities which are not related to CHA activity should not be the concern of the department.

It further observed that in all these cases the services were rendered by the third party and the appellants initially make payment for the activities on behalf of the client and later collect the amount from the clients.

It was also held therein that charges like ‘charges collect fee’, ‘DO fee’, ‘Currency Adjustment Fee’, ‘Cartage revenue’, etc. for services directly rendered and whose nature is clearly explained by the appellant is not taxable even if any profit has been made in respect of those activities.

49.7 It may be noted that the SCN, without categorically pointing out why each activity will be classified under BAS or BSS, states in its paragraph 27 in general apprehensive manner, that “it appears that the services provided are appears to be classifiable most appropriately in the manner as mentioned in proviso 2(b) of section 65A of Finance Act, 1994 under the category of BSS and BAS as these services gives essential characters of the said taxable service.” Such vague assertions and apprehensions without meticulously looking into the nature of each activity cannot decide the classification.

They stated that each of the activities carried out by them need to be classified separately as taxable and not taxable service and if they were taxable, it has to fall under any of the 119 taxable services and the department has not discharged its onus to classify them with reference to the nature of each activity and merely resorted to presumption of classifying the same mostly under BSS which is a cruel attempt to demand service tax on activities which are not taxable and which are not covered under BSS. Specific description of our service is that of ocean freight and air freight purchased from shipping line or airline and then sold to our customers. All other services are incidental to freight and when the ocean freight or air freight service is such that is not attracting any tax under any of the categories on the part of the freight forwarders who are not actually providing this service, the said service cannot be held to be taxable on the part of freight forwarders who only act as intermediary to purchase space for its customers and because they do not actually provide the service using their ship or aircraft.

They brought to notice

order has been issued by the Commissioner of Central Excise (Appeals), Chennai in the case of AVR Cargo Agency Pvt. Ltd. in Order in Appeal No.85/2011 (MST) dated 27.05.2011. The Appellate Authority has held that service tax on both incentives received from airline as well as differential

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air-freight is not warranted.The relevant portion is extracted below:

I find from the records that the Department had not made any effort to prove that there is Service Provider / Client relationship between the appellant and the airline. When such relationship is not there, there is no service involved between them. The incentive is given by the airline to the appellant consequent to their turnover achieved.In the case of Euro RSCG Advertising Ltd Vs. Commissioner of C.S.T. Bangalore - 2007 (7) STR 277 (Tri. Bang), it was held that any amount received from clients are taxable. The Airlines which gave incentive to the Appellant is not the client. The above view has been echoed by another decision in the case of Kerala Publicity Bureau Vs CCE - 2008(0) STR 101 (Tri.Bang.). Hence on merit also the issue is failed. The same applies to the differential airfreight issue also. The decisions in the case of Indian Oxygen Ltd Vs CCE - 1998 (36) ELT 723 and Bax Global India Ltd Vs Commr. of ST - 2008 (9) STR 412 squarely cover this issue. Hence, I am not inclined to accept the contention of the Department to demand of the Service tax on the incentives received from the airline and differential air freight. Therefore, I hold that the appellant is not liable to pay service tax on the additional incentive received from airlines and differential airfreight during the disputed period.Hence, I hold that the SCN fails on merits as well.”

The Tribunal in the case of Pratap Sing and Sons Vs.CCE(2007)5 STR 289 has held that where the appellant purchases and resells the products of several manufactures, the appellant on purchase of goods becomes the owner of the goods.It is in the applellant’s own interest to promote the sales activites,make advertisement, keep trained salesman.This cannot be considered as service rendered to principals namely manufactures.If there was any special relationship or additional consideration leading to charging of lower price to the appellant, at the most it can become an issue relating to valuation of goods.The discount given by the manufacturer cannot be taken as service charges.

Therefore the air freight difference arises on account of principal-principal relationship, where the member buys air cargo space and sells air cargo space. The difference between the selling price and the purchase price is nothing but profit or loss as the case may be and cannot be considered as Business Auxiliary Services or Business Support Services.

Thus, going by the provisions of section 65A(2)(a), the specific description of nature of activity of freight forwarder is to buy and sell space in ship or aircraft. This activity of buying or selling the space is not taxable under any of the 119 categories of taxable service even today.

Hence their activity cannot be classified under BSS as wrongly proposed in the SCN. They stated that each activity of ocean freight or air freight and incidental activities related thereto are independent and on stand alone basis separate activities. However, even if it is presumed to be a composite activity, the essential character of the service is that of freight service and accordingly, even in terms of provisions of section 65A(2)(b) of the Act, the service has to be classified as that of ocean freight or air freight service and for such service the service provider is shipping line or the airline and freight forwarder is not actually providing this service. He only buys and sells the space in the ship or aircraft and accordingly, even going by the provisions of section 65(2)(b), our activity can, by no stretch of imagination, be said to be BSS. Further, even if incidental activities like BAF lashing charges, PCS charges, BAF charges, Chocking charges, ETCS charges, CONCOR charges etc. are considered as a part of composite service of freight, all these

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charges are relating to freight and hence also the classification of activity has to be that of freight as freight is the essential character of service.

They accordingly, prayed for holding that their activity of buying and selling space in ship or airline i. e. relating to freight was not classifiable under the category of BSS and thus render justice.

49.8 It is well settled that once there is a specific entry for an item in the tax code, the same cannot be taken out of that specific entry and taxed under any other entry. ‘Transport of goods by air’ is a specific service taxable under section 65(105)(zzn) of the Act w. e. f. 10-09-2004 and it defines the taxable service as ‘any service provided or to be provided to any person by an aircraft operator, in relation to transport of goods by aircraft. Thus, when the activity of transport of goods by aircraft is specifically taxable, the same cannot be taken out of that specific activity and taxed under other entry like BSS which the SCN proposes. Similarly, ocean freight for transport of goods internationally does not appear to us to be falling under any of the taxable services today, though transport of goods by road, by rail by aircraft, by pipeline and through inland water are separately specified as taxable services today. Accordingly, because activity of ocean freight is not taxable, it cannot be brought under any general category discarding the specific activity of transportation of goods by ship. We rely on the decision in case of CCE v. Dr. Lal Path Lab (P) Ltd. [2007 (8) STR 337 (P&H)] wherein Hon. High Court held that the expression ‘technical testing and analysis’ does not include any testing or analysis service provided in relation to human being or animals; the explanation goes to the extent of excluding from the afore-mentioned definition, a testing or analysis for the purposes of determination of the nature of diseased condition, identification of a disease, prevention of any disease or disorder in human beings or animals and such being the statutory provision, we do not entertain any doubt that merely because any incidental service is rendered by the assessee-respondent like putting across or dropping of the name of the principal company, it would become part of the definition of ‘Business Auxiliary Service’ within the meaning of Section 65 (19) (ii) of the Act and the view taken by the Tribunal is unassailable and deserves to be upheld. On a similar footing, when our principal activity is of buying and selling sea freight and air freight any incidental activity like collection of BAF charges, insurance charges, CONCOR charges, Fuel & Security charges etc. would not make our service falling under BSS.

50. They vehemently object to the proposal in the SCN to treat the amount of taxable value as Rs. 53,46,90,245/- as this value includes a host of charges which were not taxable in their hand and service tax of Rs. 4,55,46,095/- as proposed in the SCN was not payable by them.

Based on the following submissions and facts, it was quite clear that there was no short payment of service tax at all on their part.

50.1 They enclosed as Annexure 1 a list of charges included in the SCN proposing them to be taxable under BSS and state that none of these charges are taxable and the value of these charges cannot be include in the value of taxable service as proposed in the SCN. It can be seen from the working given in Annexure 1 that once the service tax on this value of non taxable charges are excluded, there remains no short payment of service tax as wrongly proposed in the SCN.

They gave below the description of these charges, the nature of activity for which the charges are received and reason why the same cannot form part of taxable value.

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Sr. No Account Head Descriptions

1 Administration ChargesAdministration charges for payment to govt for stamp duty etc for Import Shipment -Applicable in Maharashtra state, This is a statutory payment.

2 Air Freight Charges Air freight

3 Awb & Toll Charges (Dest.)

Destination charges for ex work shipment/door delivery shipment - in foreign country.

4 BAF FeesPart of Ocean Freight ( Bunker Adjustment Factor - related to the Fuel charges),Payable to Steamer Company.

5 Bond Cancellation Charges Charges for the cancellation of the Bond

6 Bond Execution Charges Charges for the preparation of Bond7 Break-bulk Charges by Airline.

8 C C Charges Part of ocean freight. On Freight collect shipment, these are charged as a part of ocean freight

9 Cartage Charges Transportation charges for the container / cargo movement from one place to another .

10 CFS ChargesContainer Freight Station ( Warehouse / Godown ) charges for the handling / storage / movement of cargo / container

11 Cleaning Charges For cleaning the empty container

12 CMC Charges Govt. Agencies charges for submission of document to the EDI system of Customs

13 Communication Charges Collected from principal as agreed towards communication expenses to be incurred.

14 Concor Charges Custodian - CONCOR charge for using their services

15 Consulting Charges Charges for consultancy / guidance for export - import

16 Container Cleaning Charges For cleaning the empty container/repairing

17 Crane Charges Charges for using Crane for loading / unloading of cargo / container

18 Custom Processing & Related Charges CHA Charges for the custom clearance of cargo

19 CWC Charges Custodian - Central Warehousing Corporation charge for using their services

20 Destination Charges

Destination charges for ex work shipment/door delivery shipment. In case of USA shipment is the statutory charges. If consignee has annual bond than same is not applicable

21 Destruction ChargesDestination charges - when consignee do not take delivery and accordingly charges for storage and destroy of the cargo

22 DFRC Charges Part of custom clearance charges - For processing of the shipment done in DFRC.

23 E-Mail Charges Communication charges from the Principal

24 Emergency Bunker Charges

Surcharges charge by shipping - normally when there is fluctuation in the fuel charges

25 Establishment Charges Charges for providing table space in our office26 Fuel Surcharges Part of Freight charges

27 Fumigation Charges Charges for the fumigation of container / cargo – chemical treatment for bacteria free etc

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28 Ground Rent Charges Rental charges of container / cargo at CFS / Port

29 Handling Charges – GSEC

Handling charges paid to custodian - Gujarat State Export Corporation for handling for cargo at Air Cargo Complex

30 Hazardous Charges Surcharge for hazardous /dangerous goods31 Heavy Lift Charges Surcharge for the heavy cargo

32 IGM Charges Charges being charged for filling manifest Import shipment

33 Incentive Charges Profit Share from overseas agent for handling of lcl shipment

34 Inland Freight Charges Transportation charges by road

35 Inland Fuel ChargesFuel surcharges charge by Shipping line when cargo is moving inland from Port to Inland Destination by road

36 Inland Transportation Charges Transportation charges by road

37 Insurance Charges

Container goes to factory for stuffing or de stuffing it is shipper/consignee/booking party responsibilities if any damage to container and to safe guard same insurance been taken

38 Isps, Tsf & Csf Charges International port facilities security charges

39 It Doc ChargesDestination Charges - Documentation charges for submission of documents online with custom / port / shipping line / airline etc

40 Legalization Charges

Post export Documents are to be legalized with foreign embassy as per overseas customer requirement. Bill of Lading or Air Way Bill has to be submitted along with these papers. The same is done by the exporters. Often we are called upon to do the same for which this difference is their to cover courier charges / Xerox / commute /

41 Line Charges Shipping line charges42 Line Service Charges Charge of shipping line for using their services

43 Loading & Unloading Charges

For cargo unloading or loading at the CFS / ACC the truckers bring their own labour. Additionally they undertake stacking and unstacking also both in lorry and warehouse. Often they ask us to arrange this pre / post Custom clearance activity - we arrange same. Difference would be expenses for commute or refreshments for labour.

44 Local Cartage Transportation charges by road

45 Local Charge At Destination

Charges applicable at Destination once container offloaded from vessel like handling / documentation / processing / transportation etc

46 MICT ChargesMICT is port - Mundra International Container Terminal - Port charges for handling of container / cargo

47 Ocean Freight Ocean freight

48 Open Top Surcharge

When container used which is open from the top mainly for machinery or over dimension cargo and surcharges charge by shipping line being a special container

49 Origin Transfer FeesFor Exwork shipment Fees for shifting the cargo from one point to another mainly for Airline for shifting from warehouse to Airline terminal etc

50 Overload Charges Transportation charges - for the overload of the

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cargo

51 Overweight Charges Transportation charges - for the overload of the cargo

52 Pallasitation Charges Packaging charges

53 Peak Season ChargesPeak season charge is additional surcharge being charge when there is peak season of movement cargo for that sector

54 Pick Up Charges Transportation charges for picking cargo from factory/shipper site

55 Port Congestion Charges Surcharges being levied by Port / Shipping line when there is heavy congestion in the port

56 Postage Charges Charges for the courier of documents

57 Rail Freight Container movement charge between Icd and Port by rail

58 Repairing Charges Charges for the repairing of the container etc

59 Reworking Charges Charges for reworking of the cargo from one point to another / from one container to another etc

60 Sector Freight For Air shipment inland freight for Moving cargo from inland Destination to Airport

61 Security & Fuel Surcharge Charges by Airline

62 Shipping Line Charges Charges by shipping line

63 Stripping Charges Destination charges for ex work shipment/door delivery shipment

64 Suze Canal SurchargePart of Ocean Freight and mainly charge of USA shipment and mainly for the vessel passing thru the Suez Canal

65 Terminal charges(Air) Terminal charges for the movement of cargo at Airport

66 Transportation Charges movement of cargo/container by truck67 Trucking Charges Movement of cargo / container by truck68 TSF & CSF Charges Security charges charge by shipping line / port69 Void Charges Cancellation charges for Airway bill

70 Warehouse ChargesDestination charges for ex work shipment/door delivery shipment. Mainly charges for handling and storage of cargo in CFS / Warehouse

71 Warehouse Stuffing Charges Stuffing of the cargo inside the warehouse

72 Warfrage Charges One type of port demurrage 73 Washing Charges Charges for Washing of the container

They gave below the reasons why each of the above charges cannot be classified under the category of BSS and how the same cannot form part of value of taxable service.

Air freight: Aircraft operator is liable for tax on air freight in terms of provisions of section 65(105)(zzn) under the category of Transportation of goods by air service. Freight forwarder is not Aircraft Operator. In case of Gudwin Logistics v. CCE [2010 (18) STR 348 (Tri.-Ahmd.)] it is held that freight element cannot be included for service tax.

Ocean Freight, BAF Charges, Emergency Bunker Charges, ISPS Charges, Fuel & Security Charges, Hazardous Charges, Hz. Surcharge, Miscellaneous Charges, NFTS Charges, PCS charges: As explained above these are all the charges related to freight. It has been held in the case of Gudwin Logistics v. CCE [2010 (18) STR 348 (Tri.-Ahmd.)] and Bax Global India Ltd. v. CST

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[2008 (9) STR 412 (Tri.-Bang.)] that freight element cannot be included for service tax.

Choking charges, Lashing Charges: As explained above, these are the charges for packing inside container. The actual service provider in this case is some one else who charges service tax to us, if respective service is taxable and since we are not provider of this packing service, we are not liable for payment of service tax even if we make profit/loss by charging something more/less for such activity to our customer as held in the case of Bax Global India Ltd. v. CST [2008 (9) STR 412 (Tri.-Bang.)] and Baroda Electric Meters Ltd. v. Collector of Central Excise [1997 (94) E.L.T. 13 (S.C.)].

Concor Charges and CWC Charges: These are custodian charges and CONCOR charges due service tax, if applicable in its bill for its service. We are not providing this service and hence we do not charge any service tax. However, on this very service, due service tax stands discharged by CONCOR,CWC and hence demanding service tax from us would result into double demand of tax for the same service.

Container cleaning charge, Crance Charges, Custom Processing & Related Charges Destination charges, Destruction Charges ,DFRC Charges fumigation charges, Ground Rent Charges ,Heavy Lift Charges ,Insurance, IT Doc charges, Local Cartage ,Local Charges at Destination ,MICT Charges, Port Congestion Charges, Rail Freight, Repairing Charges, Reworking Charges stripping fees, transportation charges, Trucking charges, Warfrage Charges, Washing Charges: These are independent and stand alone activities services and the actual service providers are paying due service tax where payable. For example, for insurance premium, insurance company pays due service tax; for; for fumigation charges, fumigating agency pays due service tax. It is hazardous to brand insurance service or port service or fumigation service as BSS and demand service tax from us. All these services need to be separately classified going into the minute detail of nature of activity which is not done by the investigating agency and hence demanding service tax under BSS on all the services shows non application of mind. It is also not fair or legal to demand service tax again from us in respect of services for which due service tax, if payable, stands paid by the respective service provider. We only act as intermediary to get these services for our customer. Demand of service tax on these very activities again from us would amount to double taxation.

Further, it may be noted that any of the above activities cannot be branded as BSS as it does not fall under any of the specified 11 activities covered in BSS.

They drew attention to the fact that many of the above activities are taxable services under some heads and the actual provider of service charges and pays service tax while raising the bill. Only if the service is not taxable, the service provider may not charge service tax. Since they were not the actual service provider and these activities were not taxable on their part, they did not take any cenvat credit for such service tax paid by actual service provider for above stated activities.

It is illegal and unfair to ask for the service tax again on the same service from us as it amounts to double demand of tax on the same service. They relied on decision in case of India Gateway Terminal (P) Ltd. v. CCE [2010 (20) STR 338 (Tri.-Bang.)] holding that since the amount which has been received by the appellant is an amount on which service tax liability has already been discharged by M/s. CONCOR, the said amount cannot be held to be taxable under the category of port services in the appellant’s hand. In CST

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v. Geeta Industries P. Ltd. [2011 (22) STR 293 (Tri.-Del.)] also it was held that there cannot be double taxation of same service.

50.3 They had paid due service tax under BAS and BSS on many other activities like air commission, brokerage, ACD charges, Airway bill fees, bill of lading amendment fees even though there was dilemma in the field about leviability of service tax. This was done only to buy peace of mind as some of the trade associations had advised to pay the same. However, on items like ocean freight or air freight and all the charges stated in Annexure 1, no other freight forwarder pays or charges any service tax to the best of our information and we are advised that the freight forwarder was not liable to pay serve tax on this. The investigating authority appears to have ignored the trade practice and the fact that no service tax is payable on those activities by freight forwarders.

50.4 It appeared quite clear that the investigating authority had proposed classification of almost all the activities under BSS without application of mind. This was evident from the fact that ocean freight, air freight, insurance service, port service, fumigation service, transportation service and the like which by no stretch of imagination, be classified under BSS are all proposed to be classified under BSS. For example, even a layman would say that insurance service falls under insurance service, port THC would fall under port service, transportation service will fall under respective transportation service and so on as these are separate taxable categories under section 65(105). However, an attempt to brand all the activities under BSS based on presumption and assumption shows clear non application of mind on the part of the investigating agency. 50.5 A close look at Annexure 1 would show that total value of Rs. 39,20,73,264/- was not taxable in their hand as these were the amounts received for various activities which were either not taxable, or where the due service tax stands paid by the respective service provider, where payable. In any case, since these services were provided by other parties and not by them, they were not liable for payment of service tax on these activities even if we make any profit or loss on sale of such services to our customers. The service tax on this value of Rs. 39,20,73,264/- as per rates applied in the SCN works out to Rs. 4,82,34,349/-. The differential service tax demand as per SCN is Rs. 4,55,46,095. In view of the above, after deducting the service tax of Rs. 4,82,34,349 as worked out on value of Rs. 39,20,73,264 in Annexure 1, there was no short payment of service tax on their part and on the contrary there appears a excess payment of Rs. 26,88,254 during the period of October, 2005 to 2009-10.

50.6 The SCN was issued based on mere comparison of figures of ST-3 and Profit and Loss Account and without paying any heed to the detailed explanation about all the activities which stand explained time and again in writing as also orally to the Superintendent (preventive). It is a settled law that tax cannot be assessed merely on assumption and presumptions. The SCN was clearly issued based on presumption that the difference between income as per profit and loss account and value of taxable service as per ST-3 return is the value on which service tax is short paid without paying heed to the detailed explanation that many of the activities were either not taxable or they were not taxable in the hands of freight forwarder. In CST v. Purni Ads. Pvt. Ltd. [2010 (19) STR 242 (Tri.-Ahmd.)] it was held that when receipts are held to be taxable without adducing any evidence, tax cannot be assessed merely on assumptions and presumptions. Entire demand was held to be not sustainable as the authority had not discharged the onus to prove with sufficient evidence. Their detailed working of value of activities as per Annexure 1 clearly show that there was no short payment of service tax on their part and hence they requested to drop the demand of service tax based on these facts as also relying on the decision in case of Purni Ads. (supra).

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50.7 They reiterated that all these 73 activities enumerated in paragraph 10 of the SCN were provided by the third party and they initially paid the amount to the third party on behalf of the clients and later collected the same from them from clients either by adding our margin of profit or without adding any margin. In these cases, they did not render any service at all to the clients. The services were rendered by the third parties. Therefore, they cannot be made liable to pay service tax on these activities which do not relate to the services rendered by the freight forwarders.They had provided copies of different invoices as desired by the department to prove that they did not charge service tax on certain freight and freight related activities. They enclosed copies of some of the invoices of purchase of service where service tax stands paid by the service provider or where service tax is not charged by the service provider possibly because of the service being not taxable and our corresponding bills to prove that we did not charge service tax on such activities in our bill.

51. They stated that the proposal to include expenses reimbursed in the taxable value in terms of Section 67 of the Finance Act, 1994 as amended read with Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 is bad in the eyes of law.

52. They stated that Section 67 of the Finance Act, 1994 as amended provides that service tax is leviable on the gross amount charged for the services provided or to be provided. The definition reads as under:

“1. Subject to the provisions of this Chapter where service tax chargeable on any taxable service with respect to its value, then such value shall, -

(i) 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;

(ii) 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;

(iii) 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 a manner as may be prescribed.

Explanation – For the purposes of this section –

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(a) “consideration” includes any amount that is payable for the taxable services provided or to be provided;

(b) “money” includes any currency, cheque, promissory note, letter of credit, draft, pay order, travelers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value;

(c) “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment.

53. They stated that a plain reading of Section 67 indicates that service tax is leviable on the gross amount charged for the services provided or to be provided. In other words, only the amount received as a consideration for the services provided or to be provided would form part of taxable value for the purpose of service tax.

54. They stated that the Tribunal, Chennai in the case of Malabar Management Services Vs. Commissioner of Service Tax (2008) 9 STR 483 has observed that as per Section 67 only the service charges are subjected to service tax and reimbursements are outside the purview of Section 67 and not subjected to service tax.

55. They stated that Section 67 of the Finance Act, 1994 as amended provides for the levy of service tax on the gross amount charged for the services rendered.

In other words, only the consideration for the service provided or to be provided would form part of taxable value for the purpose of service tax. In a case where the provision of service is for a consideration, which is not ascertainable, the amount for such service may be determined in the prescribed manner.

56. They stated that in this case the service is rendered for a consideration, which is ascertainable, and therefore the provision of Section 67(1)(i) is complied with.

The provisions contained in the Service Tax (Determination of Value) Rules, 2006 will apply only in a situation where the value of taxable service is not ascertainable.

57. They stated that once the ingredients set out in the Section for the determination of value of taxable service is satisfied, then there is no question from deviating from the said provision for the purpose of valuation.

58. They stated that once the consideration for the service is ascertainable, Section 67 will prevail over the Valuation Rules and therefore the value determined as per Section 67 will be considered for the purpose of service tax.

59. They stated that the Hon’ble Supreme Court in the case of CCE Vs Ashok ARC (2005) 179 ELT 513 has held that a Rule cannot override or be contrary to a Section.

60. They stated that in the case of Laghu Udyog Bharathi Vs UOI (1999) 105 Taxmann 630 and Kunj Behari Lal Vs State of HP – AIR 2000 SC 1069 has held that Rule cannot widen or restrict the scope of the Main Act and Rules are made to carry out the provisions of the Act and cannot be in conflict with the same.

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61. They stated that the Hon’ble Supreme Court in the case of Mafatlal Industries Ltd. Vs UOI (1997) 89 ELT 247 has clarified that Provisions of Section 11B in the Central Excise Act prevails over Rule 233B of Rules.

62. They stated that the Hon’ble Tribunal in the case of Minakshi Castings Inder Steels Pvt. Ltd. Vs CCE (1999) 32 RLT 82 has held that whenever there is a conflict in between Section and the Rule, the Section prevails over the rule. The same view was taken in the case of Kishori Lal Sudesh Kumar Metals (P) Ltd. Vs CCE (1999) 111 ELT 708.

63. They stated that the Supreme Court in the case of Ispat Industries Ltd. Vs. Commissioner of Customs (2006) 202 ELT 561 has observed as under:

“Rule 9(2) of the Customs Valuation Rules is sub-servient to Section 14. We must therefore interpret it in such a way to make it in accordance with the main object that is contained in Section 14 of the Customs Act. It may be that in isolation Rule 9(2) conveys some other meaning, but when it is read along with Section 14 of the Act, it must be given a meaning, which is in accordance with the object of Section 14. The object of Section 14 is ‘primary’ whereas the conditions in Rule 9(2) are the ‘accessories’. The ‘accessory’ must therefore serve the ‘primary’.”

64. They stated that the Service Tax (Determination of Value) Rules, 2006 was introduced vide Notification No.12/2006 dated 19.04.2006 with effect from 19.04.2006.

The Rules provides for the determination of value of taxable service rendered by a service provider in any category of taxable service as defined in terms of Section 65(105) of the Finance Act, 1994 as amended.

65. They stated that on an analysis of Section 67 and based on various judicial precedents the Service Tax (Determination of Value) Rules 2006 is applicable only when the consideration received could not be ascertained.

In the instant case, the consideration is clearly ascertainable and therefore Section 67 has to be taken into consideration for the purpose of valuation.

66. They stated that Section 67 of the Finance Act, 1994 as amended provides for the levy of service tax on the consideration received for the services rendered.

In other words, only the consideration received for the service provided or to be provided would form part of taxable value for the purpose of service tax.

67. They stated that Section 67 of the Finance Act, 1994 as amended provides that in a case where the provision of service is for a consideration, which is not ascertainable, the amount for such service may be determined in the prescribed manner.

68. They stated that Para No.3 and 4 of the Show Cause Notice alleges that we have not satisfied the conditions set out in Rule 5(2) of the Service Tax (Determination of Value) Rules 2006 read with Circular No.119 / 13/2009 – ST dated 21.12.2009 and therefore the expenses reimbursed by the client is includible in the taxable value.

69. They stated that the entire allegation is without appreciating the language used in Section 67 of the Finance Act 1994 as amended. In terms of Section 67 the

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provisions of Valuation Rules would apply only if the consideration is not ascertainable.

In the instant case, they had received consideration in terms of money and it is clearly ascertainable and hence the Service Tax (Determination of Value) Rules, 2006 has no application.

70. They stated that for example, in terms of Section 4(1) of the Central Excise Act, 1944, transaction value needs to be taken for valuation if the parties are not related, price is the sole consideration for sale, delivery has taken place at the time of sale. If any of these conditions are violated, value has to be determined in terms of the Valuation Rules.

71. They stated that in the instant case, the decisions, circulars etc. issued under Section 67 squarely apply and the Valuation Rules has no application.

72. They stated that the Tribunal in the case of Bax Global India Ltd Vs. Commissioner of Service Tax (2008) 9 STR 412 has held that charges relating to air export, ocean export, customs clearance, logistics, cartage revenue, MSIL / JWG charges, due carrier, documentation etc. are expenses not relating to any CHA activities. These are all the expenses incurred by the CHA for services provided to a third party. Even if the CHA had incurred less cost in certain cases, the profit incurred in respect of activities which are not related to CHA should not be the concern of the Department for the purpose of collecting service tax. If the Appellant performs an activity which is not related to the Customs House Agent, then service tax cannot be levied on that activity under the category of CHA service.

73. They stated that the Tribunal in the case of Louis Berger International Inc Vs. Commissioner of Service Tax (2010) 17 STR 287 has held that expenses reimbursed are not includible in the taxable value.

74. They stated that the Tribunal in the case of DHL Lemuir Logistics Pvt Ltd Vs. CST (2010) 17 STR 266 has held that expenses reimbursed cannot be considered as consideration for the purpose of service tax. The Tribunal further observed that the activities of CHA are limited to customs station and not extending beyond. Hence, transportation charges are not includible in CHA service.

75. They stated that the Tribunal has followed the same view in the case of Lee and Muir Head Pvt Ltd Vs. Commissioner of Service Tax (2009) 14 STR 348.

76. They stated that that the Jurisdictional Tribunal, Chennai in the case of Sangamitra Services Agency Vs. Commissioner of Central Excise (2007) 8 STR 233 has held that reimbursements on actual basis would not form part of value for the purpose of service tax.

77. They stated that the Jurisdictional Tribunal, Chennai in the case of L.S.A. & Co. Vs. Commissioner of Central Excise (2007) 6 STR 143 during the stay stage has held that expenses reimbursed by a manpower recruitment agency will not form part of taxable value.

78. They stated that the Tribunal during the stay stage in the case of Hassan Hajee & co Vs. CCE (2007) 5 STR 397 has held that loading and unloading, packing, weighing charges etc. will not form part of taxable value for purpose of Service Tax.

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79. They stated that in The Jusbadri & Jatin Badri Co Vs CCE 2007-TIOL-644-CESTAT-MAD the Tribunal has held that the expenditure incurred and reimbursed by the appellant towards transporting cement to the warehouse and to various destinations is not part of taxable value. We wish to state that the Commissioner of Central Excise failed to appreciate that the Tribunal in the case of CCE vs. Nilalohida Enterprises (2007) TIOL 680 has held that reimbursements are not subject to service tax.

80. They stated that the Tribunal, Chennai in the case of Malabar Management Services Vs. Commissioner of Service Tax (2008) 9 STR 483 has observed that as per Section 67 only the service charges are subjected to service tax and reimbursements are outside the purview of Section 67 and not subjected to service tax.

81. They stated that the view that reimbursements are not subject to service tax it is upheld that by various Tribunals in the case of International Clearing & Shipping Agency (2007) 5 STR 107; Indian Register of Shipping (2006) TIOL 1588; Johns Lang Lasalle Properties Consultant (2006) TIOL 1686; Jayalakshmi Enterprises (2008) 9 STR 19; Keralam Enterprises (2008) 9 STR 503.

82. They stated that the Commissioner of Central Excise failed to appreciate that the Tribunal in the case of CCE vs. Nilalohida Enterprises (2007) TIOL 680 has held that reimbursements are not subject to service tax.

83. They stated that the trade notice No.5/1997 – ST dated 15.06.1997 has clarified that such reimbursable expenses do not form part of taxable service. Further we wish to state that the Hon’ble Supreme Court in the case of M/s. Baroda Electric Meter Ltd Vs. CCE (1997) 94 ELT 13 and M/s. Indian Oxygen Ltd Vs. CCE (1998) 36 ELT 723 has held that the surplus arising out of reimbursable expenses cannot form part of value.

84. They stated that vide Circular F.No. B43/1/97-TRU dated 06.06.97 the Government has clarified that payments made by the Customs House Agent 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 service tax. Certain reimbursable expenses such as transport charges etc. cannot be ascertained or calculated with mathematical precision and there are cases of both excess recovery and under recovery. In such circumstances, the amount recovered in excess of the expenses incurred cannot be considered as amount received for services rendered.

85. They stated that the Tribunal in the case of Scott Wilson Kirkpatrick (I) Pvt Ltd Vs. Commissioner of Service Tax (2007) 5 STR 118 has held that reimbursable expenses are not subject to service tax.

86. They stated that the Tribunal in the case of B.S. Refrigeration Limited Vs. Commissioner of Service Tax (2006) 4 STR 103 has held that expenses reimbursed are not subject to service tax.

87. They stated that the Tribunal in the case of Bhagyanagar Services Vs. CCE (2006) 4 STR 22 has held that expenses reimbursed are not subject to service tax.

88. They stated that the Hon’ble Tribunal in the case of E.V. Mathai & Co. Vs. Commissioner of Central Excise, Cochin reported in 157 (ELT) 101 has held that in respect of C&F agent, service tax cannot be levied on transportation charges and the Assessee are entitled for refund of transportation charges.

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89. They stated that the Commissioner of Central Excise (Appeals) in the case of Supreme Freight Services (OIA 61/2006 dated 26.04.2006) has held that reimbursements of expenses are not subject to service tax.

90. They stated that the Larger Bench in the case of Amit Sales Vs. Commissioner of Central Excise (2010) 257 ELT 427 has rejected the reference made by the Division Bench on the ground that the reference made by the referral bench that the earlier decisions has not considered the reasons for arriving the conclusion cannot be considered as question of reference.

Valuation of taxable service till 17.4.2006

Section 67 of the Act deals with valuation of taxable services. It provides that value of any taxable service shall be the gross amount charged by the service provider for such services provided or to be provided. There are Explanations to Section 67(1) of the Act whereby it has been provided that certain charges are includible in the value of taxable service whereas certain charges are excludible. Explanation (1) (f) provides, that the reimbursement received by the authorized station from the manufacturer for carrying out any services of any motor car or two wheeled motor vehicle manufactured by such manufacturer would be included in the taxable services. Further, Explanation (3) provides that for the removal of doubts it is declared that the gross amount charged for the taxable services shall include any amount received towards taxable service before, during or after provision of such service.

A plain reading of Section 67 of the Act indicates that the value is the gross amount charged by the service provider for the services provided. Consequently, any amount which the service provider receives as a charge for providing service will form part of the value of taxable service. The term “gross only indicates that no deduction is to be allowed from the amount charged for providing services.

It is submitted that wherever they have provided taxable services they have paid service tax. The expenses incurred by them are not the charges for providing the taxable services. Referring Explanation (1)(f) above, if all reimbursement of expenses were charges for the services provided then there would have been no requirement to include reimbursement received by the authorized service station in the taxable value. It is because in general reimbursement of expenses are not charges for the services provided but in the case of authorized service station, the legislature thought it appropriate to include the reimbursement received by the authorized service station as part of the gross amount charged, hence the same has been specifically mentioned.

Valuation of taxable service w.e.f 18.4.2006

Sub section (1) of amended section 67 provides that value in a case where provision of service is for consideration in money, shall be the gross amount charged by the service provider for such services provided or to be provided.

Explanation to section 67 of the Act provides that consideration includes any amount payable for the taxable service provided or to be provided. Section 67(iii) of the Act provides that where the provision of service is for a consideration, which is not ascertainable, the value shall be the amount as may be determined in the prescribed manner.

Further, Section 67(4) of the Act provides that subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined as prescribed.

Therefore, from 18.4.2006 where the consideration for the services provided is in money, the value is the gross amount charged for the service provided.

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Therefore, even though the section has been amended yet when the consideration is in money, the value still remains the gross amount for the services provided.

In cases where the consideration is not wholly or partly in money then Valuation rules come in to play. Since in the facts of the case it is an undisputed fact that the consideration is in money, the value will be the gross amount charged for the service provided. The reimbursable expenses are not charges for the services provided and hence the same are not liable to service tax.

In exercise of the powers conferred by Section 94(2) of the Act, the legislature has framed Service Tax (Determination of Value) Rules, 2006. Rule 5 of the said Rules deals with the treatment of expenses reimbursed and provides that where any expense or cost is incurred by the service provider in the course of providing taxable services then all such expenses or costs shall be treated as considerations for the services provided and shall be included in the value. However, sub rule 2 of Rule 5 specifies certain conditions and provides that on compliance with these conditions, the reimbursements will be excluded from the taxable value.

91. Applying the ratio of the aforesaid decisions, it is submitted that rule 5 of the valuation Rules cannot be interpreted to bring within the purview of valuation an amount which section 67 does not envisage. Therefore, the provisions of Rule 5 of the valuation rules have to be harmoniously interpreted so that any amount which is not a charge for the services provided is not termed as part of the value of taxable service, otherwise it would amount to overriding the provisions of section 67 of the Act

92. They stated that the decision rendered in the context of Section 67 has become final and therefore the expenses reimbursed cannot be included in the taxable value.

93. They stated that the Board vide Circular No.119/13/2009 dated 29.01.2009 has clarified that expenses incurred and reimbursed over and above CHA activities are not subject to service tax under the category of Custom House Agent service.

94. Without prejudice to the above submission that the expense reimbursed shall not be considered as taxable value, they stated that they were a multi-modal transport operator

95. They stated that they were in business of multi-modal transport for export of goods from India and import of goods into India. Being a multi modal transport operator our activities are governed by Multi Modal Transportation of Goods Act, 1993 which covers the business of multi modal transportation.

96. They stated that with regard to exports, their activities commences from undertaking to export the consignments of the shippers from various parts of the country to overseas destinations through air / sea . The goods which are to be exported have to be brought to the port of export either by road or rail. From the port the goods are exported by ships or aircrafts to the foreign destinations.

97. They stated that the payments for these services are made by the exporter/shipper of goods. They collect a consolidated amount from the exporters/shipper towards freight charges and sometimes for other incidental expenses.

98. They stated that cargo collected from the customers is moved by any of the modes like, rail, road, air and sea and the revenue is earned in foreign exchange and or local currency. The cargo is transported from the exporter’s factory /

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godown / airport by ship / aircraft from the origin port to destination port which includes passage through number of intermediate ports as the cargo is being handled by shipping line / steamer agents / IATA agents in the respective countries.

99. They stated that they only arrange for the transport of export goods and are not engaged in the transportation of goods. For the said purpose they engage the service of various transporters, shipping lines etc. It is a composite activity involving transportation, unloading, loading, issue of title documents etc. They collect freight from the exporters and the substantial part of the amount is towards payment of ocean freight / air freight payable to shipping line/airlines.

100. They stated that the freight recovered from the customer is remitted to the shipping line with a difference. This freight is not a charge for the services rendered by them. The service in respect of freight is provided by the shipping line and not by them. Consequently, freight which is not in respect of the services rendered by them can not be part of the valuation under section 67 of the Act. They relied on the above referred decisio2n of Bax Global India Ltd Vs. Commissioner of Service Tax (2008) 9 STR 41

101. They stated that the Multimodal Transportation of Goods Act, 1993, governs most of their activity. It is submitted that the definition of Multimodal Transportation as per Section 2(k) is as under:

“multimodal Transportation means carriage of goods, by at least two different modes of transport under Multimodal transport contract from the place of acceptance of the goods in India to a place of delivery of goods outside India”.

102. They stated that the definition of ‘mode of transport’ as per Section 2(j) reads as under:

“modes of transport means carriage of goods by road, air, rail, inland waterways or sea”

103. They stated that the definition of ‘Multimodal transport operator’ as per Section 2(m) reads as under:

“multimodal transport operator means any person who –

(i) concludes a multimodal transport contract on his own behalf or through another person acting on his behalf;

(ii) acts as principal and [not as an agent either of the consignor or consignee or of the carrier] participating in the multimodal transportation, and who assumes responsibility for the performance of the said contract; and

(iii) is registered under sub-section (3) of section 4.

104. They stated that the definition of ‘multimodal transport contract’ as per section 2(l) reads as under:

‘multimodal transport contract’ means a contract under which a multimodal transport operator undertakes to perform or procure the performance of multimodal transportation against payment of freight.’

105. They stated that the definition of ‘multimodal transport document’ as per Section 2(la) reads as under:

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‘multimodal transport document’ means a negotiable or non-negotiable document evidencing a multimodal transport contract and which can be replaced by electronic data interchange messages permitted by applicable law.

106. They stated that the above mentioned definitions very clearly indicate the following with respect to Multimodal transport operator;

- that the multimodal transport involves carriage of goods by road, air, rail, inland waterways or sea.

- that the multimodal transport operator undertakes to perform or procure the performance of multimodal transportation against payment of freight.

- that the multimodal transport operator concludes a multimodal transport contract on his own or through another person on his behalf.

107. They stated that the activity is recognized as a separate activity and the same cannot be brought under any other service category under Finance Act 1994 as amended just for the sake of levying service tax. It is submitted that the activity of multimodal transport operator includes transportation at least by two different modes of transport and the payment is by way of freight. Therefore, this activity cannot be vivisected and subject to tax under any other taxable service.

108. They stated that their services were not covered under Section 65(105) of the Finance Act, 1994. They stated that as per Section 65 (95) of the Finance Act, 1994 service tax means tax leviable under the provisions of the Chapter V of the Finance Act 1994. As per Section 66 service tax is payable on the taxable service referred to in various clauses of Section 65(105).

109. They stated that as per Section 66, service tax is payable on taxable service and for levy of service tax, it is necessary to determine two things, namely taxable service and value of taxable service. The multimodal transport operator activities are not specified taxable service under Section 65(105) of Finance Act, 1994. Therefore, service tax was not applicable.

110. They stated that the Customs department has issued a Circular No. 72/95 dated 22.06.1995 wherein it has been very clearly stated that any person appointed as a multimodal transport operator is only for the purpose of said Act and any such appointment does not confer any rights for his appointment as a Custom House Agent or Steamer Agent for the purposes of Customs Act, 1962. This clarification very clearly indicates that the activities of multi modal transport operator are governed separately by the Act and the said activities cannot be brought under any other service category.

111. They stated that the contract is a composite contract involving transportation, unloading, loading, issue of title documents etc and the same cannot be vivisected and part service portion cannot be subjected to tax. It is submitted that in the case of works contract services there was an attempt to vivisect the contract under various heads and the Tribunal in the case of Daelim Industrial Co. Ltd. Vs. Commissioner of Central Excise, Vadodara (2003) 155 ELT 457 (T-Del), has held that a composite contract cannot be vivisected and part of it subjected to service tax. The SLP filed by the Department against the judgment of the Tribunal. [(2004) 170 ELT A181].

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Without prejudice to their contention that they were a multi modal transport operator and such services were not notified under Section 65(105) it was submitted that the same service cannot be classified under different categories and on that count itself the show cause notice is devoid of merits and the proposals needs to be dropped.

112. They stated that the categorization of their services under two different categories of services is not tenable. The Show cause notice proposes to demand Service tax under the ‘Business Auxiliary Services’ and under the category of “Business Support Services”.

113. They stated that the classification of same activity under different heads is not tenable and is against the law laid down by the Punjab and Haryana High Court in the case of CCE Vs. Dr. Lalpath Lab Pvt. Ltd., (2007) 8 STR 337, the decision of Larger Bench in the case of Gujarat Chem. Port Terminal Vs. CCE (2008) 9 STR 386 and the decision of the Tribunal in the case of Board of Control of Cricket in India Vs. Commissioner of Service tax (2007) 7 STR 384.

114. They stated that the attempt in the Show Cause notice to classify the activity under BAS and BSS indicates that there is ambiguity in classifying their services. It is submitted that the services of multimodal transport operator are actually not taxable under any of the heads under the Finance Act, 1994, it being a separate activity governed by the Multimodal Transportation Act, 1993.

115. They stated that the Show Cause Notice has simply taken the amount from the financial statements and Service tax has been levied on the entire gross income reflected in the Profit and loss account.

116. They stated that the difference between the selling price and the purchase price is nothing but profit or loss as the case may be on airfreight reimbursement, which cannot be subjected to service tax and the activity is only purchase and sale of space. They stated that in a situation where they were not able to utilize the air cargo space that is booked in advance, the airlines recover penalty from them.

117. They stated that sometimes they may not be able to sell the space to any customers which result in loss. Commercially it is being nomenclature as ‘purchase and sale of cargo space’, which in reality represents airfreight paid to airlines and airfreight billed to customers. This does not fit into any of the categories specified in ‘Business Auxiliary Service’ or ‘Business support services’ as alleged in the Show Cause Notice.

118. They stated that the cargo space was booked when the rates were low and they make a profit while selling the same at the current rate. Further, the proposal in the Show Cause Notice to impose service tax on this trading profit under the category of Business Auxiliary Service and ‘Business support services’ cannot be sustained as the activity is outside the scope of the definition.

119. They stated that ‘ocean freight charges’ recovered from the client is not liable to service tax as firstly ocean freight itself is not taxable and secondly they are only buying slot space from the liner and selling the same to the shipper as part and parcel of our function viz. multimodal transport.

120. They stated that the Show Cause Notice has ignored the fact that they have paid service tax on the other charges and they have not paid service tax on the freight difference, since freight difference arises on account of a principal-principal relationships, where we buy ship cargo space and sell ship cargo space.

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121. They stated that in the case of CCE Vs. Chadha Auto Agencies (2008) TIOL 1388 CESTAT, the Respondents were engaged in sales and services of two-wheelers. The Respondents also arranged for loans from various financial institutions and banks for which they received payout/ incentive/commission and also provides office space, furniture etc., to banks/financial institutions to sell their products. The Tribunal held that providing table space cannot be called as ‘promotion or marketing of goods or services’ and hence, the same is not liable to service tax under the category of ‘Business Auxiliary Services’.

122. They stated that sale of space for time or advertisement is only covered within the ambit of service tax under ‘sale of space for time or advertisement’ was brought within the service tax by Finance Act, 2006, w.e.f 01.05.2006.and sale of space for any other purpose does not fall within its ambit to attract service tax.

123. They stated that the definition only covers providing space for display, advertising, showcasing of any product or service in video programmes, television programmes or motion pictures or music albums, or on billboards, public places, buildings, conveyances, cell phones, automated teller machines, internet and does not cover any sale of space for any other purpose.

124. In the case of Bhuvaneswari Agencies (P) Ltd. Vs. CCE (2007) 8 STR 167, the Department attempted to impose service tax on the activity of booking cargo through a shipping line under the category ‘Business Auxiliary Services’. The Tribunal negatived the contentions of the Department and held that the activity of canvassing or booking cargo for or on behalf of a shipping line can be taxed only under steamer agent service.

Additonally they added.

1. Though there was no service tax liability on their part and they were not liable for payment of service tax as wrongly demanded in the SCN, they drew attention to the casual way of issuing the SCN without properly calculating the amount of service tax. We draw your kind attention to following errors in the calculations.

(i) The total effective rate of service tax including cess applicable for the period 01-04-2006 to 17-04-2006 is 10.20% whereas the SCN calculates the same at 12.24%.

(ii) The total effective rate of service tax including cess applicable for the period 01-04-2007 to 10-05-2007 is 12.24% whereas the SCN calculates the same at 12.36%.

(iii) It is quite evident that on freight and activities incidental to freight, they did not charge service tax in their bills due to bona fide belief that no service tax is payable. Accordingly, even where the service tax is payable, the same has to be worked out by considering the gross amount as inclusive of service tax in terms of provisions of section 67(2) of the Act. In terms of provisions of section 67(2) of the Act, 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. While working the amount, no such deduction for service tax appears to be given in the SCN.

Since in their case no service tax was payable, such casualness makes no difference where no tax was payable. However, the SCN needs to be dropped on the ground that in undue and unwarranted hurry to recover service tax on something which is not taxable, the calculation is also made in a casual manner

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by disregarding the clear provisions of law. They requested to drop the SCN on this ground also.

For all these reasons and the fact that the there was no contravention of any of the provisions, no fraud or collusion or willful mis-statement or suppression of facts, or contravention of any of the provisions of Finance Act, 1994 or of the rules made there under with an intent to evade payment of service tax, we request you to drop the proceedings under SCN holding that the demand of service tax is not sustainable on merit as also on the ground of limitation

125. They stated that Section 75 of the Finance Act, 1994 as amended provides for the levy of interest where a person who is liable to pay service tax fails to make payment either in full or part thereof to the credit of the Central Government.

In the instant case there is no failure to make payment of service tax and hence, there is no question of payment of interest under Section 75 of the Finance Act, 1994.

126. Further, since no service tax was payable based on the clear legal position, there was no question of payment of any interest and request you to drop the demand of interest and oblige

127. They stated that none of the requirements of Section 76 has been met for the purpose of penalty and hence there is no question of penalty under Section 76. Further, none of the ingredients set out in Section 77 have been met to impose penalty.

128. They stated that Section 78 has no application since Section 78 contemplates penalty for non-payment by reason of fraud, collusion, and willful misstatement, suppression of facts or contravention of the provisions of the Chapter or Rules with intent to evade payment of service tax. In the instant case, there was no suppression, fraud etc. on their part and hence penalty under section 78 cannot be imposed.

129. They stated that it was a settled principle that once the dispute is on legal interpretation penalty cannot be imposed. This view is upheld by the Tribunal in the case of Mundra Port and Special Economic Zone Vs. CCE (2009) 18 STT 314. Similar view has been expressed in the following decisions:

(a) Haryana Roadways Engg. Vs CCE (2001) 131 ELT 662

(b) Biolwara Spinners Ltd. Vs CCE (2001) 135 ELT 719

(c) Century Cement Vs CCE (2002) 150 ELT 1065

(d) Cosmos Detective & Security Services Vs CCE (2010) TIOL 108

130. They stated that Section 76 and Section 78 of the Finance Act, 1994 as amended cannot be applied simultaneously. We wish to state that the Tribunal in the Case of CCE Vs Pannu Property Dealers and Others (2008) 14 STR 635 has held that Imposing penalty under both the Sections is too harsh, and if penalty under Sec 78 is levied, it does not call for penalty under Sec 76.

131. They stated that the Supreme Court in the case of CCE Vs Balakrishna Industries (2006) 201 ELT 325 has held that when duty itself is not payable there is no question of penalty.

132. They stated that Section 80 of the Finance Act, 1994 as amended provides that notwithstanding anything contained in Section 76, 77 and 78, penalty cannot

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be imposed if the assessee has a reasonable cause for the failure to pay service tax. Our bonafide belief is a reasonable cause for non payment of service tax on charges which are not taxable.

133. They stated that Section 80 of Finance Act, 1994 as amended overrides Section 76, 77 and 78 and therefore the same relief may be extended to us.

134. They objected to the proposal in the SCN to impose penalties under sections 76, 77 and 78 of the Act. Section 78 of the Act is amended with effect from 10-05-2008 providing that if penalty is payable under this section, the provisions of section 76 shall not apply. Accordingly, the proposal to impose penalty under section 76 and section 78 was not in consonance with the provisions of law as the SCN is issued on 20-04-2011. CCE, Surat, vide OIO No. 6/MP/2009 dated 30-10-2009 has held that penalty under section 76 is not imposable when penalty is imposed u/s. 78. This order is also accepted by the Committee of Chief Commissioners as confirmed vide Letter No. DGCEI/AZU/12(4)62/05-06 Dated 5-5-2010 of Additional Commissioner of Central Excise, Surat-I. Though fifth proviso of section 78 is inserted from 10-5-2008, its spirit is fully applicable even for the past period also as held by Commissioner of Central Excise, Ahmedabad-III in the matter of service tax in case of North Gujarat Research Division vide order-in-original No. 16/COMMR/2010 dated 06-05-2010 while holding that no penalty is to be imposed under section 76 when penalty under section 78 is imposed. Further, penalty u/s 77 is proposed for failure to take registration and to file prescribed service tax returns for our branches at Baroda and Nagpur. They stated that Ahmedabad Commissionerate has no jurisdiction to issue any SCN for the Baroda and Nagpur Region and hence the proposal to demand service tax or penalty is without jurisdiction and the SCN issued without jurisdiction was not legal or proper.

They stated that they had taken service tax registration since 17-08-2005, they had filed all their service tax returns regularly, they had provided all the information as and when sought by the department, all their incomes get reflected in their invoices and books of accounts and their audited accounts were also available with department since 26-08-2008, they had not suppressed any information with intent to evade payment of duty, they had not violated any provisions of service tax law, they had discharged all service tax liabilities based on our bona-fide belief, the question of interpretation is involved in classification of activities of freight forwarders and there is no short payment of service tax on our part. All these facts prove that there was a reasonable cause on our part for not paying service tax on ocean freight, air freight and other activities incidental to freight. In terms of provisions of section 80 of the Act, no penalty shall be imposable on the assessee for any failure referred to in the provisions of section 76, 77 and 78 of the Act if there was a reasonable cause for the said failure. They had established that there was no short payment of service tax on our part therefore penalty cannot be imposed under section 76; they were registered with service tax department, were paying service tax regularly and were filing service tax returns regularly and hence penalty cannot be imposed under section 77; they had established that there was no suppression or intent to evade payment of service tax on their part and accordingly penalty cannot be imposed under section 78. In view of these facts, they prayed for recording satisfaction for not imposing any penalty in terms of provisions of section 80 of the Finance Act, 1994. Service tax is a new levy and even the experts at times are not able to correctly interpret the law leaving ambiguity. Under the circumstances, penalty cannot be imposed even if there is violation of any statutory obligation based on genuine or bona fide belief. In a series of other cases, it has been held that when suppression is not alleged or proved, penalty cannot be levied and we earnestly

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request you not to impose any penalty in view of the reasonable cause being shown by us in terms of provisions of section 80 of the Finance Act, 1994. We draw your kind attention to the following judgments wherein it is held that under such circumstances, no penalty can be levied.(i) CCE v. Ajanta Colour Labs [2009 (14) STR 468 (Tri.-Del.)] holding

that as the question of interpretation of statute is involved, extended period of limitation and imposition of penalties would not warrant.

(ii) Hotel Vijayetha v. CCE [2011 (21) STR 522 (Tri.-Chen.)] holding that mere non-inclusion is not sufficient to hold that the assessees had suppressed such non-inclusion — what is required to be shown by the Revenue is that the assessees had knowledge that they were required to include the above elements and still did not do so which is missing in the present case and therefore, penalty u/s 78 was set aside.

(iii) In CST, Daman v. Meghna Cement Depot [2009 (15) STR 179 (Tri.-Ahmd) it was held that when Revenue has not referred to any evidence on record showing willful suppression on the part of assessee so as to avoid payment of service tax and when lot of confusion was prevailing in the field, imposition of setting aside of penalty under section 78 was justified.

(iv) CCE, Raigad v. Shield Security Force [2007 (5) STR 97 (Tri.-Mum.)]: Assessee claiming that during visit of revenue officers nothing concealed from them. Penalty for suppression of value found to be harsh and its setting aside upheld.

(v) White Machines v. Commissioner - 2003 (153) E.L.T. A92 (S.C.)] Penalty is not imposable since the issue was one of interpretation involving classification and Department was aware of the fact of manufacturing of castings by the appellant.

(vi) CCE, Jaipur v. Sikar Ex-Serviceman Welfare Co-op. Soc. Ltd. [2006 (4) 213 (Tri.-Del.)]: As interpretation of law involved, setting aside of penalty upheld.

(vii) CCE, Ludhiana v. Silver Oak Gardens Resort [2008 (9) STR 481 (Tri.-Del.)] wherein it is held that penalty under section 76 is not warranted where penalty is imposed under section 78 of the Finance Act, 1994. The proposal in the present SCN to impose penalty under section 76 and 78 is also against the settled legal position With effect from 10-05-2008, even the provisions of section 78 lay down that if the penalty is payable under this section, the provisions of section 76 shall not apply. Since this SCN is issued on 20-04-2011, the provisions in force from 10-05-2008 would apply to it.

(viii) ETA Engineering Ltd. v. CCE, Chennai [2006 (3) STR 429 (Tri.- LB)] holding that appellants being under bonafide doubt regarding their activity as to whether covered by service tax or not, there exists reasonable cause on their part in not depositing service tax in time and hence penalty was not imposable in terms of section 80 of the Finance Act, 1194 notwithstanding sections 76 and 77 ibid.

(ix) Hindustan Steel v. State of Orissa [1978 (2) ELT (J159) (S.C.)] wherein it was held that an order imposing penalty for failure to carry

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out the statutory obligation is the result of quasi-criminal proceedings and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contentions or dishonest or acted in conscious disregard of its obligation. It also held that penalty will not also be imposed for failure to perform the statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of the relevant circumstances.

(x) Cement Marketing Co. if India Ltd. v. ACST – 1980 (6) ELT 295 (SC): Where assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a false return inviting imposition of penalty. In this case, Hon. Supreme Court held that penalty cannot be imposed when assessee raises a bona fide contention.

(xi) In the case of CCE, Mumbai-IV v. Damnet Chemicals P. Ltd. [2007 (216) ELT 3 (SC)], Hon. Supreme Court has held that when there has been no suppression whatsoever, the question of imposition of penalty does not arise and demand invoking extended period of limitation is unsustainable.

(xii) CC v. Seth Enterprises [1990(49) ELT 619 (Tri.-Del.)] holding that Imposition of penalty is quasi-criminal proceeding and hence penalty cannot be imposed in the absence of means rea. In absence of any mens rea i.e. mental state of criminal intention and the requirement of action done willfully, maliciously, fraudulently, recklessly, negligently, corruptly, wantonly on the part of appellant, imposition of penalty is unfair, illegal and unwarranted.

(xiii) In CC, Mumbai v. M.M.K. Jewelers [2008 (225) ELT 3 (SC)] it was held that when assessee is not guilty of suppression of facts, collusion or mis-statement, duty cannot be imposed by invoking extended period of limitation and when duty itself cannot be imposed, no order imposing penalty can be sustained.

They requested to drop the proposals in the above-referred Show Cause Notice and also request for an opportunity of being heard in person before any orders was passed in this regard.

They submitted similar replies dated 21.11.2011 and 20.11.2012 to the following two show cause notices which were issued to them for the subsequent period.

Sr. No.

Show cause notice No. Date Service Tax demanded

Period involved

1 STC/4-87/O&A/11-12 21.10.2011 1,19,23,240/- 2010-112 STC/4-35/O&A/12-13 22.10.2012 1,12,45,570/- 2011-12

PERSONAL HEARING :

53. A personal hearing in the case was fixed for 07.11.2012. Nobody appeared for personal hearing. Another date was fixed for 23.11.2012. M/s Star Freight P. Ltd vide letter dated 19.11.2012 requested for adjournment . Another date was fixed for 17.01.2013. PH could not be held. Shri Devang Parikh, Shri Samir Shah and Shri Nilesh Suchak appeared on 28.01.2013. They explained that the major component of

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the demand relates to ocean freight which has been held as per Tribunal decision in case of M/s Gudwin Logistics v/s CCE Vadodara as not taxable to service tax.

Regarding transportation charges, retention charges, statutory laws etc. which are also included in the show cause notice they mentioned that service were not rendered by them in all these activities and have only collected the various charges and paid to the service providers.

They drew attention to their reply to show cause notice dated 20.11.2012 in respect of other allegations in show cause notice and promised that they would give further written submission.

M/s Star Freight P. Ltd. vide their letter dated 27.03.2013 submitted their further submission.

Details of all three pending show cause notices (SCNs) for which hearing was held were given below for ready reference.

Sl. SCN F. No./Date Period Service Tax Demand Proposed in SCN Rs.

1 STC/4-5/O&A/11-12, 21-04-2011 1-10-05 to 31-3-2010

4,55,46,095

2 STC/4-87/O&A/11-12, 21-10-2011 2010-11 1,19,23,2403 STC/4-35/O&A/12-13, 21-10-2012 2011-12 1,12,45,570Total 6,87,14,905

They requested to consider the following further submissions in addition to their replies filed in response to all the three SCNs.

1. They were registered with service tax department and were discharging their service tax liability regularly for the taxable business support service and business auxiliary services provided by them. They had not paid service tax only on those activities where a service was not offered or service tax was not leviable or where they were not liable to pay service tax.

2. They are Freight Forwarders and they had sold space for transportation of goods by an aircraft or a vessel from a place outside India upto the Customs Station of clearance in India or for transportation of goods by an aircraft or a vessel from a Customs Station in India to a place outside India. They had collected airfreight or sea freight or ocean freight along with statutory and compulsory surcharges and other charges on which no service tax is leviable under any of the category of taxable services. The proposal in the SCNs to demand service tax on such activities of transportation of goods under the category of ‘Support services of business’ is incorrect and not maintainable.

3. They had not paid service tax only in respect of non-taxable activity relating to freight forwarding based on a bona fide belief that no service tax is payable on airfreight or ocean freight or sea freight along with statutory and compulsory surcharges and other charges right from the inception of service tax law in India since July 1994 till today.

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4. They were not the actual service provider in case of transportation of goods by sea or air for export of goods outside India or for import of goods into India. Actual service is provided by airline or shipping line that carries the cargo in ship or aircraft for transportation of goods by offering space to us and we in turn sell such space to importers and exporters of goods.

5. Their activity was essentially an activity of trading in freight and was not a service at all since they did not transport goods themselves. They buy space and sell space. Hence the contention in the SCN that all these activities were business support service was totally misplaced.

6. The SCNs have presumed the activity of freight forwarding to be ‘Business Support Service’ without showing in any manner how each of their activity can be covered in this category. On the contrary, they had clearly shown that none of their activities on which service tax was not charged by them (based on their bonafide belief) was pertaining to any of the following activities that constitute ‘Business Support Service in terms of provisions of section 65(104c) of Finance Act, 1994.

(i) Evaluation of prospective customers,(ii) Telemarketing,(iii) Processing of purchase order and fulfillment services,(iv) Information tracking or delivery schedules,(v) Managing distribution and logistics,(vi) Customer relationship management services,(vii) Accounting and processing of transactions,(viii) Operational assistance for marketing,(ix) Formulation of customer service and pricing policies,(x) Infrastructural support services,(xi) Other transaction processing.

A careful study of above stated activities reveal that recovering charges for ocean freight or air freight or for any other transportation charges is not an activity covered in any of the above stated 11 activities specified in section 65(104c) of the Finance Act, 1994 that defines ‘Support Services of Business or Commerce’. Hence it is quite evident that no service tax was payable by them as their service was not a taxable service as per section 65(105) (zzzq) of the Finance Act, 1994 as wrongly proposed in the SCNs based on presumption.

7. They reiterated that activity of freight forwarders in respect of ocean freight and airfreight for import or export of goods is not covered in the service tax net right from the inception of service tax law in India till date.

8. They had addressed their detailed letter dated 18-09-2012 (filed on 18-09-2012) showing current provisions of service tax law showing how the ocean freight and airfreight for import and export of goods is not taxable service. They had also requested to clarify this position of non-taxability of ocean freight and airfreight to avoid undue litigation but they had not received any reply to this letter. For ready reference, they gave below provisions of service tax law from 01-07-2012 onwards under which also the activity of ocean freight or air freight for transportation of goods from India to outside India or from a place outside India to India is not taxable. (i) In terms of provisions of section 66D (p) of the Finance Act, 1994,

services by way of transportation of goods by an aircraft or a vessel from a place outside India upto the Customs Station of clearance in India is in the Negative List.

(ii) Accordingly, any ocean freight or air freight charged for import of goods from a place outside India to India will be in the negative list and hence not taxable from 01-07-2012.

(iii) This indicates very clearly the intention of the Government of India, which is not respected in this SCN.

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(iv) Additionally it may be noted that when Ocean or Air or Sea Freight is not under Service Tax for the Carrier it can not be taxed for one who trades in it.

(v) In terms of Rule 10 of Place of Provision of Services Rules, 2012, the place of provision of services of transportation of goods, other than by way of mail or courier, shall be the place of destination of the goods. Provided further that the place of provision of services of goods transportation agency shall be the location of the person liable to pay tax. Thus, in terms of these provisions of Rule 10, the service of transportation of goods by vessel or aircraft (ocean freight and air freight) for transportation of goods from India to a place outside India shall be the destination of the goods i. e. the place outside India. In terms of provisions of section 66B of the Finance Act, 1994, the services provided or to be provided in taxable territory are taxable services and since the place of provision of this service of ocean freight and airfreight is outside India (non-taxable territory), there is no service tax liability on this service under the Finance Act, 1994.

9. The above stated provisions of service tax law only support their contention that it is consistent policy of Government not to levy service tax on ocean freight or air freight for imported and export goods right from day service tax is introduced in India till today. The activity of freight forwarding from place outside India to a place in India or from India to a place outside India was not taxable even for the period prior to 01-07-2012 as the same is not covered in any of the 119 taxable services upto 30-06-2012. In the past, for the period prior to 01-07-2012, Hon. Tribunal has held in following final orders that the ocean freight or air freight is not a taxable service as can be seen from the following decisions.

(i) In final order in case of Bax Global India Ltd. v. Commissioner [2008 (9) STR 412 (Tri.-Bang.)] decided by division bench on 25-10-2007, it was held that seeking to tax freight for air export under the Customs House Agent activity shows that the adjudicating authority has not applied his mind to the details of various activities undertaken. It was also held that the profit or loss incurred in respect of activities which are not related to CHA activities should not be the concern of the Department for the purpose of collecting service tax. It was also held that the freight charges collected is for the transportation of the goods and the transportation service is rendered actually by the airliner and not the CHA.

(ii) In final order in case of Lee & Muir Head P. Ltd. v. CST [2009 (14) STR 348 (Tri.-Bang.)] decided by division bench on 23-10-2008, it was held that before the import of the goods, the goods have to be necessarily transported from the foreign country to India. This involves transportation. So, for that freight has to be paid. The freight is paid to the shipping lines. In many cases, it is prepaid. In certain cases, the freight is not paid in advance. In such cases, freight is collected by the appellant and for collecting that freight a commission is paid. This is not an activity of the CHA. This should be borne in mind. These charges are in connection with transportation. The transportation is not related to the CHA. In other words, the CHA apart from this Custom House Agency do undertakes many other activities. All those activities cannot be taxed under the category of CHA. After the clearance, the goods have to be transported from the warehouse or from the godown. For these activities CHA collects certain fees and they cannot come under the category of CHA.

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(iii) In final order in case of Gudwin Logistics v. CCE, Vadodara [2010 (18) STR 348 (Tri.- Ahmd.)] decided by division bench on 06-11-2009, it was held that ocean freight itself is not liable to service tax at all. It further held that there is a clear decision that freight element cannot be included for service tax.

(iv) In Clearship Forwarders Pvt. Ltd. [2012 (28) STR 61 (Commr. Appl.)], it was held that assessee is not liable to pay tax on container movement charges and transportation charges under CHA services and on freight charges under GTA services.

10. In SCN dated 21-04-2011, liability under Business Auxiliary Service was proposed without indicating specific sub-clause of section 65(19) under which each of the activity falls. Similarly, demand of service tax under the category of ‘Business Support Service’ was also proposed without stating how the activity of freight forwarding falls under any of the 11 activities stated in section 65(104c) of the Finance Act, 1994. Hence, the demand of service tax based on vague SCN is not sustainable and they prayed for dropping the proceedings under the SCN on this ground as well.

11. In United Telecom Ltd. v. CCE [2011 (21) STR 234 (Tri.-Bang.)], it was held that no tax liability can be confirmed against a person without putting him/it to notice as to its liability. It is essential that the liability is indicated in the notice with reference to the specific statutory provision. As the demand was confirmed under the category Business Auxiliary Services without specifying which specific sub-clause covered the activities rendered by the appellant, the appeal filed by the assessee was allowed.

12. Similar view has been taken in case of Seagull Freight Systems [2012 (27) STR 530 (Commr. Appl.)] wherein it was held that an order based on vague SCN issued without specifying under which specific clause of “business auxiliary service” the activity falls is not sustainable.

13. It appears that Department has sought to use an entry as a Residual entry to cover all activities (not services) undertaken by them.

14. Incentive charges were received by them for achieving business targets and for profit share from overseas agent for handling of shipment. This activity was not taxable under business auxiliary service as it was a secondary service and not a primary service provided for export.No service tax was payable on such incentive received from steamer agents as held in the case of Ruth Shipping Agencies Pvt. Ltd. v. CCE [2010 (19) STR 39 (Tri.-Chen.)]. In P. Gautam v. CST [2011 (24) STR 447 (Tri.-Ahmd.)] Hon. Tribunal has held that discounts and incentives received from print media are not charges for services and are not to be considered for taxability under business auxiliary service. This amount cannot be said to be received for advertising service also as held in Euro RSCG Advertising Ltd. v. Commissioner [2007 (7) STR 277 (Tribunal) and Kerala Publicity Bureau v. Commissioner [2008 (9) STR 101 (Tribunal)].

15. A careful study of the activities carried out by them and their replies to SCNs show that: (i) They had obtained Service Tax registration for the taxable services

provided by us since 17-08-2005.(ii) They had paid due service tax on all taxable services rendered by them

regularly.(iii) They had filed all periodical returns with the service tax department

regularly.(iv) Service tax is not charged or paid on ocean freight and freight activities

as these activities are not the services rendered by them but were the

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services rendered by shipping line or the airlines or others and they were not taxable in their hand.

(v) No freight forwarder in India is paying service tax on ocean freight and air freight related charges because this activity is not taxable under any of the categories of taxable services.

(vi) No shipping line or airline is charging service tax on ocean or air freight for import and export of goods as it is not a taxable service.

(vii) Even if the activity is taxable, the actual service provider should be made liable to pay service tax on ocean freight and airfreight and not the freight forwarders who only trade i.e. buy and sell freight.

(viii) Their premises were visited by the departmental officers on 26-08-2008 and their records were withdrawn on that date which means that the department was fully aware about our activities right from 17-08-2005 when we are registered with the service tax department and particularly from the date of visit of their premises after withdrawing required records.

(ix) Issuing first SCN on 21-04-2011(after nearly 30 months) itself shows that department itself was initially of the view that no service tax is payable on freight forwarding activity.

(x) Further, decisions of Hon. Tribunal holding that such activity of freight forwarder is not taxable under category of ‘CHA service’ or under ‘Clearing and Forwarding service’ also shows that question of interpretation is involved.

(xi) Demand of service tax under SCNs issued to us under the category of ‘Business Support Service’ also shows that the department is using trial and error method without any legal basis to do so for proposing demand of service tax based on perceptions or presumptions and under this circumstances, extended period of limitation cannot be invoked.

(xii) In a series of cases relied upon by them, the department had proposed demand of service tax on ocean freight and air freight under the category of ‘Customs House Agent’ or ‘clearing and forwarding service’ and it is held that value of ocean freight and air freight cannot be included in the value of taxable service.

(xiii) It is also held that profit on such activity is also not taxable. In view of the many matters travelling upto Tribunal on this issue and also holding that ocean/air freight is not taxable service, it is evident that the demand of service tax is not sustainable on merit. Further, many matters travelling to Tribunal shows that question of interpretation is involved in this issue and hence extended period of limitation cannot be invoked and penalty cannot be imposed as per settled legal position. Some of the decisions relied upon by them are given below for ready reference.

(a) In final order in case of Bax Global India Ltd. v. Commissioner [2008 (9) STR 412 (Tri.-Bang.)] decided by division bench on 25-10-2007, it was held that freight for air export is not taxable under the category of Customs House Agent Service.

(b) In final order in case of Gudwin Logistics v. CCE, Vadodara [2010 (18) STR 348 (Tri.-Ahmd.)] decided by division bench on 06-11-2009, it was held that there is a clear decision that freight element cannot be included for service tax under the category of clearing and forwarding agency service.

(c) S. R. Gupta & Sons v. CCE [2012 (27) STR 501 (Tri.-Del.)] holding that the notices issued beyond the period of limitation would not stand inasmuch during the relevant period, there was sufficient material for the assessee to entertain a bona fide belief. In our case also the fact that none of the freight forwarder is

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paying service tax on the ocean freight or air freight; tribunal orders holding that such freight is not taxable and shipping lines or airlines not charging service tax are sufficient material for us to entertain a bona fide belief that service tax is not payable on freight element under category of ‘business support service’. Hence, by applying the ratio of the above decision to the facts of the present case, we request you to hold that the demand beyond the period of limitation is time barred and no penalty is required to be imposed.

(xiv) There was no suppression or violation of any of the provisions of Finance Act, 1994 or the rules made thereunder with intent to evade payment of service tax on their part.

(xv) There was not an iota of evidence of such suppression or intent to evade payment of service tax and all the information is provided by them to department as and when asked for.

(xvi) Nonpayment of service tax on ocean/freight charges based on bona fide belief that this activity is non-taxable and also based on the fact that none of the freight forwarder in India is paying such service tax is a reasonable cause on our part.

(xvii) There is no clear proof of suppression that Department has been able to establish. Thus, when we have shown reasonable cause for nonpayment of service tax, penalty cannot be imposed in terms of provisions of section 80 of the Finance Act, 1994.

16. In case of Gudwin Logistics v. CCE, Vadodara [2012 (26) STR 443 (Tri.-Ahmd.)] service tax was demanded by department under the category of ‘clearing and forwarding agent service’ on the activities of facilitating clearances of export/import cargo, freight booking of ocean going vessel shifting empty containers from container yard to CWC-CFS, facilitating freight required for agro product, employment of labourer for stuffing of cargo into containers, co-ordination with shipping lines for terminal handling of containerised cargo, co-coordinating with CHAs. Hon. Tribunal held that impugned order which held that the appellant has been providing service of clearing & forwarding agent, are incorrect and is liable to be set aside.

It could be observed that the department had demanded service tax on freight forwarding activity under the category of ‘Customs House Agent (CHA)’ service in some cases and such demand is set aside by Tribunal. In case of Gudwin [2012 (26) STR 443 (Tri.-Ahmd.)], department had demanded service tax on this very activity of freight forwarding under ‘clearing and forwarding agent’s service’ and this demand has also been set aside by Tribunal. In their case, the SCNs propose demand on this very activity of freight forwarding under the category of ‘Business Support Service”. These facts clearly show that the department itself is not clear about the category of service and is proposing demand of service tax without any basis of law. Further these facts also show that a question of interpretation is involved and it is a settled law that when question of interpretation is involved, extended period of limitation cannot be invoked and penalties cannot be imposed.They prayed for holding that no service tax was payable by them as wrongly demanded by the SCNs and also prayed to hold that extended period of limitation cannot be invoked and penalty cannot be imposed in their case.

17. They enclosed a query thereto given by expert in Service Tax Review dated 15-11-2012 and 15-12-2012 in connection with service tax on freight

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forwarder’s activities which also opine that no service tax is payable on sea/air freight charges.

18. All the facts stated in their replies and above further submissions show beyond doubt that no service tax was payable by them on sea/ocean/freight related charges under ‘business support service’ or under ‘business auxiliary service’. However, the SCNs were issued to them in a routine manner without there being any short payment of service tax on their part.

19. In view of there being no violation of any of the provisions of service tax law on their part, they earnestly pray for holding that service tax as proposed in the SCN was not payable by them. They also requested to hold that the extended period of limitation cannot be invoked in their case in absence of any suppression on their part. They requested to hold that under these circumstances, no penalty can be imposed on us in view of provisions of section 80 of the Finance Act, 1994 as they had shown reasonable cause for not paying service tax on ocean freight or airfreight and related charges.

20. Another major portion of demand under these SCNs is on activity of transportation of goods by road which is also not taxable under the category of business support service’ as proposed in all these three SCNs. According to their bona fide belief, in terms of provisions of section 68 of the Finance Act, 1994, on service relating to transportation of goods by road, service tax liability is either on the ‘goods transport agency’ or on the consignor or consignee who pays the freight and hence the freight forwarders who only collect the freight and pay it to goods transport agency or transporter are not liable to pay service tax as they did not provide the service of transportation themselves. In Clearship Forwarders Pvt. Ltd. [2012 (28) STR 61 (Commr. Appl.)], it was held that appellant was not liable to pay service tax on freight charges paid by him and reimbursed by their clients under GTA service.

21. They stated that they were not liable for payment of service tax on the following values against each of the SCNs. and once the demand for service tax on these values were dropped, there remain no short payment of service tax on their part and hence they requested to drop all the proceedings under the SCNs.

Sl. SCN F. No./Date and Period

Proposed Demand of ST in SCN Rs.

Value on which Service Tax Not Payable Rs.

Service Tax not PayableRs.

Short Payment of Service Tax Rs.

List

(1) (2) (3) (4) (5) (6)=(3)-(5)

1STC/4-5/O&A/11-12,

21-04-2011 (1-10-05 to 31-3-10)

4,55,46,095 39,84,71,423 4,76,54,468 -21,08,373. I

2 STC/4-87/O&A/11-12, 21-10-2011 (2010-11 1,19,23,240 11,57,59,613 1,19,23,240 0 II

3 STC/4-35/O&A/12-13, 22-10-2012 (2011-12) 1,12,45,570 10,91,80,290 1,12,45,570 0 III

Total 6,87,14,905 62,32,52,715 7,08,23,278 -21,08,373

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It could be seen from the above table that there was an overall excess payment of service tax of Rs. 21,08,373 as against the allegation of short payment in the SCNs. They gave below 15 different heads on which service tax was not payable by them and the value and service tax demand thereon was reflected in List I, List II and List III enclosed herewith. (i) Incentives: No service tax is payable based on explanation given in

paragraph 7 of these submissions.(ii) Ocean Freight: No service tax is payable on ocean freight as per settled

legal position and explanations given above.(iii) Air Freight: No service tax is payable on ocean freight as per settled

legal position and explanations given above.(iv) Amounts paid to Shipping Lines in relation to freight: No service tax is

payable on ocean freight as per settled legal position and explanations given above.

(v) Amount paid for Custom Clearance Related Activity: These are services provided by CHA or others and they have already charged applicable service tax, where applicable while providing such service and demand of service tax from us is not sustainable when we have not provided this service and have only claimed reimbursement of such charges. Even if margin is added to recover incidental expenses, such reimbursements are not taxable in our hands..

(vi) Amount paid to fumigation agency: This service is not provided by us but by other agency and service tax is charged by service provider, where applicable and demand of service tax from us is not sustainable when we have not provided this service and have only claimed reimbursement of such charges. Even if margin is added to recover incidental expenses, such reimbursements are not taxable in our hands. They enclosed a sample Bill No.2191 Dated 22/01/2010 for Rs.500 And Bill No. 2169 Dated 24/12/2009 for Rs. 500 to show that such charges have already suffered service tax when this service was provided by others.

(vii) Amount paid to insurance company: This service is not provided by us but by other agency and service tax is charged by service provider, where applicable and demand of service tax from us is not sustainable when we have not provided this service and have only claimed reimbursement of such charges. Even if margin is added to recover incidental expenses, such reimbursements are not taxable in our hands. They enclosed a Collection Receipt Cum Voucher to show that such charges have already suffered service tax when this service was provided by others.

(viii) Amount paid to palletisation company: This service is not provided by us but by other agency and service tax is charged by service provider, where applicable and demand of service tax from us is not sustainable when we have not provided this service and have only claimed reimbursement of such charges. Even if margin is added to recover incidental expenses, such reimbursements are not taxable in our hands. They enclosed a sample Bill No. AEROAMD-DND/0212/09-10 Dated 11/09/09 for Rs.38233/- to show that such charges have already suffered service tax when this service was provided by others.

(ix) Statutory dues: This service is not provided by us but by other agency and service tax is charged by service provider, where applicable and demand of service tax from us is not sustainable when we have not provided this service and have only claimed reimbursement of such charges. Even if margin is added to recover incidental expenses, such reimbursements are not taxable in our hands. They enclosed a sample Bill No.IMP/MUNDRA/0351/09-10 Dated 02/09/2009 for Rs. 34038/- Bill No.138 Dated 28/05/2009 for Rs.3020/-

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to show that such charges have already suffered service tax when this service was provided by others.

(x) Transportation Charges: This service is not provided by us but by other agency and service tax is charged by service provider or receiver, where applicable and demand of service tax from us is not sustainable when we have not provided this service and have only claimed reimbursement of such charges. Even if margin is added to recover incidental expenses, such reimbursements are not taxable in our hands. They enclosed a sample Bill No. RCPL/09-10/4692 Dated 31/03/2010 for Rs. 76600/- Bill No.31/OCM/KDL/2009-10 Dated 20/5/2009 for Rs.30125/0 to show that such service is not provided by us but are provided by goods transport agency.

(xi) Documentation to facilitate shipping company: This service is not provided by us but by other agency and service tax is charged by service provider, where applicable and demand of service tax from us is not sustainable when we have not provided this service and have only claimed reimbursement of such charges. Even if margin is added to recover incidental expenses, such reimbursements are not taxable in our hands. Administration Expenses: These are the expenses for communication and other expenses and it is not taxable under business support service.

(xii) Detention charges: These are charges for container detention and are paid to shipping lines. As per CBEC Circular No. 121/3/2010-ST, dated 26-04-2010, to retain container beyond the pre-holding period is neither a service provided on behalf of the client (business auxiliary service) nor is it an infrastructural support in the business of either the shipping lines or the customer (business support service) and therefore the amount collected as ‘detention charges’ is not chargeable to service tax.

(xiii) Forex gain loss: This is gain or loss due to currency fluctuation and is not for any service and cannot be taxed under any category of service by any stretch of imagination. Further, service tax is mechanically demanded only in the year 2011-12 and is rightly not demanded on such gain of earlier years.

(xiv) Profit share: Share in profit is not a charge for any service. Service tax is leviable on value of taxable service rendered and not on share in profit and hence the proposal for demand of service tax is patently illegal. Further, service tax is mechanically demanded only in the year 2010-11 and rightly not demanded on such profit share in other years.

22. They stated that based on submissions given above, service tax was not payable on above stated broad headings. Further, demand of service tax on freight charges, insurance charges, profit share, forex gain etc. under the category of ‘support services of business’ is patently wrong as these activities cannot be said to be ‘Business Support Services’ by any stretch of imagination.

23. It was shown at the time of personal hearing that out of total demand of service tax in all the three SCNs, about 98.85% [96.70%+2.15%) of demands are for freight charges which are patently illegal as freight charges are not taxable at all under the category of ‘business support service’ or for that matter any other service. The percentage wise distribution of amounts on which service tax is not payable by us was handed over at the time of personal hearing on 28-01-2013 and is again enclosed herewith for ready reference.

24. They stated that the following charges were in relation to ocean freight or air freight for import or export of goods and such amounts paid to shipping line or airline are not taxable as we are not the provider of service in this case and the shipping line or the airline or other parties provide these services. The

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definitions of these freight related charges as per Glossary of Shipping Terms issued by U. S. Department of Transportation, International Air Transport Association (IATA) and Dictionary of International Trade are enclosed for ready reference.

25. They further stated that the onus to prove with sufficient evidence that the receipts were against the taxable services lies on the department which is not discharged at all by the department and the demand is made mechanically without application of mind by merely taking all the amounts from our books of account without even checking whether these activities are taxable or not. Hence the demand under these SCNs was not sustainable on merit as rightly held in the case of CST, Ahmedabad v. Purni Ads. Pvt. Ltd. [2010 (19) STR 242 (Tri.-Ahmd.)]. They requested to drop the proceedings under all the SCNs following the judicial discipline based on the law laid down by Hon. Tribunal in this case.

26. It is settled law that there was no service tax on ocean freight and air freight. It is also a settled law that service tax is payable only on value of taxable service provided by service provider. Accordingly, where they had not provided any service but the service was provided by third party, they were not liable to pay any service tax. It is also settled that even if there is any profit made on such service provided, there is no service tax liability thereon as per law laid down in case of Bax Global India [2008 (9) S.T.R. 412 (Tribunal) which has considered decision of Hon. Supreme Court in case of Baroda Electric Meters Ltd. v. Collector — 1997 (94) E.L.T. 13 (S.C.).

27. Judicial discipline also demands that when law has been laid down by higher appellate forum that there is no service tax on ocean freight or airfreight or on reimbursement for services provided by third party, the lower authorities should respectfully obey such precedents. Accordingly, they prayed for holding that no service tax was payable by them on ocean freight, air freight, transportation activities and other activities where services are provided by third parties and not by them. They prayed for dropping all the proceedings under the SCNs following judicial discipline and thus render justice.

28. Since the demand of service tax under the SCNs is not sustainable in view of the above submissions, they prayed for dropping all the proceedings under all the three SCNs on merit as also on the ground of limitation and thus render justice.

DISCUSSION AND FINDINGS :- 54. I have carefully gone through the records of the case, written submissions

made by the said assessee as well as the submissions made during the course of

personal hearing and the records/documents produced by them. The demand of

service tax under three SCNs is as under.

Sl. SCN F. No./Date Period Service Tax Demand Proposed in SCN

Rs.1 STC/4-5/O&A/11-12, 21-04-2011 1-10-2005 to

31-3-20104,55,46,095

2 STC/4-87/O&A/11-12, 21-10-2011 2010-11 1,19,23,2403 STC/4-35/O&A/12-13, 21-10-2012 2011-12 1,12,45,570Total 6,87,14,905

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54.1 I find that in part-A of Annexure-C to the show cause notice, demand of

service tax is under the category of ‘Business Auxiliary Service’ whereas, in part-B

demand of service tax is under the category of ‘Business Support Service’. Before, I

proceed further, I observe that the demand has been worked out by considering the

entire income in the ledgers as taxable income and then taxable value shown in the

ST-3 Return is deducted. Service tax is then demanded on the difference between the

two.

55. I first take up the demand of service tax under the category of ‘Business

Auxiliary Service’. In Annexure-C, the demand under the said category is raised on

the following heads.

a) Additional Air Commission,

b) Air Commission

c) Airline D.O. Fees

d) Brokerage

e) Commission on Freight charges

f) Incentive charges

g) Marketing charges

The said assessee is paying service tax on all the heads except incentive charges. On

‘incentive charges’ they have started paying service tax from the year 2009-10

onwards. Assessee’s contention that the same has been received for achieving

business targets and for profit share is neither acceptable in absence of any

documentary evidence produced by them nor is supported by their own decision of

service tax payment on these charges from 2009-10 onwards. Naming the

remuneration/consideration for providing service differently cannot absolve the

assessee from payment of service tax. The amount earned by the assessee is for

maximizing someone’s business as is evident from the description given against the

Account head ‘Incentive charges’ at Sr. No. 33 of the table at para 10 of the show

cause notice which reads as ‘Profit share from overseas agent for handling of ici

shipment’. In view of the above, I confirm the charge made in the show cause notice.

In view of the above, as detailed in the below given table, amount of Rs. 22,12,280 /-

(Rs. 29,958 /- + Rs. 48,915/- + Rs. 4,61,611/- + 16,71,796/-) is the taxable value

under “Business Auxiliary Service”. Therefore, service tax of Rs. 2,38,293/- (Rs.

3,056/- + Rs. 5,987/- + Rs.57,055/- + Rs. 1,72,195/- ) is recoverable from the said

assessee under the proviso to Section 73(1) of the Finance Act, 1994 along with

interest under Section 75 of the Finance Act, 1994.

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Sr.No. Year Incentive earned Service tax rate

Service Tax. In Rs.

1 2005-06 29958 10.2 30562 2006-07 48915 12.24 59873 2007-08 0 12.36 04 2008-09 461611 12.36 570555 2009-10 1671796 10.30 172195

Total SCN-1 2212280 238293

56. Before deciding anything on the demand under the category of ‘Support

Services for Business or Commerce (BSS)’, I observe that the income of the assessee

during the period from 1.10.2005 to 31.3.2012 is recorded under more than 200 sub-

heads on which service tax under the said category has been demanded. However, the

assessee in his written submission has summarized the said sub-heads in to 14 main

heads which are the services provided by the asessee as under. I accept the said

summarization for deciding the case.

Sr. No.1 Main Head : Ocean FreightSr. No. of Annexure to SCN

Sub-Head

20 BAF FEES

92 EMERGENCY BUNKER SURCHARGE

EMERGENCY REVENUE SURCHARGE

110 FUEL SURCHARGE

124 HAZARDOUS CHARGES

127 HEAVY LIFT SURCHARGE

135 IGM CHARGES

139 INLAND FREIGHT CHARGES

142 INLAND FUEL SURCHARGE

145 INLAND TRANSPORTATION CHARGES

148 ISPS, TSF & CSF CHARGES

132 I T DOC CHARGES

158 LINE CHARGES

159 LINE SERVICE FEE CHARGES

172 OCEAN FREIGHT

176 OPEN TOP SURCHARGE

179 OVER LOAD CHARGES

180 OVERWEIGHT CHARGES

185 PEAK SEASON SURCHARGES

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189 PICK UP CHARGES

192 PORT CONGESTION CHARGES

203 RAIL FREIGHT

228 STRIPING CHARGES

223 SHIPPING LINE CHARGES

236 SUZE CANAL SURCHARGE

244 TSF & CSF CHARGES

ISF CHARGES

SHIP SECURITY ORIGIN

SHUT OUT CHARGES

NOMINATION CHARGES

CARRIER SECURITY CHARGES

TERMINAL SECURITY DESTINATIONSr.No. 2 Main Head : Air Freight

Sr.No of Annexure to SCN

Sub-Head

8 AIR FREIGHT CHARGES

18 AWB & TOLL CHARGES (DESTINATION)

27 BREAKBULK

28 C C CHARGES/FEES

214 SECTOR FREIGHT

216 SECURITY/FUEL SURCHAGE

237 TERMINAL CHARGES (AIR)

249 VOID CHARGESSr.No. 3 Main Head : Paid to Shipping Line

Sr.No of Annexure to SCN

Sub-Head

29 C F S CHARGES

50 CLEANING CHARGES

55 CONTAINER CLEANING CHARGES

74 DESTINATION CHARGES

75 DESTRUCTION CHARGES

114 GROUND RENT CHARGES

178 ORIGIN TRANSFER FEE

207 REPAIRING CHARGES

210 REWORKING CHARGES

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251 WAREHOUSING STUFFING CHARGES

253 WASHING CHARGES

DEMMURAGE CHARGES

Sr.No.4 Main Head : Paid for Custom clearance related activity Sr.No of Annexure to SCN

Sub-Head

63 CUSTOM PROCESSING & RELATED CHARGES

79 DFRC CHARGES

EDI REGISTRATION CHARGES

Sr.No.5 Main Head : Paid to Fumigation AgencySr.No of Annexure to SCN

Sub-Head

113 FUMIGATION CHARGES

Sr.No. 6 Main Head : Paid to Insurance CompanySr.No of Annexure to SCN

Sub-Head

146 INSURANCE CHARGES

Sr.No. 7 Main Head : Paid to Palletization CompanySr.No of Annexure to SCN

Sub-Head

183 PALLATISATION CHARGES

Sr.No.8 Main Head : Statutory chargesSr.No of Annexure to SCN

Sub-Head

30 C M C CHARGES

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54 CONCOR CHARGES

64 CWC CHARGES

119 HANDLING CHARGES - GSEC

153 LEGALISATION CHARGES

168 MICT CHARGES

251 WAREHOUSING CHARGES

252 WARFRAGE CHARGES

DUTY CHARGES

STAMP DUTY CHARGES

Sr.No.9 Main Head : TransportationSr. No. of Annexure to SCN

Sub-Head

39 CARTAGE CHARGES

59 CRANE CHARGES

160 LOADING & UNLOADING CHARGES

163 LOCAL CARTAGE

242 TRANSPORTATION CHARGES

243 TRUCKING CHARGESSr.No.10 Main Head: Paid for DOCUMENTATION UNDERTAKEN TO

FACILITATE SHIPPING COMPANY ACTIVITYSr.No of Annexure to SCN

Sub-Head

25 BOND CANCELLATION CHARGES

26 BOND EXECUTION CHARGES

Sr.No.11 Main Head: Paid for Administration ExpensesSr.No of Annexure to SCN

Sub-Head

53 COMMUNICATION CHARGES

5 ADMINISTRATION CHARGES

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58 COUNSULTANCY CHARGES

90 E-MAIL CHARGES

98 ESTABLISHMENT CHARGES

164 LOCAL CHARGES AT DESTINATION

197 POSTAGE CHARGES

Sr.No.12 Main Head: Paid to shipping company-As per Board’s Circular not to charge Sr.No of Annexure to SCN

Sub-Head

CONTAINER DETENTION CHARGES

DETENTION CHARGES

Sr.No.13 Sr. No. of Annexure to SCN

Sub-Head

FOREX GAIN LOSSSr.No of Annexure to SCN

Sub-Head

Sr.No.14 PROFIT SHARE

Now, I decide the taxability of all the above 14 main heads.

Main Head: “Ocean Freight Charges”

57. As regards, the taxability on Main Head: “Ocean Freight Charges” listed at

Sr.No. 1 above, it is the contention of the said assessee that they are freight forwarders

and no service tax is payable on the “Ocean Freight Charges”. They mainly relied on

the judgment in the case of Bax Global India Ltd. v. CST [2008 (9) STR 412 (Tri.-

Bang.)]. I find that the said assessee 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 assessee for getting the said work done. In this

situation, the system followed by the persons like the said assessee is that either they

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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’

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 assessee. 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’. My above findings also gets

support from the assessee’s contention that they are not the actual service provider in

case of transportation of goods by sea or air for export of goods outside India or for

import of goods into India and the actual service is provided by airline or shipping

line. 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 is treated as taxable value.

57.1 The expenses incurred by the said assessee on account of occupying space for

ocean freight/Air 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 assessee 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/Air 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 assessee have termed their service charges as the profit on purchase

and sale of Ocean freight/Air 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.

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57.2 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;

“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;

It is also the contention of the said assessee that none of their activities on

which service tax is not charged by them is the activity that constitutes ‘Business

support service’. 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 assessee 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”.

57.3 Assessee has also cited Section 66D(p) of the Finance Act, 1994 w.e.f 1.7.2012

to highlight the intention of the Government for not taxing the ‘Ocean freight’ and ‘air

freight’ for transportation of goods. I have already discussed above, that my findings

are in conformity with the letter and spirit of the law as I am not taxing the entire

amount of ‘Ocean freight’ or ‘air freight’ but am taxing only the amount earned by the

assessee for said facilitation.

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57.4 The said assessee has placed reliance on various case laws for non charging of

service tax on ‘ocean freight’. The said service provider’s reliance on the judgment of

Bax Global India Ltd. v. CST, Bangalore [2008 (9) STR 412 (Tri.-Bang.)] is

misplaced as the said order has decided the issue of whether, the activity of ‘ocean

freight’ or ‘air freight’ is taxable under the category of CHA service or not. In the case

before me, the demand is under the category of ‘Support services of business and

commerce’ and the said assessee is not a CHA. The said service was introduced w.e.f

1.5.2006, whereas, the said judgment of the Hon’ble CESTAT decided the appeal

filed against the Order-in-Original No. 22/2006 dated 18.05.2006, passed by the

Commissioner of Service Tax, Bangalore. Therefore, it is crystal clear that issue in the

case pertained to the period prior to introduction of ‘Support services of business and

commerce’ w.e.f 1.5.2006. I also observe that the said judgment of the Hon’ble

Tribunal was not accepted by the department and an appeal bearing No. C.E.A. No.

43/2008 dated 17.4.2008 has been preferred before the Hon’ble High Court of

Karnataka as informed by the Service tax Commissionerate Bangalore vide letter

F.No. IV/03/532/2006 Rev/Appl. Dated 21.2.2011. In view of the above, ratio of the

said judgment cannot be applied in the case before me.

On similar basis, I do not place reliance on the judgment of Hon’ble Tribunal in the

case of LEE & MUIR Head Pvt Ltd Vs Commissioner of Service Tax, Bangalore

reported at 2009(14) S.T.R. 348 (Tri.-Bang.). I also find that judgment of Hon’ble

Tribunal in the case of Gudwin Logistics Vs Commissioner of C.Ex. Vadodara,

reported at 2010(18) S.T.R. 348 (Tri.-Ahmd.),relied upon by the said assessee can not

be applied in the case before me as it pertains to the Clearing & Forwarding Agent’s

services and here the issue is not of inclusion or exclusion of freight element for

charging service tax as was there in the cited case. I have already discussed above,

that I am not charging service tax on ‘ocean freight’ or ‘air freight’. The said service

provider’s reliance on the case law of United Telecom v. CCE [2011(21)STR 234

(Tri.Bang)] and Seagull Freight Systems [2012(27)STR 530(Commr. Appeals) are

also not applicable as in the case before me, the demand is under the category of

“support services of business and commerce” and there is no question of travelling

beyond the scope of the show cause notice.

57.5 This differential amount 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. In view of the above, as detailed in the below given table,

amount of Rs. 2,39,75,496/- (Rs. 1,29,29,577/- + Rs. 55,69,051/- + 54,76,868/- ) is

the taxable value under “support services of business or commerce”. Therefore,

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service tax of Rs. 26,70,288/- (Rs. 15,32,558/- + Rs. 5,73,612/- + 5,64,117/- ) is

recoverable from the said assessee under the proviso to Section 73(1) of the Finance

Act, 1994 along with interest under Section 75 of the Finance Act, 1994.

Table-1

Sr. No. Year

Ocean freight

Purchase Value

Amount collected from Exporters/importers (Ocean freight sale

value)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 75649729 77504397 1854668 12.24 2270112 2007-08 73209457 76280842 3071385 12.36 3796233 2008-09 67689866 72620007 4930141 12.36 6093654 2009-10 31502460 34575843 3073383 10.30 316558

Total SCN-1 248051512 260981089 12929577

1532558

Total SCN-2 2010-11 44136245 49705296 5569051

10.30 573612

Total SCN -3 2011-12 44985889 50462757 5476868 10.30 564117

Grand Total 337173646 361149142 23975496 2670288

Main Head: “Air Freight Charges”

58. My above findings also hold good for the Main Head: “Air freight charges”

listed at Sr.No.2 above. Therefore I don’t find it necessary to repeat the same.

However, the said assessee has earned differential amount of Rs.3,30,581/- only

during the years 2006-07, 2007-08 and 2008-09 on which service tax liability of

Rs.40,854/- arises, as detailed in the below given table, which is recoverable from the

said assessee. For rest of the years i.e. 2009-10, 2010-11 and 2011-12, the said

assessee has earned loss, in otherwords they have received no consideration is

received by them in the form of differential amount towards the service rendered.

58.1 The differential amount is nothing but the remuneration/consideration earned


exporters/importers who are in need of procuring space in the ‘aircrafts’ and is

therefore taxable. In view of the above as detailed in the below given table amount of

Rs.3,30,581/- (Rs. 4,808/- + Rs. 36,439/- + Rs. 2,89,334/-) is the taxable value under

“support services of business or commerce”. Therefore service tax of Rs.40,854/-

( Rs. 588/- + Rs. 4504/- + Rs. 35762/-) is recoverable from the said assessee under

the proviso to Section 73(1) of the Finance Act 1994 along with interest under Section

75 of the Finance Act 1994.

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Table-2

Sr.No. YearAir freight Purchase

Value

Amount collected from

Exporters/importers (Air freight sale

value)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 77348 82156 4808 12.24 5882 2007-08 18570504 18606943 36439 12.36 45043 2008-09 47838354 48127688 289334 12.36 357624 2009-10 33552986 32466287 -1086699 10.30 -111930

Total SCN-1 100039192 99283074 -756118 -71076Total SCN-2 2010-11 62024431 58760076 -3264355

10.30 -336229

Total SCN -3 2011-12 52531781 50562588 -1969193

10.30 -202827

Grand Total 214595404 208605738 -5989666 -610131 66486206 66816787 330581 40854

Main Head: “Amount Paid to Shipping line”

59. As regards the main head “Amount paid to shipping line” “listed at Sr.No. 3

above, I find that the differential amount termed by the assessee as ‘margin money’ of

the amount collected from the exporters/importers and paid to the shipping line is in

relation to facilitation of freight booking space in ocean going vessels. This is nothing

but an activity related to ‘ocean freight’. Therefore, I do not find it necessary to repeat

my findings made in the foregoing para to decide the taxability of the main head

“Ocean freight”.




therefore taxable. In view of the above as detailed in the below given table amount of

Rs. 27,98,777/- (Rs. 1,57,989/- + Rs. 1,62,060/- + Rs. 7,73,101/- + Rs. 5,03,320/- +

Rs. 5,13,091/- + Rs. 6,89,216/-) is the taxable value under “support services of

business or commerce”. Therefore service tax of Rs. 3,10,603/- ( Rs. 19,338/- + Rs.

20,031/- + Rs. 95,555/- + Rs. 51,842 + Rs. 52,848/- + Rs. 70,989/- ) is recoverable

from the said assessee under the proviso to Section 73(1) of the Finance Act 1994

along with interest under Section 75 of the Finance Act 1994.

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Table-3

Sr.No. Year

Shipping Line-

Purchase Value


Exporters/importers (Shipping Line -sale

value)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 451828 609817 157989

12.24 19338

2 2007-08 2287618 2449678 162060

12.36 20031

3 2008-09 12509100 13282201 773101

12.36 95555

4 2009-10 3094986 3598306 503320

10.30 51842

Total SCN-1 18343532 19940002 1596470 186766Total SCN-2

2010-11 6687956 7201047 513091

10.30 52848

Total SCN -3

2011-12 6249941 6939157 689216

10.30 70989

Grand Total 31281429 34080206 2798777 310603

Main Heads: Custom Clearance , Fumigation, Insurance, Palletization, Statutory,

Transportation, Documentation & Administration Charges (listed at Sr.No. 4 5 6

7 8 9 10 & 11)

60. As regards the taxability on the main heads listed at Sr.No. 4, 5, 6, 7, 8, 9, 10 &

11 above I find that it is the contention of the said assessee that they have not

provided any service but have added their margin money which should not be taxed. I

find that the margin money collected by the said assessee are his facilitation charges

for arranging the services for the exporters/importers from various service providers

such as shipping lines, airlines, CHAs, Fumigation agencies, Insurance agencies and

Palletization agencies.




therefore taxable. In view of the above as detailed in the below given Table-5 amount

of Rs. 16,16,168/- (Rs. 15,59,985/- + Rs. 34,698/- + Rs. 21,485/- ) is the taxable

value under “support services of business or commerce”. Therefore service tax of Rs.

1,96,727/- ( Rs. 1,90,584/- + Rs. 3,930/- + Rs. 2,213/- ) is recoverable from the said

assessee under the proviso to Section 73(1) of the Finance Act 1994 along with

interest under Section 75 of the Finance Act 1994.

Table-4.1

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Sr.No. Year

Custom Clearance (Purchase

Value)


Exporters/importers (Custom Clearance)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 12.24 02 2007-08 12.36 03 2008-09 12.36 04 2009-10 2000 3950 1950 10.30 201

Total SCN-1 2000 3950 1950 201Total SCN-2 2010-11 0 2450 2450

10.30 252

Total SCN -3 2011-12 0 0 0

10.30 0

Grand Total 2000 6400 4400 453

Table-4.2

Sr.No. YearFumigation (Purchase

Value)

Fumigation charges (sale value)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 13846 26894 13048

12.24 1597

2 2007-08 191440 227200 35760

12.36 4420

3 2008-09 3827 10800 6973

12.36 862

4 2009-10 12872 15472 2600

10.30 268

Total SCN-1 221985 280366 58381 7147

Total SCN-22010-11

10.30 0

Total SCN -32011-12

10.30 0

Grand Total 221985 280366 58381 7147

Table-4.3

Sr.No. YearInsurance (Purchase

Value)


Exporters/importers (Insurance- sale

value)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 53964 97854 43890 12.24 53722 2007-08 219343 285904 66561 12.36 82273 2008-09 276961 287808 10847 12.36 13414 2009-10 204460 229306 24846 10.30 2559

Total SCN-1 754728 900872 146144 17499Total SCN-2 2010-11 0 0 0 10.30 0Total SCN -3 2011-12 0 0 0 10.30 0Grand Total 754728 900872 146144 17499

Table-4.4

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Sr.No. Year

Palletisation Charges

(Purchase Value)


Exporters/importers (Pallatisation sale

value)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 18322 19613 1291 12.24 1582 2007-08 0 0 0 12.36 03 2008-09 22739 23670 931 12.36 1154 2009-10 7231 11020 3789 10.30 390


10.30 277

Total SCN -3 2011-12 10780 11070 290

10.30 30

Grand Total 65284 74273 8989 970

Table-4.5

Sr.No. Year

Statutory Charges

(Purchase Value)


Exporters/importers (Statutory Charges-

sale value)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 328436 349277 20841 12.24 25512 2007-08 634808 682859 48051 12.36 59393 2008-09 1272225 1294550 22325 12.36 27594 2009-10 23693 25302 1609 10.30 166

Total SCN-1 2259162 2351988 92826 11415Total SCN-2 2010-11 3661 6678 3017 10.30 311Total SCN -3 2011-12 51707 54302 2595 10.30 267Grand Total 2314530 2412968 98438 11993

Table-4.6

Sr.No. Year

Transportation Charges

( Purchase Value)


Exporters/importers (Transportation -

Sale Value)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 3904098 4437675 533577 12.24 653102 2007-08 4490576 4807336 316760 12.36 391523 2008-09 2790878 3113227 322349 12.36 398424 2009-10 4350 5250 900 10.30 93


10.30 0

Total SCN -3 2011-12 0 0 0

10.30 0

Grand Total 11197902 12371488 1173586 144396

Table-4.7

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Sr.No. Year

Documentation Charges

(Purchase Value)


Exporters/importers (Documentation

Charges sale value)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 0 750 750 12.24 922 2007-08 0 0 0 12.36 03 2008-09 8437 10217 1780 12.36 2204 2009-10 0 0 0 10.30 0


10.30 0

Total SCN -3 2011-12 0 0 0

10.30 0

Grand Total 8437 10967 2530 312

Table-4.8

11 Year

Adminstration Charges

(Purchase Value)


Exporters/importers (Administration

Charges)

Difference in Rs.

Service tax rate

Service Tax. In Rs.

1 2006-07 991 15844 14853 12.24 18182 2007-08 2015 25900 23885 12.36 29523 2008-09 1470 22620 21150 12.36 26144 2009-10 0 24680 24680 10.30 2542


10.30 2115

Total SCN -3 2011-12 1754 20354 18600

10.30 1916

Grand Total 9553 133253 123700 13957

Table-5 (Summary of the 8 Charges tabulated in Table 4.1 to 4.8)

Sr.No. Year Purchase Sale Difference in Rs.

Service Tax. In Rs.

Total SCN-12006-07 to 2009-

1014430690 16000675 1559985 190584

Total SCN-2 2010-11 69488 104186 34698 3930Total SCN -3 2011-12 64241 85726 21485 2213Grand Total 14564419 16190587 1616168 196727

61. As regards the Main Head “Paid to shipping company-As per Board’s Circular

not to charge” listed at Sr.No.12 above, I find that whatever amount has been

collected by the assessee has been paid as detention charges to the shipping company.

Since nothing is retained by the assessee there is no liability of service tax. Therefore

demand of service tax of Rs. 6,405/- on the value of Rs. 62,185/- as proposed in the

show cause notice for the period 2011-12 as detailed in the below given table is not

sustainable.

Table-6

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Sr.No. YearDetention Purchase

value

Amount collected from Exporters/importers (detention sale value)

Difference in Rs.

Service tax rate

Service Tax. In

Rs.

Total SCN -3 2011-12 62185 62185 0 10.30 6405

Grand Total 62185 62185 0 10.30 6405

62. As regards the Main Head “ Forex gain/loss” and “Profit Share” listed at Sr.

No. 13 & 14 above, I find that no service portion is involved and therefore there is

no liability of service tax. Therefore demand of service tax of Rs. 1,14,458/- (Rs.

1,09,991/- + Rs. 4,461/-) on the value of Rs. 11,11,188/- (Rs. 1067877 + Rs. 43311)

as proposed in the show cause notice and as detailed in the below given Table-7.1 &

7.2 is not sustainable.

Table-7.1

Sr.No. Year Forex Gain Loss Sale value Service tax rate

Service Tax. In

Rs.

Total SCN -3 2011-12 1067877 10.30 109991

Grand Total 1067877 10.30 109991

Table-7.2

Sr.No. Year Profit Share value

Service tax rate

Service Tax. In Rs.

Total SCN -2 2010-11 43311 10.30 4461

Grand Total 43311 10.30 4461

In light of above discussions the total service tax liability of all the three show cause

notices is worked out as detailed in the below given Table 8.

Table- 8

SCN No. Period Amount of Service tax demanded

Amount of service tax confirmed

Amount of service tax

dropped

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STC/4-5/O&A/11-12 dated 21-04-2011

1-10-2005 to 31.3.2010 45546095

2189055 (includes Rs. 2,38,293/- of

BAS)

43357040

STC/4-87/O&A/11-12 dated 21-10-2011 2010-11 11923240 630390 11292850

STC/4-35/O&A/12-13 dated 21-10-2012 2011-12 11245570 637319 10608251

G.T. 68714905 3456764 65258141

63. In view of the above I find that the said assessee has declared less taxable value in

the statutory ST-3 Returns filed by them during the period 1.10.2005 to 31.3.2012

resulting in short payment of service tax under the category of ‘Business Auxiliary

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

ingredients for invoking the extended period under proviso to Section 73(1) of the Act

exist. I have already discussed the non applicability of the ratio of the judgments in

the case of M/s Bax Global and M/s Gudwin Logistics in the case before me. The said

assessee has wrongly interpreted the said judgment for non payment of service tax,

therefore their bona-fides do not gets established. On the same analogy, ratio of other

judgments relied upon by the said assessee can not be applied.

64. 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

“Business Auxiliary Service” and “Support services of business or commerce” during

the period from 1.10.2005 to 31.3.2012 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

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before me, the demand of service tax is for the period from 1.10.2005 to 31.3.2012.

Therefore, I hold that the said assessee is liable to penalty under Section 76 of the

Finance Act, 1994 for the period from 6.11.2005 to 9.5.2008 as the due date of

payment of tax is 5.11.2005 for Oct’2005.


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 assessee doesnot 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 assessee 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 assessee 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 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 assessee upto the period of 9.5.2008.


As regards imposition of penalty under section 77 of the Finance Act, 1994, I observe

that the charge in the show cause notice is of less declaring the taxable value resulting

in improper assessment of service tax as required under Section 70 of the Finance

Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 which is sustained. The

said contraventions have made the said assessee liable to penalty under section 77(2)

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

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service tax except that it was their bonafide belief that service tax was not payable by

them. 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 claim for bona-fide belief can not be

accepted. 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.

65. The assessee have cited various decisions for non imposition of penalties under

section 76,77 and 78 of the Finance act,1994, which I have gone through, and find that

the same are not applicable in the case on hand as discussed above.

66. In view of the foregoing discussion, I pass the following order.

ORDER

i). I confirm the demand of Service Tax amounting to Rs. 34,56,764/- (Rupees

Thirty four lakh fifty six thousand seven hundred sixty four only)

(including education cess and secondary & higher education cess) as detailed

in Table-8 of this order under the category of “Business Auxiliary Service” and

“Support services of business or commerce” under Section 73(2) of Finance

Act, 1994;

ii). I order to recover interest on the above confirmed demand of Rs. 34,56,764/-

(Rupees Thirty four lakh fifty six thousand seven hundred sixty four only)

(including education cess and secondary & higher education cess) at the

prescribed rate from the said assessee under Section 75 of the Finance Act,

1994;

iii). 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 assessee under

Section 76 of the Finance Act, 1994, for the period from 1.10.2005 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 assessee under Section 76 of the Finance Act, 1994,

for the period from 18.4.2006 to 9.5.2008;

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provided that the amount of penalty payable in terms of this section shall not

exceed the service tax payable by the said assessee for the period from

1.10.2005 to 9.5.2008;

iv). I impose penalty of Rs. 34,56,764/- (Rupees Thirty four lakh fifty six

thousand seven hundred sixty four only) on the said assessee 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 of

thirty days from the communication of this order, otherwise full penalty shall

be paid as imposed in the above order.

v). I impose penalty of Rs. 10,000/- (Rupees Ten thousand only) under section

77(2) of the Finance Act, 1994 on the said assessee;

vi). I drop the demand of service tax of Rs. 6,52,58,141/- (Rupees Six crore fifty

two lakh fifty eight thousand one hundred forty one only) (including

education cess and secondary & higher education cess) as detailed in Table-8

of this order;

( Tejasvini P. Kumar) Commissioner

Service Tax Ahmedabad.

F.No.STC/4-5/O&A/11-12 Date: 20 /05/2013.

By Hand Delivery.ToM/s Star Freight Pvt. Ltd. Ambica Chambers Behind Old High CourtNavrangpura Ahmedabad-380009.

Copy to:

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(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.

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