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PJ/Case law/2013-14/1932

Whether freight charges towards ocean freight and air freight to be included in the value of BSS and subject to service tax?

Case:- TEAM GLOBAL LOGISTICS PVT LTD V/S THE COMMISSIONER OF CENTRAL EXCISE, CHENNAI-II
 
Citation:- 2013-TIOL-1721-CESTAT-MAD

Brief Facts: - Two MISC petitions and two stay petitions filed in two different appeals by the applicants are being considered in this proceeding. Both the appeals relate to same dispute and hence matters are considered together. The MISC applications are for changing the respondent's name to "Commissioner of Service Tax, Chennai" from "Commissioner of Central Excise, Chennai-II" as shown in the original papers filed. Since the applicants are registered with Commissionerate of Service Tax, Chennai, change of cause title as prayed for is allowed. In future proceedings, the respondent's name shall be shown as "Commissioner of Service Tax, Chennai”.
The applicants are providing services relating to handling of export cargo and they were registered for payment of service tax under Business Auxiliary Service, Business Support Service, Cargo Handling Service and Transport of Goods by Road Service. The applicants were receiving cargo and issuing House Bill of Lading. While billing charges to the customers, they were showing the amounts towards freight apart from various other charges being recovered by them. On freight recovered they were not paying any service tax. The Revenue was of the view that the value of freight will form part of the value of 'Business Support Service' being provided by the applicant to the importers and exporters and, therefore, the applicants should have paid service tax on freight amounts recovered. There was also an issue that the net operating income as seen from their financial accounts did not tally with the value of taxable service on which the applicant had paid service tax. Major part of the gap between the two figures is due to the fact that applicant has not been paying service tax on freight charges. It appears that a small part of such difference is due to difference in the freight charged by the applicant to their customers and the freight amount paid to the carriers. Revenue was of the view that applicant should have paid service tax on the entire receipts as seen in the financial statement of the applicant. Based on such reasoning, two show cause notices for the period 2006-07 to 2008-09 (upto Jan 09) and Feb 09 to September 09 were issued and after adjudication, an amount of Rs.2,17,50,713/- is confirmed against the applicant for the first period and an amount of Rs.21,37,275/- is confirmed for the second period. It is seen from the impugned order that core issue on which demands have been confirmed is ocean freight and air freight charged by the applicant.
 
 Appellant’s contention:- The appellants contended that there was no entry under the Finance Act, 1994 for taxing transportation of goods by sea. In the case of export of goods by air, there is a separate entry under section 65 (105) (zzm). These are distinct and major activities and cannot be considered as part of Business Support Service when express legislative intent to specify the services. Therefore, it is his submission that the proposal to bring these services under the tax net by making demand under the residual category of Business Support Service is not legally sustainable. He also points out that freight charges are exclusively recovered by them from their customers for payment to the steamer lines or airlines and trying to include the said reimbursable expenses by virtue of Rule 5 of Service Tax (Determination of Value) Rules, 2006 has no support of law because the said rule has been struck down by Hon’ble Delhi High Court in the case of Intercontinental Consultants and Techno Crafts Pvt. Ltd. Vs Union of India = (2012-TIOL-966-HC-DELST). He further points out that Tribunal has already granted stay in the following cases:-
(1) Agility Logistics Pvt. Ltd. Vs CST (2013) 30 Taxmann.com 382 (Chennai-CESTAT)
(2) DHL Lemuir Logistics Pvt. Ltd. Vs CST Bangalore 2010 17 STR 266 (Tri.-Bang.)
(3) Gudwin Logistics Vs CCE Vadodara - 2010 (18) STR 348 (Tri.-Ahmd.) = (2009-TIOL-2053-CESTAT-AHM).
 
Respondent’s contention:- The Respondent reiterates the findings in the impugned order. He submits that difference in freight charged by the applicant is towards, like commission for promoting business of steamer agents and airlines and therefore at least on this count, pre-deposit should be called for.
 
Reasoning of Judgment: - The Hon’ble Tribunal held that the this Tribunal has already taken a decision that freight charges towards ocean freight and air freight cannot be included in the value of Business Support Service and subjected to service tax under Finance Act, 1994. This view is further strengthened in the light of the decision of Hon’ble Delhi High Court in the case of Intercontinental and Techno Crafts Pvt. Ltd. = (2012-TIOL-966-HC-DEL-ST) (supra). As regards the differential element of consideration between the freight charged by the steamer lines and the freight charged by the applicant to the customers/exporters, they do not find any separate quantification in the order. Further, the issue itself is debatable because applicant has an argument that this is a profit in a joint venture activity which they are having with concerned steamer agent or airlines and not by way of service because applicant is taking the risk of making commitment for canvassing cargo for allotment of space. Merits of this issue will be looked into in the stage of final hearing. At this stage, they find proper to waive the requirement of pre-deposit of dues arising from the impugned order for admission of appeal. There shall be stay on collection of such dues during pendency of the appeal.         
 
Decision:- Stay was granted.

Comment:-The analogy drawn from this case is that primarily the freight charges for ocean freight and air freight are not includible in the value of taxable service of BSS as usually these charges are similar to reimbursement expenses that are not includible in view of judgement given by Delhi High Court in the case of Inter Continental Techno Crafts Pvt. Ltd. 

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