Whether value of ocean freight would be included in the taxable value of composite services when ocean fright is exempted from levy of service tax?

PJ/CASE LAW/2016-17/3075

Case:APL LOGISTICS (INDIA) PVT. LTD. Vs COMMISSIONER OF C. EX., CHENNAI-III

Citation:2014 (36) S.T.R. 1310 (Tri. - Chennai)

Brief Facts:The appellants are registered with the Service Tax authorities for rendering taxable services under Business Support Service, Business Auxiliary Service and Goods Transport Agency Service. In the present case, the appellants were providing mainly distribution of logistics support service to exporters/importers located in India.
The issue relates to as to whether value of ocean freight, advance manifest charges, bunkering and currency adjustment charges would be included in the taxable value. A show cause notice was issued proposing demand of tax of Rs. 1,47,15,967/- along with interest and penalty for the period from June, 2006 to December, 2008. The adjudicating authority confirmed the demand of tax along with interest and penalty.
Appellant’s Contention:The amount involving 95% of the demand is raised on ocean freight which is not taxable service. In this context, he relied on the following decisions :-
(a) Agility Logistics Pvt. Ltd. v. CST, Chennai - 2013-TIOL-162-CESTAT-MAD = 2014 (35)S.T.R. 858 (Tri.-Chen.)
(b) Gudwin Logistics v. CCE, Vadodara - 2010 (18)S.T.R. 348 (Tri.-Ahmd.).
He drew the attention of the Bench to break-up of demand as ocean freight Rs. 1.16 crores, Bunker adjustment factor Rs. 25.15 lakhs and currency adjustment factor Rs. 5.82 lakhs approximately.
Respondent’s Contention:It is a composite service and the pre-dominating factor is logistics support service, which is covered under Business Support Service. He further submits that the appellant had not placed the invoice on ocean freight before the adjudicating authority. He submits that invoices contained in this appeal are related to the year 2010, whereas the period of dispute in this appeal is 2006-08. It is contended that the adjudicating authority rightly confirmed the demand of tax as per clause (b) of Section 65A(2) of the Finance Act, 1994.

Reasoning of Judgement: The adjudicating authority observed that it is a composite service including ocean freight, etc. It is also observed that the appellants are engaged in the managing, distribution and logistics, the cargo handling is only incidental to logistics and therefore, service provided by the appellant would be appropriately classifiable under “Business Support Service”. The Tribunal in the case of Agility Logistics Pvt. Ltd. (supra), held as under : -
“21. In the case of consideration received for freight we are of the prima facie view that ocean freight was not liable to Service Tax. While there are specific entries in Finance Act, 1994 levying tax on transportation of goods by road, rail, aircraft, pipeline, etc., there is no entry levying tax on transportation by sea. It has to be reasonably presumed that this is kept outside the tax net and it cannot be taxed under a general entry like Business Support Services. Further, it appears that such services are rendered in respect of export cargo.”

In the case of Gudwin Logistics (supra), the Tribunal held as under : -
“4………….At the same time we also take note of the fact 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. Having regard to the nature of service provided by the appellants and also the decision of the Hon’ble High Court of Punjab & Haryana, Board’s instructions and decision of the Tribunal - Bangalore Bench, we find that the appellants have made a strong prima facie in their favour. In view of the fact that there is a clear decision that freight element cannot be included for Service Tax, substantial portion of the demand does not appear to be sustainable. In view of the fact that the decision of the Hon’ble High Court of Punjab & Haryana was not available to the Commissioner when the impugned order was passed and also the decision of the Bangalore Bench cited above was also not available to him, we consider it appropriate to set aside the impugned order and allow the stay petition and remand the matter to the Commissioner for fresh consideration after giving opportunity to the appellants to present their case.”

Ld. advocate submitted that they have mentioned ocean freight separately in their invoices. The sample invoice of 2010 placed by the appellant would show that “ocean freight” was mentioned separately. It is seen from the adjudication order that the ocean freight, advance manifest charges, bunkering charges (fuel adjustment charges due to variation in prices) and currency adjustment charges (due to fluctuation of foreign exchange rates) are all integral part of payments, which are remitted to the shipping lines.
In view of the above discussion, they find that the Service Tax is not leviable on ocean freight. It is appropriate that the adjudicating authority should examine all the issues in the light of the above decisions and appellants would be directed to produce documents for proper verification.
Accordingly, they set aside the impugned order and the matter is remanded back to the adjudicating authority to decide afresh after considering the submissions of the appellant in accordance with law. The appeal is allowed by way of remand.

Decision:The gist of the case is that the assessee was providing mainly distribution of logistics support service to exporters/importers located in India. Assessee has charged Ocean freight in his invoices which was exempted from levy of service tax. Department has issued show cause notice on the ground that the It is a composite service and the pre-dominating factor is logistics support service, which is covered under Business Support Service. Hence as assessee is not eligible for exemption related to ocean freight.
The Tribunal has set aside the order of original authority and remanded the matter to original authority to examine issues in light of documents

Comments

PJ/CASE LAW/2016-17/3075

Post a Comment

Query