Service Tax on Commission received from Shipping Lines by CHA

PJ/CASE STUDY/2010-11/08

17 June 2010

PJ/CASE STUDY/2010-11/08

Case Study

Prepared By:

CA Pradeep Jain

Megha Jain and

Sukhvinder Kaur LLB[FYIC]

Introduction: -

In the case under study the issue involved was that the assessee, a custom House agent was registered with the Department for providing the service of Custom house Agent. But he was receiving some commission from the shipping lines. The department asked him to pay the service tax but he pleaded that the service was provided by him to client and no service was provided to shipping lines. But they have paid him the incentives as their business was increasing. But this was second demand and extended period was also invoked against the service provider. Whether extended period of limitation can be invoked against the assessee even when an earlier show cause notice is already issued to him on similar issue? This has been decided in the case under study.

Relevant Legal Provisions: -

Section 73 of the Finance Act, 1944: -

Recovery of Service tax not levied or paid or short-levied or short-paid or erroneously refunded.-

73. (1) where any service tax has not been levied or paid or short -levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the persons to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;

Provided that where 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) willful 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,

by the person chargeable with the service tax or his agent the provisions of this sub-section shall have effect, as if for the words “one year”, the words “five years” had been substituted.

Explanation-where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years as the case may be.

(1A) Where any service tax has not been levied or paid or has been short-levied or shortpaid or erroneously refunded, by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Chapter or the rules made thereunder, with intent to evade payment of service tax, by such person or his agent, to whom a notice is served under the proviso to sub-section (1) by the Central Excise Officer, such person or agent may pay service tax in full or in part as may be accepted by him, and the interest payable thereon under section 75 and penalty equal to twenty-five per cent. of the service tax specified in the notice or the service tax so accepted by such person within thirty days of the receipt of the notice.;

(2) The Central Excise Officer] shall after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined.

Provided that where such person has paid the service tax in full together with interest and penalty under sub-section (1A), the proceedings in respect of such person and other persons to whom notices are served under sub-section (1) shall be deemed to be concluded:

Provided further that where such person has paid service tax in part along with interest and penalty under sub-section (1A), the Central Excise Officer shall determine the amount of service tax or interest not being in excess of the amount partly due from such person.”;

(3) where any services tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded , the persons chargeable with the service tax, or the person to whom such tax refund has erroneously been made may pay the amount of such service tax, chargeable or erroneously refunded on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid;

Provided that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer of Central Excise shall proceed to recover such amount in the manner specified in this section, and the period of “one year” referred to in sub-section (1) shall counted from the date of receipt of such information of payment .

Explanation-for the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer, but for this sub-section.

(4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short-levied or short-levied or short paid or erroneously refunded by reason of-

(a) fraud; or

(b) collusion; or

(c) willful mis-statement ; or

(d) suppression of facts ; or

(e) Contravention of any of the provisions of this chapter or of the rules made thereunder with intent to evade payment of service tax.

(5) The provisions of sub-section (3) shall not apply to any case where the service tax had become payable or ought to have been paid before the 14th day of May. 2003.

(6) For the purposes of this section, “relevant date” means-

(i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid –

(a) where under the rules made under this chapter , a periodical return showing particulars of service tax paid during the period to which the said return relates , is to be filed by an assessee, the date on which such return is so filed;

(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;

(c) in any other case, the date on which the service tax is to be paid under this chapter or the rules made there under ;

(ii) in a case where the service tax is provisionally assessed under this chapter or the rules made there under, the date of adjustment of the service tax after the final assessment thereof ;

(iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund’;

Commissioner of Central Excise, Jodhpur v/s M/s Trinity International For-warders]

[Order-in-Original No. 413/ST/2009-10]

Brief Facts of the Case: -

- The assessee is engaged in providing the service of Customs House Agent and are registered with the Service Tax Department for the said service.

- During the audit of assessee, the Department noticed that the assessee was also engaged in providing services under the category of ‘Business Auxiliary Service’ and that they have not obtained Service tax Registration for providing the said service

- The assessee had received incentive from various ICD and commission from shipping line for promoting their business.

- The Department alleged that the providing of marketing services by the assessee to ICD/shipping Line for a consideration falls under the category Business Auxiliary Service and attracts service tax w.e.f. 01.07.2003. The department examined the ST–3 Returns of the assessee for the period from 2005-06 to 2007-08 and alleged that the assessee had short paid service tax leviable on services of BAS during the above period and willfully suppressed the taxable service.

- It was also noticed that there was no written contract between ICD and assessee but ICD/Shipping Line gave credit to the assessee for marketing their service.

- During the audit, the Department also noticed that the assessee had not paid service tax on CHA service during the period from April 2005 to March 2008. It was alleged accordingly that they had short paid the service tax.

- The Range Superintendent asked the assessee to deposit the amount of service tax found short paid. The assessee did not pay the said amount as directed.

- Consequently, the show cause notice was issued on 07.09.09 to the assessee alleging the contravention of the provisions of Section 66, 67 & 68 of the Finance Act and Rule 4, 6 & 7 of the Service Tax Rules, 1994. Demand of service tax was raised under Section 73 of the Finance Act and interest was also demanded in terms of Section 75.

Reply of Assessee: -

¨ The assessee gave explanation that the taxable services falling under the category of BAS provided by a person to his client and the word client is not defined in the Finance Act, 1994 and that the ICD and Shipping Lines are not their client, therefore they are not required to pay any service tax demanded in the show cause notice. And that no penalty may be imposed as proposed in the SCN.

¨ The assessee also contended that the show cause notice was barred by limitation as the Department had already issued an earlier show cause notice on 18.11.2005.

¨ Reliance was also placed on the decision given in ECE Industries Ltd v/s CCE, New Delhi [2004 (164) ELT 236 SC] wherein it was held that there can not be suppression if earlier show cause notice was issued on the same lines.

Question for Consideration: -

Whether assessee has provided any service to ICD and Shipping Line or not? Whether the demand is hit by time clause as earlier also on the same issue show cause notice was issued on 18.11.2005?

Reasoning of the Order: -

The learned Deputy Commissioner held as under: -

Ø It was held that the assessee was providing the marketing services to ICD otherwise what for the ICD was giving incentives to the assessee. It was also held that the assessee was providing certain Business Auxiliary Services to the Shipping Line for which it was getting Commission. The marketing/Promotional Service was provided by the assessee for a consideration called Incentive / Commission to recipient ICD so it fell under BAS category and service tax was attracted.

Ø Further, it was held that the fact that an earlier show cause notice dated 18.11.2005 was issued by the Department against the assessee regarding the providing of BAS service. Therefore, the extended period of limitation could not be invoked against the assessee.

Ø It was held that the in the judgment given in ECE Industries Ltd. v/s CCE, New Delhi, it was held that when the department had knowledge then the extended period proviso contained in Section 73 (1) of Finance Act, 1994 could not have been invoked. The issuing of earlier SCN dated 18.11.2005 on the same line proved beyond any doubt that it was in the knowledge of the department. So the extended period clause contained in proviso to section 73 cannot be invoked against the assessee.

Ø In the end it was held that the proceedings initiated vide show cause notice dated 7.09.2009 were not sustainable as demand relating to the period from 2005-06 to 2007-08 was time barred.

Decision of the Deputy Commissioner: -

The Deputy Commissioner dropped the proceedings initiated vide Show Cause Notice dated 07.09.2009.

Comments & Conclusion: -

This is a very good order. Thus, when already a show cause notice has been issued then the issuance of second show cause notice invoking extended period of limitation cannot be sustained as the Department was already having knowledge regarding the issue.

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PJ/CASE STUDY/2010-11/08
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