By TIOL News Service

MUMBAI, MAR 09, 2016: THE appellant senter into contracts with clients who, for their bulk dispatch requirements, hand over materials that are to be stuffed in envelopes and labeled before being weighed, sorted and posted. The appellants have been in this business since 2001 and the service fee charged from the clients has been sought to be taxed under Finance Act, 1994. The rebate on franking charges of outward mail recovered in full from the clients is also sought to be taxed.

The original authority confirmed the ST demands under the category of BAS.

In appeal proceedings of M/s United Mailing Services (period involved is 1 st July 2003 and 31 st March 2006) , the Commissioner (A) held that the activity other than franking is classifiable under 'Mailing list compilation and Mailing service' defined under section 65 (63a) of FA, 1994 and taxable under section 65(105) (zzzg) of FA, 1994 since 16th June 2005. While upholding the tax confirmed by the lower authority on the commission/rebate on franking, the appellate authority allowed small scale exemption to the extent permitted under notification no 6/2005-ST.

For the same period, the demand on M/s Sai Mailing Services was confirmed in its entirety at Rs.2,77,035/- along with interest besides imposing penalties u/ss75, 76 and 77 of FA, 1994. The Commissioner (Appeals) modified the order of the original authority by setting aside the penalty imposed u/s 76 of FA, 1994.

The appellants are before the CESTAT.

The Bench observed -

++ We cannot but be surprised by the discriminatory approach in the two impugned orders situated in identical circumstances by the same appellate authority. The more specific taxable service of 'mailing list compilation and mailing' was notified only from 16th July 2005 and taxing that very service under any other entry that existed till then is an act of overreach contrary to legislative intent of taxing the rendering of that service only with effect from 16th June 2005.

++ The Central Government alone can, under section 16 of the Indian Post Office Act, 1898, cause postage stamps to be provided and also prescribe the duties and remuneration of persons selling postage stamps. Franks are an alternative means of paying postal charges and franking machines are provided to bulk mailers. It would appear that a casual and superficial examination of the activity has been undertaken by the original and appellate authority in scrutinising the taxability.

++ The nature of the transaction between the appellants, the entities that contracted with the appellants and the Department of Posts is essential to the task at hand considering the statutory nature of carriage of postal articles. The appellants enter into a contract with certain business entities to facilitate bulk mailing. The entire activity of dispatch is effected by the appellants on behalf the business entities and the appellants are, therefore, the users of the post office. The business entities that contract with the appellants do not approach the post office for any service.

++ The appellants have the status of bulk mailers in relation to the post office and, as is the usual practice in dealing with bulk customers, franking machines are offered as a facility instead of being made to purchase stamps at the vending counter and affixing them on the postal articles. Rebates are offered as an incentive for the reduced workload on the post office staff. Such a rebate can hardly be designated as commission or remuneration for a service. Indeed, no service is apparent in this transaction.

++ It is the appellant who is the customer of the post office and not the clients of the appellant and franks are used by the appellant to complete the task that they have undertaken in the agreement with the client i.e. to dispatch the articles. The franking charges are collected as reimbursement because the statutory mandates in the Post Office Act do not permit them to act as agent unless specifically designated under the corresponding Rules as agent.

++ Inclusion of franking cost in the service charge receivable by the appellant from the client would be contrary to the Post Office Act. Thus, the transaction of franking or usage of the postal service is solely between the appellants and the post office with the former as the customer of the latter. The depiction of the latter as a client is not consistent with this reality and the categorization under section 65(19)(vi) fails the test of rationality. Accordingly that demand cannot survive in the appeals.

Conclusion:

+ M/s Sai Mailing Service - the demand is confirmed on service charges collected from clients for the period from 16th June 2005 to 31 st March 2006. Demand for earlier period is set aside.

+ M/s United Mailing Service - Demand on service charges collected from clients for the period from 16th June 2005 to 31 st March 2006 is upheld.

+ The demands in both impugned orders on the rebate obtained from the postal authorities are set aside. Penalties are also set aside.

Both the appeals were disposed of.

(See 2016-TIOL-569-CESTAT-MUM)