By TIOL News Service

MUMBAI, SEPT 08, 2013: THE appellants are a freight forwarding agency and they are also registered as a multi-modal transport operator. They book cargo space in shipping lines and thereafter, they provide/allot the space to their customers. The department was of the view that the activity undertaken by the appellant comes within the category of “Business Auxiliary Services” and the appellant was promoting the service rendered by the shipping lines.

Accordingly, a total service tax demand of Rs.2.75 Crores for the period 2005-06 to 2009-10 and April 10 to March 2011 was issued and confirmed along with penalties and interest by the Commissioner of Service Tax, Mumbai.

Against these orders, the appellant filed an application for Stay before the CESTAT and placing reliance on a plethora of case laws submitted -

++ that they have booked cargo space from the shipping lines by purchasing the space and thereafter, they sold the space to their customers and, therefore, this activity is one of trading and therefore, no service has been rendered to the shipping lines.

++ that they are a multi-model transport operator and, therefore, under the provisions of Multi-model Transportation of Goods Act, 1993 they have to be considered as “Carriers” and therefore, the amount charged by them should be considered as “freight”. If, this is done, the question of charging service tax on freight would not arise.

The Revenue representative submitted that the appellant is rendering a service to the shipping lines and the consideration is received by them by way of mark-up in prices and, therefore, the services rendered by the appellant merits classification under “Business Auxiliary Service”. Reliance is placed inter alia on the decision in Leaap International Pvt. Ltd. Vs. CST, Chennai- 2013-TIOL-363-HC-MAD-ST.

The Bench observed -

"6.1 Cargo space is not goods; therefore, booking of cargo space and trading in cargo space cannot be considered as supply/sale of goods and has to be considered as supply of services. Any activity other than supply of goods amount to supply of service. Therefore, we do not find any merit in the argument of the Ld. Counsel that they have indulged in trading activity and not in service activity. Secondly, we also do not find much force in the argument of the appellant that service has to rendered always as an agent. The law does not warrant that the service provider has to be an agent. As in the case of goods, service also can be supplied/rendered on a principal to principal basis…."

Noting that the case laws cited by the appellant do not do not have any application or relevance to the facts of the present case and there was no merit in the arguments made by the appellant, the Bench held that the appellant had not made out a prima facie case in their favourand after holding that the interest of Revenue has to be taken care of, the appellant was directed to make a pre-deposit of Rs.89 lakhs (which is claimed to be the demand for the normal period of limitation) and report compliance. We reported this order as 2013-TIOL-1206-CESTAT-MUM.

Not ready to take things lying down, the appellant filed an appeal before the Bombay High Court and submitted that in the facts of the present case the CESTAT should have completely dispensed with pre-deposit of adjudged dues for the purposes of hearing the appellant's appeal on merits.

It is further submitted that the appellant is not an agent of the shipping lines and it had already paid the amount for booking the cargo space and thereafter the appellant had sold the cargo space to exporters; that the extra amount received by the appellant from the exporter, which was its trading profit, cannot be treated as consideration received for providing service to the shipping lines. Moreover,since the appellant did not get any amount/payment from the shipping lines, the appellant cannot be said to have provided any service to the shipping lines.

It is also submitted that the Bench had followed the decision in Leaap International Pvt. Ltd. vs. CST, Chennai   in which case t he Tribunal had directed the assessee to make a pre-deposit of only Rs.30 lakhs against the tax demand of Rs.1.38 crore and in appeal from the said the Madras High Court had reduced the amount of pre-deposit to Rs.20 lakhs

Inasmuch as since in the instant case though the tax demand is for an amount of Rs.2.25 crores, as far as the normal period of limitation is concerned, the amount payable is Rs.89 lakhs and, therefore, the Tribunal erred in directing the appellant to make pre-deposit of the entire amount within the period of limitation when the appellant has a strong arguable case.

The Counsel for the Revenue submitted that the order of the CESTAT is just and calls for no interference.

The High Court held -

"7. Having heard the learned counsel for the parties and considering that the Tribunal has followed the decision of the Chennai Bench in Leaap International Pvt. Ltd. vs. CST, Chennai (supra) whereby the Tribunal had directed the assessee to make pre-deposit of Rs.30 lakhs against the tax demand of Rs.1.38 crore which was within the period of limitation and even so the Madras High Court reduced the amount of pre-deposit to Rs.20 lakhs. Moreover, the appellant has an arguable case in the appeal pending before the Tribunal, the interest of justice would be served if the amount of pre-deposit is reduced from Rs.89 lakhs to Rs.45 lakhs. At this, Mr. Wagley, learned counsel for the appellant, seeks further time of three months to make deposit as the appellant has liquidity problems.

8. Accordingly the appeal is partly allowed and the impugned order of the Tribunal is modified to the extent that the appellant shall make a pre-deposit of Rs.45 lakhs on or before 3 December 2013. Until deposit of the said amount of Rs.45 lakhs by 3 December 2013, there shall be interim stay against recovery of tax, interest and penalty levied by the orders of the adjudicating authority."

In passing : We will keep you posted before the ship has sailed!

(See 2013-TIOL-669-HC-MUM-ST)