By TIOL News Service

MUMBAI, JUNE 17, 2014: THE appellant is registered with the department under the taxable service category of "Steamer Agent Services".

Apart from the Steamer Agency Charges in respect of the import/export cargo handled by them, the appellant was found to be collecting from the importers and exporters service charges in the form of -

+ Bill of lading fees;

+ LCL consolidation charges;

+ Amendment charges for amendments in the Bill of lading;

+ Facilitation/processing charges;

+ Administration charges for stamp duty;

+ Delivery order fees for taking delivery of cargo;

+ Documentation fees for export to USA;

+ Hazardous Documentation charges for taking special care of hazardous cargo;

+ Bill of lading surrender charges;

+ Manifest correction charges; and

+ Detention waiver/refund processing charges.

The department was of the view that these services rendered by the appellant merited classification under "Business Auxiliary Service" with effect from 1-7-2003 and accordingly issued a SCN on 26th August, 2007 proposing to demand ST of Rs.1,37,36,500/- along with interest & penalties.

The CCE, Thane II upheld the charges and confirmed the ST demand. Penalties and interest also visited the appellant. An amount of Rs.46.64 lakhs paid by the appellant was appropriated towards the ST liability for the period 16-6-2005 to 31-12-2005 along with an interest payment of Rs.2.28 lakhs.

Before the CESTAT the appellant inter alia submitted that neither in the SCN nor in the order there exist any proposal or finding specifying the sub-clause of BAS under which the activities fell so as to merit classification under BAS and, therefore, the order is bad in law. The point of limitation as well non-extension of cum-tax benefits, simultaneous imposition of penalty u/s 76 & 78 etc. were also advanced by the appellant. A multitude of case laws were also pressed into service.

The Revenue representative inter alia submitted that in view of Board Circular No. 59/8/2003-ST dated 20-6-2003 the services provided by the appellant would be appropriately classifiable under BAS. Further, the appellant had voluntarily discharged the service tax liability with effect from 16-6-2005 under BAS and, therefore, since they had not disputed the tax liability for part of the period, it is not understood how the appellant can dispute the classification for the earlier period when the levy was in force. The other submissions made by the appellant were also countered with adequate reliance upon various case laws.

The Bench tabulated in a ready-reckoner fashion the definition of ‘Business Auxiliary Service' as it existed during the periods 1-7-03 to 9-9-04, 10-9-04 to 15-6-05 & 16-6-05 onwards and on the merits of the case observed -

++ In para 3.1 of the show cause notice, the various activities undertaken by the appellant has been enumerated under 11 heads. Paragraphs 5 to 7 of the notice clearly describe how and why the activities undertaken by the appellant would fall under BAS as defined in law. Thus the appellant has been put to notice in clear terms about their liability to pay service tax. Merely because the particular sub-clause of section 65(19) has not been specifically mentioned in the show cause does not vitiate the show cause notice or the proceedings initiated thereunder and this is the settled position in law. [In Re. J.K. Steel Ltd. = 2002-TIOL-332-SC-CX.

++ the various Services provided by the appellant were in relation to procurement of goods or services, which are inputs for the client and such services clearly fell under sub-clause (iv) of section 65 (19) as it stood with effect from 10-9-2004. Even if it is held that these activities did not fall under sub-clause (iv), they would certainly fall under sub-clause (vii) as any service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi). Even if the appellant had acted as a commission agent as claimed by them, they would fall under sub-clause (vii) of clause (19) of section 65 as the entry covered the services rendered as a commission agent. Thus we do not find any merit in the contention of the appellant that they were not liable to pay service tax prior to 16-6-2005.

++ The contention that to come under BAS there should be 3 parties and the service should have been rendered "on behalf of the client"is also incorrect. Rendering of service on behalf of the client applies only to sub-clauses (iii), (v) and (vi) which relate to customer care management, production of goods and provision of services. The said condition does not apply to cub-clause (iv) which deals services rendered to the client and consequently to sub-clause (vii) which is incidental or auxiliary to the service under sub-clause (iv). Similarly the condition "on behalf of" also does not apply to services specified in sub-clauses (i) and (ii) of section 65 (19) apart from sub-clause (iv). Therefore, this contention of the appellant has to be rejected outright.

++ From the statutory definition of BAS as it stood prior to 10-9-2004, the services rendered by the appellant would not come under any of the activities specified under various sub-clauses. Therefore, there would not be any liability to pay service tax prior to 10-9-2004 on the appellant and we hold accordingly.

In the matter of cum-tax benefit claimed, the Bench opined that there is "some merit" in view of the decision in Advantage Media Consultant = 2008-TIOL-548-CESTAT-KOL as affirmed by the Apex Court.

As regards limitation the CESTAT held that the appellant was a service tax assessee since 1997 and when the scope of BAS was expanded the CBEC Circular had vide Circular dated 17.09.2004 amply clarified in the matter but the appellant had chosen to ignore the same. Holding that bonafide belief is not a blind belief and the appellant had not disclosed these activities to the department nor did they declare the consideration received in the statutory ST 3 returns filed during the said period, the conduct amounts to suppression of facts and hence the extended period of time has been rightly invoked to confirm the demand. The Gujarat High Court decision in Neminath Fabrics = 2011-TIOL-10-HC-AHM-CX was adverted to.

The penalties under section 76, section 77 & section 78 were also upheld. It was also held that penalties u/s 76 & 78 can be levied simultaneously in view of the High Court decisions in Krishna Poduval = 2006-TIOL-77-HC-KERALA-ST and Bajaj Travels = 2011-TIOL-896-HC-DEL-ST. However, it was made clear that for the period from 10-5-2008 onwards penalty under section 78 alone would be leviable in view of the amendment made in the said section vide Finance Act, 2008. So also, the quantum of the penalties would depend upon the re-computation of duty demands for the period from 10-9-2004.

In a nutshell, the Bench held -

# The services rendered by the appellant are liable to service tax under "Business Auxiliary Service" as defined in 65 (19) of the Finance Act, 1994 for the period from 10-9-2004 onwards.

# The consideration received shall be treated as cum-tax and the service tax liability shall be re-computed for the period from 10-9-2004 onwards. The appellant shall also be liable to interest on such re-computed service tax liability in accordance with law.

# The appellant shall be liable to penalties under sections 76, 77 and 78 of the said Finance Act, on the re-determined service tax liability. For the period from 10-5-2008, penalty under section 78 alone shall apply and not that under section 76.

# The matter is remanded back to the adjudicating authority only for the purposes of re-quantification of service tax liability with effect from 10-9-2004 and the consequential interest and penal liabilities in accordance with law.

The appeal was disposed of in the above terms.

(See 2014-TIOL-1043-CESTAT-MUM)