By TIOL News Service

AHMEDABAD, DEC 12, 2014: THE total Service Tax demand made against the appellant is Rs.14.20 crores.

The issues involved are crystallized as under -

(i) Whether the Distribution fee/ Agency fee, received by MIPL from their foreign principal is liable for payment of service tax under the category of Business Auxiliary Services;

(ii) Whether the benefit of saving in Ocean freight passed on by the principal to them is chargeable to service tax under the category of Cargo Handling Service; and

(iii) Whether the amount received by them towards customs clearances, port clearances and transportation should be considered as taxable service under the single head of clearing and forwarding Agent.

Before the CESTAT the appellant inter alia argued that the services provided to their principal abroad as distributors and commission agents under Business Auxiliary Services will be a case of export of services as per Export of Services Rules, 2005 read with CBEC Circular No. 111/5/2009-ST dated 24.02.2009 and 141/10/2011-TRU dated 13.05.2011 .

Furthermore, the appellant is unloading its own cargo and this activity cannot be considered as a provision of service; that consideration received by the appellant from its principal CFI is on account of ocean Freight Saving Income and is not with respect to any Cargo Handling services rendered.

With respect to providing Customs Clearance services, Port Services and Transportation charges appellant has entered into separate contracts. That each service is a specific service and payments are made separately, therefore, all the amounts for different services separately contracted cannot be taxed as Clearing and Forwarding Agency Services. That each service provided is separately invoiced and service tax paid wherever applicable. That the services provided within the port services have to be classified as Port Services; that as the appellants are not authorised by the port during the relevant period, therefore, no service tax is payable by them.

A multitude of case laws was cited by the appellant in support.

The AR defended the order and submitted that to treat the services as export, the services should be performed outside India; that no evidence is available on record that imported goods are the property of the appellant hence, Ocean Freight Saving income is nothing else but consideration for providing Cargo Handling Services;that appellant deliberately entered into separate contracts with the principal with reference to Clearing and Forwarding, Customs Clearance, Port Clearance and Transportation and that all the four contracts have to be considered as one composite contract for charging service tax under Clearing and Forwarding Services.

The Bench observed that in the matter of Distribution fee/Agency fee received from the foreign principal under 'Commission Sales Agreement' and 'Non-exclusive Distributor Agreement', the question whether such activities would attract service tax is no longer res integra in view of the decision in GAP International Sourcing (India) Private Limited vs. CST - 2014-TIOL-465-CESTAT-DEL holding that where a service provided by a person in India is consumed and used by a person abroad, it is treated as export.

In the matter of leviability of service tax on receipts regarding saving in Ocean Freight, the Bench noted that from the records it is evident that the amount is given to the appellant by the foreign principal as an incentive out of the freight saved by the principal; that there is no service involved as the goods, for which facilities of appellant are availed, belong to the appellant; for charging service tax there has to be a service provider and a service recipient;one cannot be held to be a service provider to one's own self.

On the issue of charging service tax on services of Cargo Handling, Customs Clearance, Port Services and Transportation by treating them as composite services, the Bench observed that it is not a case where an earlier composite contract, without distinction of different services and amounts payable for each service, was later artificially divided for each services; that there is no evidence that the contracts were artificially split to avoid service tax. Noting that the services are separate and the service recipient in future could avail the services from a service provider other than the appellant, the Bench concluded that it cannot be held that all the independent and separate contracts represent a common composite contract.

Thus, on all counts the Appeal was allowed by the CESTAT.

(See 2014-TIOL-2513-CESTAT-AHM)