ST - Irrespective of fact whether activity is classified as 'port service' or as 'Cargo handling' service, stated policy of government is to exempt exports from levy of any tax: CESTAT
By TIOL News Service
MUMBAI, JUNE 16, 2015: M/S Nhava Sheva International Container Pvt. Ltd.(NSICT) and Jawaharlal Nehru Port Trust P. Ltd. (JNPT) are in appeal against the Orders-in-revision confirming ST demands of Rs.25,16,085/- and Rs.26,89,239/-respectively and imposition of penalties. Revenue is also in Appeal in both cases for non-imposition of adequate penalty in terms of revised Section 76 and non-imposition of penalty under Section 77.
The appellants are container handling terminals &provide port services. The containers are brought to M/s JNPT and M/s NSICT on rail by Container Corporation of India. Separate rail tracks are dedicated for both the terminals. However, sometimes the containers which are supposed to be off-loaded at JNPT are wrongly brought to the premises of NSICT and vice versa. The wrongly offloaded containers are relocated by the respective terminals to the other. The cost of relocation is borne by either of the two as the case may be. On a periodical basis, the terminal which has relocated more containers to the other terminalraises an invoice to the other terminal and pays service tax on the amount realized and vice-versa. For example, if NSICT handles 1000 containers of JNPT and JNPT handles 700 containers belonging to NSICT, then NSICT raises an invoice on JNPT for handling charges of excess 300 containers and pays service tax on this amount realized for 300 containers.
It was held by the revisionary authority that the activity of relocation of containers is covered under the category of 'port services'. It was further held by the CCE, Raigad that the service tax is payable on the charges for total number of containers relocated by NSICT to the JNPT i.e. 1000 containers and not only on charges for 700 containers, after adjusting the number of containers of the NSICT handled by JNPT. In other words, Service tax is payable under Section 67 on the gross value payable on the total value of containers relocated instead of the net (or differential) number of containers handled by either of the appellants.
Before the CESTAT the appellant submitted -
+ That the service provided may not be classified under 'port services' under Section 65(105)(zn) because the activity undertaken amounts to "cargo handling" service as defined in Section 65 (23). And since handling of export cargo is excluded from the definition of "cargo handling service", their activity comprising almost entirely of handling of export containers, service tax is not payable at all. Reliance is placed on the decision in Konkan Marine Agencies - 2008-TIOL-601-HC-KAR-ST.
+ Before the amendment of s.67 of FA, 1994 on 18.4.2006, the gross amount charged by the appellant would be none other than the amount for which invoice is raised. There is no other consideration flowing from the receiver to the appellant.
+ Exercise is of Revenue neutrality.
+ The practice of net billing between the two container terminals is in existence for a long time. A few audits have been conducted since then. Therefore, a significant part of the demand would get time barred.
The AR argued that the case is not one of revenue neutrality because two different entities are involved.The case law of Jay Yuhsin 2002-TIOL-126-CESTAT-LB was relied upon.
The Bench made the following observations -
Classification:
Revenue has not shown any judgement of High Court to the contrary. Nevertheless we find that irrespective of the fact whether the activity is classified as "port service" or as a "Cargo handling" service, the stated policy of the government is to exempt exports from levy of any tax. But the fact whether almost the entire cargo pertains to export containers is not discussed in the order of the Commissioner although the learned AR did not dispute the statement made by the counsel before the bench.
Valuation:
We find that Section 67 which deals with valuation was amended on 18.4.2006. Prior to this date, service tax was chargeable on the gross amount charged by the service provider for service provided. After the amendment on 18.4.2006, explanation (c) to section 67 was introduced which states that the gross amount charged will include payment of cheque, credit cards, deduction from accounts, credit or debit notes, or book adjustment. We do not agree with Revenue that the amendment to Section 67 has not made any material difference to the provisions of valuation. Before the amendment on 18.4.2006, the gross amount charged by the appellant would be none other than the amount for which invoice is raised. There is no other consideration flowing from the receiver to the appellant. The whole transaction can be read as a contract that provides for charging only on the basis of the net number of containers handled in excess by the appellant. It must be noted that during the relevant period there was no valuation Rules. The Service Tax (Determination of Value) Rules 2006 came into effect form 19.4.2006, that is after the period of dispute in the present case. Therefore resort cannot be had to these Rules for the determination of value. In this view of the matter the taxable value on which service tax is chargeable must be considered as the invoice raised for the service provided.
Revenue neutrality :
We do not agree with him (AR). Let us for a moment see the consequence if the appellant were asked to pay service tax on the value to be charged for all 1000 containers. What would be the net effect"? The net effect will be that as far as 700 containers are concerned, both the container terminals will charge the same amount to each other as per the contract. Supposing the charges are say Rs. 1 lakhs for 700 containers. If service tax is levied at the rate of 10% the tax will be Rs. 10,000. Both terminals would pay Rs. 10,000/-. And both would be entitled to take same amount of credit of service tax paid on input service i.e. Rs. 10000 as far as 700 containers are concerned. For the excess 300 containers handled by JNPT, they are in any case paying the service tax on it. Therefore when viewed from the aspect of revenue neutrality, there is no net gain/loss either to the terminals or to Revenue. In normal circumstance the revenue neutrality will not apply to cases when one entity is providing service to another entity and the tax paid by the first entity is providing service to another entity and the tax paid by the first entity is availed as input service tax credit by the second entity. But in the unique nature of mutual transactions between the two container terminals in the present case, we find, as depicted in our example above, that even if there is no netting off of containers, both terminals will pay identical charges on the same number of containers which are netted and both will be simultaneously entitled to the same amount of credit.
Limitation:
We agree that when the audits have been conducted, it is not a case of willful suppression of facts with intent to evade duty. However as we have decided the issue on merits, we find no necessity to bifurcate the demand into two parts, namely for the period that falls within the time limitation and period beyond the time limitation.
The appeals of M/s. Nhava Sheva International Container Pvt. Ltd.(NSICT) and Jawaharlal Nehru Port Trust P. Ltd. (JNPT) were allowed and that of Revenue (for imposition/enhancement of penalties) were dismissed.
(See 2015-TIOL-1143-CESTAT-MUM)
