By TIOL News Service

MUMBAI, JUNE 22, 2017: THE appellantis engaged by M/s AP Moller-Maersk A/s to outfit containers at the request of exporters who desire to equip these for carriage of garments on hangers without having to be packed in boxes.

The jurisdictional authorities demanded service tax for the period from April 2005 to 2011-12 on the gross earnings from M/s AP Moller-Maersk A/s as provider of ‘business auxiliary service', clause ‘producing or processing goods for, or on behalf of, client'.

The original authority confirmed the tax demands along with penalties and the same were upheld by the Commissioner(A).

Before the CESTAT, the appellant submitted that they entered into an agreement for the alteration of containers making the latter a client of the former and that the appellant had been discharging tax liability after 1 st January 2007 as provider of ‘repair and maintenance service' but same was not agreeable to the tax authorities as tax on this service was computed after according abatement of value of materials. Nonetheless, the demands were confirmed on the ground that the activity results in a customized change for the client which is excluded from the definition of manufacture in section 2(f) of CEA, 1944 and, thereby, liable to tax as provider of ‘business auxiliary service'.

At the outset, the Bench observed that the two SCNsinvoked the proviso to section 73(1) of FA, 1994 extending the period of demand and to subject the appellant to penalty u/s 78 of FA, 1994.

To this act by the jurisdictional authorities, the Bench remarked -

"It is settled law that two demand notices for successive periods cannot presume the existence of the ingredients mandated for invoking of these provisions…For this reason, the demand pertaining to the extended period in show cause notice dated 16 th October 2012 is set aside as not being in accordance with law .” [Nizam Sugar Factory 2006-TIOL-56-SC-CX relied upon.]

Adverting to the decisions cited by the appellant of ECE Industries Ltd 2003-TIOL-89-SC-CX and Kunal Fabricators & Engineering Works 2014-TIOL-1332-CESTAT-DEL and by Revenue in the case of PSL Corrosion Control Services Ltd 2008-TIOL-1481-CESTAT-AHM, the CESTAT, after extracting the decision cited by AR, observed that the claim that activity on behalf of client is not taxable when a new product does not come into existence will not sustain.

The CESTAT added -

"6. There is no dispute that the client is an overseas entity and that appellant is the provider of service. The notices have sought classification of the service under section 65 (105)(zzb) of Finance Act, 1994 which is covered by rule 3 (iii) of Export of Services Rules, 2005 and hence, under section 93 of Finance Act, 1994, is exempted from levy if recipient of service is located outside India. The consideration received from or on behalf the overseas client is, consequently, beyond the pale of taxing jurisdiction under Finance Act, 1994 and the demand in the impugned orders must, necessarily, be set aside for being contrary to law. Penalties also cannot be imposed."

Concluding that the Bench is certain that the activity is an export and, hence, not taxable, the demands were set aside and the appeals were allowed.

(See 2017-TIOL-2131-CESTAT-MUM)