ST - Activity for which consideration has been received has not been tested for conformity with legislative intent: CESTAT
By TIOL News Service
MUMBAI, OCT 23, 2018: THE appellant accepts custody of international cargo that is carried by shipping lines.
The appellant was placed on notice for non-discharge of tax liability on the 'international ship and port security charge' and 'special equipment surcharge' included in invoices in which 'documentation fees' - on which tax liability was discharged - 'basic freight' 'bunker adjustment factor' and 'terminal handling charges' - which were not liable to tax - were also enumerated.
A service tax demand of Rs.12,62,10,954/- for 2010-11 to 2013-14 and Rs.6,40,80,748/- for 2014-15 was confirmed by the Commissioner on the aforesaid two components in the invoice raised by the appellant on their customers for which tax liability had not been discharged.
In appeal, the appellant relies on the decision in Dr Reddy's Laboratories Ltd -2012-TIOL-1151-CESTAT-BANG to contend that payments made to shipping lines, whatever be the description, are to be considered as freight and, therefore, exempt under both regimes [i.e. the pre-negative list and negative list era].
The AR relied upon the material obtained from the worldwide web that assigned the cost of security facility to each container/shipment. Placing reliance on the decision of the Tribunal in Capital Transport Convoy Contractor - 2016-TIOL-417-CESTAT-BANG, it is argued that consideration received for moving goods from the producer to destination was taxable as 'support services of business or commerce' and thus the confirmation of tax liability on the appellant is sustainable.
The Bench considered the submissions and inter alia observed -
+ The activity for which consideration has been received has not been tested for conformity with legislative intent.
+ 'Support service of business or commerce' are activities that the recipient-client would normally have to undertake to carry out its business of manufacture or service and which includes delivery to the customer but which, instead, is outsourced to the service provider. The service provider may fulfill the contract on its own or may take recourse to provider of other taxable services and, in either case, the total charged from the recipient-client, including the cost of other services utilised by the service provider, becomes taxable.
+ In the present instance, it is not in doubt that appellant could not have provided the service of transportation of goods which was availed from the shipping line. The facility of 'international ship and port security' and 'special equipment' could not have been offered by the appellant.
+ Only the shipping line could have offered the facility and, if it was not a constituent of freight costs, as a service provided from outside India for use in India should have been subject to tax under section 66A of Finance Act, 1994 and its successor provisions.
+ The same activity could not have been subject to tax again under section 66 of Finance Act, 1994. The shipping line offers these two facilities in relation to transport of goods. It is, therefore, clear that legislative intent did not cover any facility that was offered on the carrier vessel and any attempt to deviate from the legislative intent would have the absurd outcome of taxing the consideration under two mutually exclusive provisions of Finance Act, 1994.
Concluding that the consideration sought to be taxed is freight and, with freight excluded from tax during the relevant period, the demand cannot be sustained, the impugned order was set aside and the appeal was allowed.
(See 2018-TIOL-3190-CESTAT-MUM)
