ST - High Sea sale - trade margin charged to customers is subject to customs duty - If that be so, there is no reason why same part of transaction value should be taken out of customs transaction and subjected to ST under guise of BAS - Stay granted: CESTAT
By TIOL News Service
MUMBAI, AUG 26, 2013: THE appellants are engaged in trading of various commodities such as edible oils, petroleum products, gold, silver, groceries etc. They undertake import as well as export of these items on behalf of various traders/merchants. In case of an import transaction, they undertake the imports by placing order on the foreign suppliers, opening LC and the goods are purchased on their own account and when the goods arrive in India, they sell these goods to the customers on High Seas Sale basis and they charge a mark-up ranging from 1% to 1.5% of the value of the goods. The documents for import of the items are filed by the respective customers, who declare the value inclusive of the mark-up for the purposes of customs duty assessment.
The Revenue was of the view that the applicants are rendering services of import and export to the customers and, therefore, they are liable to Service Tax under the category of “Business Auxiliary Services”.
Accordingly, the demand noticees were issued on high seas and the appellant was at sea with Service Tax demands aggregating Rs.16.54 crores along with interest and penal consequences.
Before the CESTAT the appellant filed a Miscellaneous application for filing additional grounds and production of certain documents relating to the sales transactions; a COD application seeking condonation of delay of 26 days which occurred as they were asked to file separate appeals instead of a composite appeal [which was filed in time] and Stay applications along with the appeal.
The Bench observed that the Misc. application for filing additional grounds could be taken up at the time of final hearing of the appeal and the COD application was allowed considering the reasons given for the delay.
In the matter of seeking Stay, the appellant submitted –
+ The transaction is on principal to principal basis and is a simple trading transaction. Further, the mark-ups added by them on their purchase price is already subject to Customs duty and hence, Service Tax is not to be leviable on the transaction of trading as the transaction is one of sale and not of service.
+ Reliance is also placed on the Board Circular no. 32/2004-Cus dated 11.05.2004 titled "Customs Valuation Rules, 1988 - Determination of assessable value for goods sold on high seas - reg." to submit that the transaction is one of import and their trade margin is included in the taxable value for the purposes of assessment of customs duty.
+ The stay ordered by the CESTAT in the case of Indian Oil Co. Ltd. (2012-TIOL-180-CESTAT-MUM) is relied upon where in a similar situation, it was held that transaction is one of the Sale and Service Tax liability is not attracted and accordingly waiver from pre-deposit of the dues adjudged was granted.
The Revenue representative submitted that the transaction of “sale” by the appellant to their customers includes the service element also; that the appellant did not place the orders on the foreign supplier on their own, but on receipt of the orders from their customers and thereafter they placed the orders on the foreign supplier and for which purpose they were charging 1 to 1.5% margin to cover expenses. Inasmuch as this activity of the appellant would constitute procurement of goods on behalf of the client and Service tax liability arises, submitted the representative who also prayed that the appellant be put to terms.
The Bench observed –
"6.1 From perusal of the import documents as well as invoices, it is evident that the transaction is one of trading or sale. The mark-up/trade margin charged by the appellant is also subject to customs duty as part of the transaction value. If that be so, there is no reason why the same part of the transaction value should be taken out of the customs transaction and subjected to Service Tax under the guise of Business Auxiliary Services. The Board's Circular dated 11.05.2004 also clarifies that the customs duty liability is to be discharged on the value inclusive of trade margin in the case of High Seas Sales transaction."
Following the precedent decision in the case of M/s Indian Oil Corporation Limited, the CESTAT granted waiver from pre-deposit of the adjudged dues and stayed the recovery during the pendency of the appeal.
(See 2013-TIOL-1266-CESTAT-MUM)
