ST - Charges of documentation arise at request of customer and are paid outside of Agreement to appellant only - these activities constitute service provided directly to customer and do not constitute services provided on behalf of Principal, hence it would not fall under BAS: CESTAT
By TIOL News Service
MUMBAI, JULY 27, 2015: THE appellant had entered into an Agency Agreement with CMA-CGM France (their Principals who are the owners of an International Shipping Company) for providing the Principal with various services in India grouped as port operations, logistics, documentation, finance freight transfers, accounts reporting, information systems. Under these group services the appellant was paid by the Principal for activities namely commission on outbound/inbound freight, transhipment fee, container control fee, communication expenses, container damage recovery commission, demurrage collection, freight payable elsewhere charges, etc. Service tax was paid on the above activities/ services under the taxable category of Steamer Agent services.
The issue that arises for consideration is whether the expenses charged directly from customers such as Bill of Lading (B/L) re-issue charges, switch B/L charges, B/L surrender charges, advance cargo declaration charges, administration charges on stamp duty, amendment charges, check dishonour charges, destination documents fees, late B/L charges are leviable to service tax under the Business Auxiliary Services. Inasmuch as the activities provided by the appellant to their Principal as part of the end-to-end supply chain solutions under the Agency Agreement are alleged to be ‘customer management services' covered under the definition of Business Auxiliary Service effective from 1.7.2003. Revenue also relies on CBEC Circular 59/8/2003/ST dt. 20.6.2003.
A service tax demand has been raised and confirmed by the CCE, Thane-II - Service Tax of Rs. 1,24,87,065/- for the period July 2003 - February 2006; Amount of Rs. 47,57,661/- paid during June 2005 - February 2006 has been appropriated. Penalties under various Sections have been imposed and recovery of interest is also sought.
The appellant is before the CESTAT.
Although, the show cause notice does not specify under which clause of Business Auxiliary Service the demand is made, during the course of hearing the A.R. agreed that the demand can only be made under Clause (iii) of Section 65(19) which reads as “any customer care service provided on behalf of the client.”
Be that as it may, the appellant submitted that all members of MANSA (Ship Agents Association) were under a bonafide belief that documentation and related services provided to Indian importers/exporters were not liable to service tax upto 15 th June 2005. However, w.e.f. 16 th June 2005 an explanation was inserted in the definition of BAS to define a commission agent as any person who acts on behalf of another person and undertakes activities relating to provision or receipt of services. On the advice of MANSA, they started paying service tax from 16.6.2005 onwards under the category of BAS and which is not being disputed. It is further submitted that the Agency Agreement covers services on which service tax has already been paid and the services on which demand is made are provided directly to customers/shippers/consignees and charges on account of such services are not remitted to the Principal.
The Bench observed -
+ We note that the show cause notice in the present case does not refer to any specific clause of the BAS service…
+ During arguments the Ld. AR fairly conceded that it can only be covered under Clause (iii) namely, any customer care service provided on behalf of the client . The show cause notice does not refer to this clause at all. Even the adjudication order makes no mention of this clause. The only hint which surfaces from these documents is that the activities on which tax is demanded amount to customer management services. To this extent the proceedings are flawed. However we proceed to examine the case on the basis of facts available on record. We may only presume that Revenue seeks to demand service tax under Clause (iii) as mentioned above.
+ The point to be examined is whether the appellant is providing customer care service on behalf of the Principal. We find that these services are provided directly to the customers i.e. shipping lines/consignees. The charges are raised directly on the customers and payments received from them.
+ The appellant is paying service tax under Steamer Agent services on all activities including some documentation charges and all such charges are credited to the account of the Principal as per the Agency Agreement. The remaining charges i.e. those on which service tax demand has been raised relate to activities performed by the appellant independently for their customers.
+ The appellant states that the latter payments are not credited to Principal's account. We find no evidence to the contrary in the findings of the Commissioner and, therefore, hold that such findings are wrong.
+ The confusion seems to have arisen because some charges of documentation are paid by the Principal to the appellant on which service tax is paid whereas some charges of documentation arise on the request of customer such as re-issue of Bill of Entry etc. and are paid outside of the Agency Agreement by the customer to the appellant only. The appellant did not remit these charges to the Principal.
+ We find nothing in the Agreement which states that the appellant cannot provide such service and cannot receive charges from the customers for such activities.
+ Therefore, we conclude that these activities constitute service provided directly to the customer and do not constitute services provided on behalf of the Principal. Hence, the services would not fall under the category of BAS during the period of dispute.
+ If at all, they could be considered under the amended definition of BAS from 16 June 2005 when an explanation was inserted to define Commission Agent. And from this date the appellant have in any case paid service tax under BAS. Alternatively, the activities could be considered as falling under Business Support service which came into effect from 1.5.2006 i.e. after the period of dispute in the present case.
+ As the appellant is not contesting the demand from 16.6.2005 onwards which is paid by them along with interest before issue of show cause notice, we accept the appeal to the extent of setting aside the demand of service tax for the period prior to 16.6.2005.
+ We find there was bonafide confusion in the mind of assesses about taxability of documentation services during the period prior to 16.6.2005. Having set aside the demand of tax, the penalties are also set aside as the duty was paid for period after 16.6.2005, that is, before the issue of show cause notice.
Appeal is allowed in above terms.
(See 2015-TIOL-1535-CESTAT-MUM)
