[Order per : B. Ravichandran, Member (T)]. - Revenue is in appeal against order dated 25-5-2012 of Commissioner of Service Tax, New Delhi. The respondents are engaged in rendering taxable service under the category of customs house agent in terms of Section 65(105)(h) of the Finance Act, 1994. They were also registered with the department for discharge of service tax under various categories of taxable services. The dispute in the present case relates to non-payment of service tax on the correct value of taxable service under the category of customs house agent service and on the commission and brokerage earned on sea/air-freight for shipment of cargo under the category of BAS (Business Auxiliary Service).
2. After an audit of records of the assessee, in July, 2011, proceedings were initiated against the respondent for short payment of service tax during the period 2006-07 to 2009-10.
3. The main allegation against the respondent is that they have rendered, as customs house agent, various services to the clients (importers/exporters) and collected various service charges. They have not included these service charges in the gross value for discharging service tax under CHA service. The various charges which are sought to be included in the taxable value are B/L, DDC charges, GOH container charges, Inland haulage charges, on carriage charges, THC, Via charges, APT tax, AWB fee, AWC charges, MYC charges, PCA charges, X-ray charges, etc. It is the case of the Revenue that these amounts should form part of the gross taxable value for service tax purpose under the category of Customs House Agent Service. The second allegation is that, the respondent received brokerage and commission from various airlines, shipping lines, freight forwarding companies for providing various cargo related services. These brokerage and commission amount is to be considered as a commission received for promoting clients’ business and are accordingly to be subjected to tax under the category of business auxiliary service. It was alleged that the respondent acted on behalf of shipping companies/airlines/freight forwarding agent and obtained commission on the said services.
4. The demand-cum-show cause notice dated 24-10-2011 was adjudicated resulting in the impugned order. The ld. Commissioner dropped the proceedings and held that the demand against the respondent is not sustainable. The Revenue filed this appeal on the following main grounds:-
(a) The respondents are providing CHA services to the importers/exporters. They have received various other services provided by different agencies, such as port trust, warehouse, packers, transport agents, etc. They paid the service charges to these persons/agencies and collected the same from the clients. From the balance sheets of the respondent, it is clear that their expenditure is much lower than the income. This will indicate that they are charging a mark-up over and above the actual expenditure in obtaining various such services from other agencies. Since the amounts collected from their clients is not on actual basis, these charges are to be included in the gross value for service tax, in terms of Section 67 of the Finance Act, 1994.
(b) The respondents earned income on account of incentive and freight difference. The remuneration earned by the respondent from IATA agent/airlines is akin to the “commission” as it appeared to be the value received for services provided to IATA agents. Since the respondent did not provide separate accounts of sale/purchase of sea freight and there is no principal to principal transaction between the parties, the brokerage/commission/incentive/freight refund has to suffer service tax. Reference was also made to the TDS made by airlines/IATA agent in terms of Income-tax Act, 1961. The respondents were engaged in marketing and promoting the services provided by airlines/shipping lines/freight forwarding agents/IATA agents. Accordingly they are liable to pay service tax under BAS.
5. The ld. AR further elaborated on the grounds of appeal and submitted that the original authority has erred in dropping the demand without fully appreciating the basis of the demand made in the show cause notice. The reimbursable expenditure claimed by the respondent is not on actual basis. There is a mark-up on the charges and as such, the deduction claimed towards such reimbursable expenditure is not allowable. Similarly, for the tax under BAS, he submitted that the respondent acted on behalf of airlines/agents in booking cargo and thereby promoting their business. The Commission received is liable to tax.
6. The ld. Counsel appearing on behalf of the respondent submitted that the respondent acted as a CHA for importers and exporters. While discharging the said duties, it is necessary to undertake a liaison work with various connected agencies like Port Trust Packers, transporters, warehouse owners inspection agencies, crane operators, etc. They undertake all these work and the amount spent on these agencies were reimbursed from the clients (importers and exporters). These are on actual basis and there is no evidence of any mark-up in collecting these charges. The Revenue proceeded merely on the presumption based on difference in expenditure and income in the balance sheet of the respondent. The Original Authority has correctly analyzed the legal as well as factual position and accordingly dropped the demand.
7. Regarding the brokerage or commission received from airlines or agents, the ld. Counsel submitted that as a CHA regularly involved in shipment of cargo they book cargo space in the ship/airlines, well in advance, and when the actual cargo is shipped, they charge the client on the basis of rate applicable at the relevant time. There is difference in the amount spent for reserving space and the amount they received from the exporters. This amount cannot be subject to service tax as it is an activity involving trading of cargo space. In other words, it is a profit earned on their business and not an amount received towards any service. The ld. Counsel relied on the Board’s Circular dated 21-12-2009 in respect of reimbursable expenditure for CHA service and various decided case laws in support of his contention.
8. We have heard both sides and perused appeal records. On the first issue regarding the valuation for service tax on CHA service we note that the Revenue is contending that the respondent are not getting the money reimbursed in respect of various charges. There is a mark-up and such mark-up will bar the respondent from excluding such charges from the taxable value. We find that no evidence to this effect has been submitted by the Revenue, except the assertion regarding difference in balance sheet figures with reference to expenditure and income. We have examined the discussion and findings recorded in the impugned order. We also note that the original authority had examined the issue in detail with particular reference to Board’s clarification dated 21-12-2009. For better appreciation the relevant portion of the impugned order is reproduced below:-
“20. I find that the entire issue is based on the documentary evidences, which are essentially to be considered while deciding the concept of the pure agent and accrual of benefits of not being included the gross value of the taxable services. The assessee submitted the details of the ledger-code, voucher no. and dates, nature of expenses; amount involved; the various amount of reimbursement expenses; duly supported by the invoices constituting such reimbursement of expenses (samples) and further duly certified by the statutory auditors for the entire period under reference. Hence, I find it relevant to analyze/find out whether the assessee did not fulfil the conditions as alleged.
21. Primarily, it is observed that the said reimbursement of expenses, which were not subjected to payment of service tax were contained in the invoices raised to their client. Moreover, it is also evident that such expenses are identified and indicated separately by nomenclature and by amount therof. Such expenses and the amounts thereof indicate that they have been charged from their clients under respective headings/categories/nomen-clatures, while undertaking the job of CHA services. I also find that the remaining component constituting agency charges/service charges, etc., were subjected to payment of service tax. Hence it is now clear that the said reimbursable expenses were provided while providing CHA services to their clients. Hence it is also inherent to understand that the clients/service recipients were required to make the payment for taxable services along with service tax and also of reimbursable expenses; hence, it is not the case that the service recipient is not aware of given component as existing in the invoices. Hence, I find that the requirement of agreement between the assessee and the service recipient to substantiate the plea of reimbursable expenses is inherent; hence, existence or non-existence of exclusive formal agreement does not cause any hurdle in considering the nature of reimbursable expenses.
22. The question now is whether such expenses were charged at actual from the clients i.e. without any mark-up. In this context, I find that supporting invoices of the service provider of such reimbursable expenses categorically indicate that there is no mark-up or increase in the procurement purchase value of such expenses when they were included in the invoices raised to their clients. Hence, the issue is clear that the entire reimbuirsable expenses were the same from their clients and is duly supported by documentary evidences adduced and by the said Certificate by the statutory auditors.
23. It is also alleged that the assessee failed to justify that the activities/services for which the expenses being referred to were in addition to CHA Services provided by the assessee. It is observed that the basic purpose of raising invoice comprehensively and in combined form for taxable services under the category of CHA Services and also for the said reimbursable expenses against the same client and in the same invoice, categorically indicate that such expenses were referred to in addition to the provisions of CHA services.
24. It is further alleged that the assessee did not bring out on record that they did not use the activities/services for their own or for the benefits of other customers. Based on the documentary evidences adduced by the assessee, I am of the view that the issue is redundant for the basic observation that the assessee had raised invoices against their clients for the said services and duly substantiated by respective invoices against the reimbursable expenses, which were raised in the name of the client/subject consignment of the client. By the documents submitted by the assessee, it is amply proved that the invoices pertaining to expenses are containing the details of the specific clients and/or specific bill of entry or shipping bills or bill of lading as the case may be pertaining to the clients and that such expenses were incurred for the activities while providing CHA services to the said clients. It cannot be a case that such documents representing expenses and subsequently mentioned in the invoices raised against the clients for due recovery, cannot be an issue worth considering that the assessee himself could avail such benefits or by other customers of the assessee; and if so no such specific cases have been placed on record. Hence, I find that the allegations are of no consequence affecting the benefits of reimbursable expenses accruable to the assessee.”
9. Against the above categorical finding on facts, we note that the appeal by Revenue did not bring out any contrary evidence to persuade as to vary the said findings. Further, we also note that the reliance placed by the Revenue on the provisions of Rule 5(1) of Valuation Rules is of no consequence. In any case, we also note that the said Rule is found to be ultra vires of the main statutory provision for valuation under Finance Act, 1994 by the Hon’ble Delhi High Court in Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India - (Delhi).
10. We also note that the Tribunal in CST v. Lee & Muirhead Pvt. Ltd. - (Tri-Chennai), Aspinwall & Co. Ltd. v. CCE, Mangalore - (Tri.-Bang.) & Suraj Forwarders v. CST, Ahmadabad - (Tri.- Ahmd.) had occasion to examine the includibility of reimbursable expenditure in the taxable value for CHA service. It is held that when amounts are reimbursed on actual basis, the said charges are not to be included for service tax purpose.
11. On the second issue regarding the service tax liability of the respondent under BAS, we find that the impugned order examined the issue in detail. It was recorded that the income earned by the respondent to be considered as taxable under any service category, should be shown to be in lieu of provision of a particular service. Mere sale and purchase of cargo space and earning profit in the process is not a taxable activity under Finance Act, 1994. We are in agreement with the findings recorded by the original authority. In this connection, we refer to the decision of the Tribunal in Greenwich Meridian Logistics (I) Pvt. Ltd. v. CST, Mumbai - 2016 (43) S.T.R. 2l5 (Tri.- Mumbai). The Tribunal examined similar set of fact and held that the appellants often, even in the absence of shippers, contract for space or slots in vessels in anticipation of demand and as a distinct business activity. It is a transaction between principal to principal and the freight charges or consideration for space procured from shipping lines. The surplus earned by the respondent arising out of purchase and sale of space and not by acting for client who has space or not on a vessel. It cannot be considered that the respondents are engaged in promoting or marketing the services of any “client”.
12. In the present case it was recorded that the respondent was already paying service tax on commission received from airlines/shipping lines under business auxiliary service since 10-9-2004. The original authority recorded that the show cause notice did not specify as to who is the client to whom the respondent is providing service. Original authority considered both the scenario, airline/shipping lines as a client or exporter/shipper as a client. In case the respondent is acting on behalf of airlines/shipping lines as client, it was held that they are covered by tax liability under BAS. Further, examining the issue the original authority viewed that commission amount is necessarily to be obtained out of transaction which is to be provided by the respondent on behalf of the client, that is, the exporters. The facts of the case indicated that the mark-up value collected by the respondent from the exporter is an element of profit in the transaction. The respondent when acting as agent on behalf of airlines/shipping lines was discharging service tax w.e.f. 10-9-2004. However, with reference to amount collected from exporters/shippers the original authority clearly recorded that it is not the case that this amount is a commission earned by the respondent while acting on behalf of the exporter and said mark-up value is of freight charges and are not to be considered as commission. Based on these findings the demand was dropped. We do not find any impropriety in the said finding. The grounds of appeal did not bring any contrary evidence to change such findings. Accordingly, we find no merit in the appeal by Revenue. The appeal is dismissed.
(Pronounced in the open Court on 7-3-2017)