IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
EASTERN ZONAL BENCH : KOLKATA
Appeal No. S.T.AP. 31/07
Arising out of Order-in-Original No. 19/Commr/ST/Kol/2006-07 Dated : 22.3.2007
passed by the Commissioner of Service Tax, Kolkata
Date of Decision : 29.5.2008
M/s NARESH KUMAR & CO PVT LTD
COMMISSIONER OF SERVICE TAX, KOLKATA
Appellant Rep. by : Shri J K Mittal , Adv.
Respondent Rep. by : Shri Y S Loni , JDR
CORAM : Dr. Chittaranjan Satapathy , Technical Member
Shri D N Panda, Judicial Member
Service Tax – Clearing and forwarding agent services - The activities carried out by the appellants are squarely covered under the category of Clearing and forwarding Agent service – demand of service tax is upheld. ( Para 6.8)
Valuation - Absence of any intimate connection or relation of expenditure to the principal activity of clearing and forwarding operations cannot contribute to the value of taxable service. Expenditure which is indispensable and inevitably incurred to provide a service, should essentially form part of cost of service itself and shall contribute to value of taxable service. Thus expenditure incurred being incidental or ancillary to perform an act, shall essentially make value addition to the service. ( Para 6.10)
Limitation / Penalty - Matter remanded to examine invocation of extended period based on scrutiny of records and inclusion of reimbursable expenses in the taxable value. ( Para 6.12)
Matter remanded .
Case law referred:
1. ETA Travel Agency Pvt. Ltd. Vs. Commissioner of C. Ex., Chennai - 2007-TIOL-1182-CESTAT-MAD … … … Referred (Para 4 & 6.2)
2. Collector of C. Ex, Jaipur Vs. Alcobex Metals - 2003-TIOL-85-SC-CX … … … Referred ( Para 4)
3. Gammon India Ltd. Vs . Commissioner of Central Excise, Goa - 2002 (146) ELT 173 (Tri. Mum) … … … Referred ( Para 4)
4. M/s. Monika Electronics Ltd. & Others, M/s. Onida Saka Ltd. Vs. CCE, Delhi - 2006-TIOL-1296-CESTAT-DEL … … … Referred (Para 4)
5. Vaspar Concepts (P) Ltd. Vs. Commissioner of Central Excise, Bangalore - 2005-TIOL-1481-CESTAT-BANG … … … Referred ( Para 4)
6. Commissioner of C. Ex & Cus ., Calicut Vs. Manuelsons Wood Industries - 2007 (210) ELT 230 (Tri. Bang). … … … Referred ( Para 4)
7. M/s. Margadarsi Marketing (P) Ltd. Vs. The Commissioner of Central Excise, Hyderabad - 2007-TIOL-773-CESTAT-BANG … … … Referred ( Para 4)
8. Studioline Interior Systems Pvt. Ltd. Vs . Commr . of C. Ex., Bangalore -I - 2006 (201) ELT 250 (Tri-Bang) = ( 2006-TIOL-1959-CESTAT-MUM ) … … … Referred ( Para 4)
9. Lovely Food Industries Vs. Commissioner of Central Excise, Cochin - 2006 (195) ELT 90(Tri-Bang.) = ( 2006-TIOL-423-CESTAT-BANG ) … … … Referred ( Para 4)
10. Commissioner of C. Ex, Vadodara Vs. Pioneer Scientific Glass Works - 2006 (197) E.L.T. 308 (S.C.) = ( 2006-TIOL-50-SC-CX ) … … … Referred ( Para 4)
11. Indian Oil Corporation Ltd. Vs. Commissioner of Customs & C. Ex., Rajkot - 2004 (170) ELT 554 (Tri-Mum) … … … Referred ( Para 4)
12. M/s. Auto Transport Services Vs. CCE, Jaipur -II - 2006-TIOL-504-CESTAT-DEL … … … Referred ( Para 4)
13. Mahavir Generics Vs. CCE, Bangalore - 2004-TIOL-344-CESTAT-DEL … … … Distinguished ( Para 4 & 6.8)
14. Sri Sastha Agencies Pvt. Ltd. Vs . Asstt . Commr . of C. Ex. & Cus ., Palakkad - 2007 (6) STR 185 (Tri-Bang) = ( 2006-TIOL-1923-CESTAT-BANG ) … … … Referred ( Para 4)
15. Bhagyanagar Services Vs. Commr . of C. Ex., Hyderabad - 2006 (4) STR 22 (Tri-Bang) = ( 2006-TIOL-1253-CESTAT-BANG ) … … … Referred ( Para 4)
16. Comm. of Central Excise & Customs & ST, BBSR-I Vs. M/s. Nilalohita Enterprises - 2007-TIOL-680-CESTAT-KOL … … … Referred ( Para 4)
17. Sangamitra Services Agency Vs. CCE, Chennai - 2007-TIOL-1335-CESTAT-MAD … … … Referred ( Para 4)
18. K.D. Sales Corporation Vs. Commissioner of C. Ex., Belgaum - 2007 (6) STR 418 (Tri-Bang) = ( 2006-TIOL-1921-CESTAT-BANG ) … … … Referred ( Para 4)
19. M/s. B.S.R. Refrigeration Ltd. Vs. Commissioner of Service Tax Bangalore - 2006-TIOL-1189-CESTAT-BANG … … … Referred ( Para 4)
20. Jayalaxmi Enterprises Vs. CCE, Mangalore - 2007-TIOL-1905-CESTAT-BANG … … … Referred ( Para 4)
21. M/ s.U.M.Thariath & Company, M/s. S.J.C. Pharma Vs. The Commissioner of Central Excise, Cochin - 2007-TIOL-1655-CESTAT-BANG … … … Referred ( Para 4)
22. M/ s.Marakadham Agencies Vs. The Commissioner of Central Excise, Salem - 2007-TIOL-1750-CESTAT-MAD … … … Referred ( Para 4)
23. M/s. Rampur Engineering Co. Ltd. Vs. CCE- Jaipur -I - 2006-TIOL-994-CESTAT-DEL … … … Referred ( Para 4)
24. M/s. Prompt & Smart Security Vs. The Commissioner of Central Excise, Service Tax Commissionerate, Bangalore - 2008-TIOL-97-CESTAT-BANG … … … Referred ( Para 4)
25. Rashtriya Ispat Nigam Ltd. Vs. Commissioner of Central Excise, Vishakapatnam - 2003 (161) ELT 285 (Tri-Bang) = ( 2002-TIOL-116-CESTAT-BANG ) … … … Referred ( Para 4)
26. Commissioner of Central Excise, Ludhiana Vs. M/s. Sigma Steel Tubes - 2007-TIOL-456-HC-P-H-CX … … … Referred ( Para 4)
27. Commissioner of Central Excise, Guntur Vs. Andhra Cements Limited - 2007 (216) ELT 362 (A.P.) = ( 2007-TIOL-1542-CESTAT-BANG ) … … … Referred ( Para 4)
28. Union of India Vs . T.P.L. Industries Ltd. - 2007 (214) ELT 506 ( Raj .) … … … Referred ( Para 4)
29. Commissioner of Central Excise, Rohtak Vs. S.B. Packaging Ltd. - 2008(9)STR 124(P&H) = ( 2007-TIOL-141-HC-P&H-CX ) … … … Referred ( Para 4)
30. Commissioner of Central Excise - I Vs. Gaurav Mercantiles Ltd. - 2005 (190) ELT 11 ( Bom ) = 2005-TIOL-231-HC-MUM-CX … … … Referred ( Para 4)
31. Commissioner of Central Excise Vs. M/s. Nachiketa Paper Limited - 2007-TIOL-608-HC-P&H-CX … … … Referred ( Para 4)
32. M/s. GTN Textiles Ltd. Vs. Commissioner of Central Excise, Hyderabad - 2007-TIOL-551-CESTAT-BANG … … … Referred ( Para 4)
33. Hindustan Steel Ltd. Vs. State of Orissa - 1978 (2) ELT (J 159)(S.C.) = ( 2002-TIOL-148-SC-CT ) … … … Referred ( Para 4)
34. Commissioner of Central Excise, Pune Vs. TELCO Ltd. - 2006 (196) ELT 308(Tri-Mum) = ( 2006-TIOL-199-CESTAT-MUM ) … … … Referred ( Para 4)
35. CCE, Aurangabad v. Padmashree V.V. Patil , SSK Ltd. - 2007 (215) ELT 23( Bom ) = ( 2007-TIOL-419-HC-MUM-CX ) … … … Relied ( Para 5.2 & 6.12)
36. Medpro Pharma Pvt. Ltd. vs. CCE, Chennai - 2006 (3) S.T.R. 355 (Tri.-LB.) = ( 2006-TIOL-320-CESTAT-DEL ) … … … Referred ( Para 5.2)
37. Super Poly Fabriks Ltd. vs. CCE, Ludhiana 2006 (4) S.T.R. 595 (Tri-Del) = ( 2006-TIOL-1390-CESTAT-DEL ) … … … Referred ( Para 5.2)
38. CCE, Chandigarh vs. Adhunik Steel Ltd.2006 (4) S.T.R. 542 (Tri-Del) = ( 2007-TIOL-593-CESTAT-DEL ) … … … Referred ( Para 5.2)
39. CCE, Chandigarh vs. ADH Agencies 2007 (7) S.T.R. 660 (Tri-Del) = ( 2007-TIOL-899-CESTAT-DEL ) … … … Referred ( Para 5.2)
40. Sony India Ltd. v. CCE, Del - 2004-TIOL-43-SC-CX … … … Relied ( Para 5.2 & 6.12)
41. CCE, Delhi-Ill vs. Machino Montell (I) Ltd. 2006 (202) E.L.T. 398 (P & H) = ( 2006-TIOL-276-HC-P-H-CX ) … … … Referred ( Para 5.2)
42. CCE, Delhi-IV vs. Ilpea Paramount Pvt. Ltd. 2007 (213) E.LT. 500 (LB) = ( 2007-TIOL-1017-CESTAT-DEL-LB ) … … … Referred ( Para 5.2)
43. Coal Handlers Pvt. Ltd. v. CCE, Kol -I - 2006 (3) STR 286 (T- Kol ) = ( 2004-TIOL-579-CESTAT-KOL ) … … … Referred ( Para 6.8)
44. CCE, Aurangabad v. Aurangabad Motor Manufacturers - 2008 (224) ELT 354 ( Bom ) = ( 2004-TIOL-579-CESTAT-KOL ) … … … Relied ( Para 6.12)
ORDER NO. A-580/Kol/08
Per : Shri D N Panda :
1. The Appellant came in Appeal against order dated 22.03.2007 passed under the Finance Act, 1994 (hereinafter referred to as the Act") by learned Commissioner of Service Tax, Kolkata , giving rise to the following consequences:
( i ) Service Tax of Rs.90 ,84,881 /-(Rupees ninety lakh eighty four thousand eighty one only) under section 73(2) of the Act, was levied. Against such levy, deposit of Rs.49 ,27,918 /- (Rupees Forty nine lakh twenty seven thousand nine hundred eighteen only) made by the Appellant prior to adjudication was directed to be appropriated. This demand was also followed by equal amount of penalty under Section 78 of the Act.
(ii) Interest was levied u/s 75 of the Act, on the service tax demand of Rs.90 ,84,881 /- and against such liability, deposit of an amount of Rs.26,07,629/- (Rupees twenty six lakh seven thousand six hundred twenty nine only), made by the Appellant prior to adjudication was ordered to be appropriated.
(iii) Penalty @ Rs.100 (Rupees one hundred) per day during continuance of failure to comply with the law was imposed under section 76.
(iv) Penalty of Rs.100/-(Rupees one hundred) per day for failure to comply with the law during 01.09.99 to 16.07.01 and Rs.1000/- thereafter was imposed u/s 77.
2.1 On the basis of search on 19.4.2002 (as per Authorisation at Page 40 of Paper Book), followed by investigations from time to time, Show Cause Notice (SCN) dated 10.09.2004 (issued on 13.9.2004) was served on the Appellant charging that services provided by the Appellant to its clients fall under the class of "clearing and forwarding" and such service was liable to tax under the Act as well as penalty and interest for default to comply with the law. Granting opportunity of hearing to the Appellant and on consideration of the agreement dated 21.11.2002 executed between it and M/s. TISCO and similar such agreement with M/s. Tata Ryerson (I) Ltd. (TRL), as well as materials on record and defence pleas of the appellant, learned Adjudicating Authority framed following issues and held that the Appellant had rendered "clearing and forwarding agent services'' for the period from September, 1999 to March, 2004 and raised aforesaid demand:
1. Whether the services rendered by the noticee are classifiable under 'clearing and forwarding agent's service'.
2. Whether the noticee are entitled to deduction claimed by them and whether the value of taxable services has been correctly arrived at
3. Whether the longer period of limitation has been correctly invoked.
4. Whether interest is chargeable and penalty is imposable.
2.2 Service tax was levied consequent upon adjudication of issue No.1 for the reasons discussed in page 11 and 12 of the impugned order and following C.B.E.C.'s Instruction in F.No.B-43/7/1997-TRU dated 11.07.1997. Appellant's plea of providing business support service falling under business auxiliary service was discarded.
2.3 So far as the second issue relating to deductions from gross receipts to determine value of taxable service is concerned, the learned Authority held that entire expenditure incurred being related to taxable services provided, no deductions were admissible.
2.4 Third issue relating to limitation was decided against the Appellant holding that there was willful suppression of material fact which called for invocation of longer period.
2.5 So far as the fourth issue relating to levy of interest and penalty is concerned, that was also decided against the Appellant holding that when liability of the Appellant arose and service tax was payable, unpaid amount warranted levy of interest and breach of law called for penalty.
3. Order of Adjudication at Page-2 reveals that following nature of service were provided by the Appellant in terms of agreement dated 21.12.2002 between the Appellant and TISCO and similar such service rendered to TRL:
(1) Receive/dispatch materials by rail/road. The consignments shall be dispatched to the noticee from the factory/other stockyards/consignment agents/processing agents.
(2) Take delivery of the materials, arrange transport to the godown , sort and stock them after weighment in accordance with the' instructions of TISCO's representative.
(3) Load and unload the wagons within the free time allowed by the railways and failing to do so, shall be responsible for demurrage, wharfage and/or other incidental charges. Demurrage, wharfage and/or other incidental charges due to non-placement of wagons in the right position or due to road condition in the rainy season shall also be borne by the noticee . Payment shall be consolidated and shall include the charges incurred by the noticee in connection with the booking of/or taking delivery of materials.
(4) Responsible for damage to the rolling stock of the railways or to the property of TISCO lying at the former's premises and such claims shall be adjusted against the bills/dues of the noticee .
(5) Unload and transport the incoming materials from the public sidings to the premises of the noticee and shall be responsible for shortages found at the time of unloading at the premises of the noticee .
(6) Precluded from stacking any other party's materials in his premises ' . and in case of mixing with other party's materials, compensation shall be paid by the noticee .
(7) Responsible for shortage/demurrage due to non-transporting the materials from the railway siding to its own premises in time.
(8) Employ its equipment, manpower etc. for handling materials.
(9) Arrange and take all necessary steps for protection of TISCO's materials.
(10) Nominate a hub manager for its Kolkata premises.
(11) Deliver materials to TISCO's customers on production of delivery orders and if the hub manager requires, the materials shall be loaded on the transport of the customer or nominated by TISCO.
(12) Not make use of the handling agency agreement for promotional/publicity purposes.
(13) Maintain stockyard/ warehouse/ office in its premises in a neat and clean condition and maintain a weighbridge in proper operating condition.
(14) Maintain secrecy of all documents and information.
(15) Responsible of safe custody of TISCO's steel materials.
(16) Bear all expenses since the time of receipt of the same at their premises till these are dispatched and in case of failing to account for the stock, consequences would follow.
4. Learned Counsel Shri.J.K . Mittal , appearing for the Appellant before this forum principally argued as under vehemently objecting to the order of adjudication and also filed written note of argument in support of his argument:
i ) Order-in-Original No.19/Commr/ST/KOL/2006-07 dated 22.03.2007 passed by the Ld. Commissioner, Service Tax, Kolkata confirming service tax liability of Rs 90,84,881/- under the category of ''clearing and forwarding agent services" was in respect of following gross value of considerations received from activities :
Consignment agent for M/s. TISCO
Rs . 49,27,918
Reimbursement of expenditure
Bending and bounding charges
Rs . 3,71,610
Stock verification charges
Rs . 80,402
Consignment agent for M/s. Tata Rayerson
Rs . 48,396
Rs . 90,84,881
ii) Show Cause Notice dated 13.09.2004 demanding service tax for the period from 01.09.1999 to 31.03.2004 was issued without jurisdiction, for entire proceeding is null and void. Since, the Show Cause Notice was by the Assistant Director General of DGCEI, Kolkata , whereas at the relevant period under Section 73, the Show Cause Notice could have been issued by the Assistant Commissioner or the Deputy Commissioner of Central Excise, whereas Section 73 was amended, w.e.f . 13.05.2005 empowering the Central Excise Officer to issue the Show Cause Notice. The Appellant relied the decision in the case of ETA TRAVEL AGENCY PVT.LTD. Vs. COMISSIONER OF C. EX., CHENNAI - 2007(7) STR 454 (TRI - BANGALORE ) = ( 2007-TIOL-1182-CESTAT-MAD ) .
iii) Show Cause Notice dated 13.09.2004 was not valid for raising the demand for the period from 01.09.1999 to 31.03.2004 as the Show Cause' Notice was issued under Section 73 sub-Section (1) as per para 18 of the Cause Notice, whereas under Section 73(1) demand could not be raised more than one year. That the Appellant relied upon the Supreme Court decision in the case of COLLECTOR OF C. EX, JAIPUR Vs. ALCOBEX METALS( 153) E.L.T. 241 (S.C.) = 2003-TIOL-85-SC-CX
iv) Show Cause Notice is non- est and hopelessly time-barred as held in the various decisions. In the present case, search and seizure having been conducted on 19.04.2002, summon issued on 26.04.2002, the Appellant submitted a detail about its activities on 02.05.2002, and such facts not having been adverted by the Department, the proceeding was time barred. In similar facts and circumstances in the following cases it was held that the Cause Notice is non- est and time barred:
a. GAMMON INDIA LTD. VS. COMMISSIONER OF CENTRAL EXCISE, GOA 2002 (146) ELT 173 (TRI-MUMBAI)
b. M/S. MONIKA ELECTRONICS LTD. & OTHERS M/S. ONIDA SAKA LTD. VS. CCE, DELHI 2006-TIOL-1296-CESTAT-DEL
c) VASPAR CONCEPTS (P) LTD. VS. COMMISSIONER OF CENTRAL EXCISE, BANGALORE 2006(199) E.L.T. 711(TRI - BANGALORE ) 2005-TIOL-1481-CESTAT-BANG
d) M/S. CONTINENTAL FOUNDATION JOINT VENTURE SHOLDING, NATHPA H.P. VS. COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH -I 2 007-TIOL-152-SC-CX .
e) COMMISSIONER OF C. EX & CUS., CALICUT VS. MANUELSONS WOOD INDUSTRIES 2007 (210) ELT 230 (TRI-BANG).
f) M/S. MARGADASI MARKETING (P) LTD. VS. THE COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 2007-TIOL-773-CESTAT-BANG .
g) STUDIOLINE INTERIOR SYSTEMS PVT.LTD. VS. COMMR. OF C. EX., BANGALORE -I 2006 (201) ELT 250 (TRI-BANG.) = 2006-TIOL-1959-CESTAT-MUM
(h) LOVELY FOOD INDUSTRIES VS. COMMISSIONER OF CENTRAL EXCISE, COCHIN 2006 (195) ELT 90(TRI-BANG.) = 2006-TIOL-423-CESTAT-BANG
( i ) COMMISSIONER OF C. EX, VODODARA VS. PIONEER SCIENTIFIC GLASS WORKS 2006 (197) E.L.T. 308 (S.C.) = 2006-TIOL-50-SC-CX
(j) INDIAN OIL CORPORATION LTD. VS. COMMISSIONER OF CUSTOMS & C. EX., RAJKOT 2004 (170) ELT 554 (TRI-MUMBAI)
(v) The Appellant having paid service tax amounting to Rs.49,29,918/- much before the issuance of SCN along with interest to the tune of Rs.26,07,629/-, as per the Section 73(3), SCN should not have been issued as held by this Tribunal in the case of M/S. AUTO TRANSPORT SERICES VS. CCE, JAIPUR-II 2006-TIOL-504-CESTAT-DEL . Further, CBEC instruction No.F.No.137/167/2006-CX.4 dated 3.10.2007 also clarified that Section 73(3) implies the conclusion of the entire proceedings in including Section 76, 77, and 78.
(vi) It was undisputedly stated in various paras of the Show Cause Notice such as para 1, para 10 and para 12 that the Appellant was acting as the consignment agent, whereas this Hon'ble Tribunal in the case of MAHAVIR AGENCIES VS. CCE-BANGALORE 2004-TIOL-344-CESTAT-DEL held that consignment agent activity is not covered under clearing and forwarding agent service but falling under business auxiliary services,
(vii) In the Show Cause Notice dated 13.09.2004, out of the total demand, the demand of Rs.36 ,56,555 /- is on the reimbursement of expenditure, which have been added under Rule 6(8) of the Service Tax Rules, 1994 as a value of taxable service for clearing and forwarding agent service. The Appellant relied upon the following cases, wherein in categorical term it was held that service tax is leviable only on remuneration received as clearing and forwarding agent and not on any other reimbursement of expenditure. These case as relied upon by the Appellant are given below :
( a ) SRI SASTHA AGENCIES PVT.LTD. VS. ASSTT. COMMR. OF C. EX. & CUS., PALAKKAD 2007 (6) STR 185 (TRI-BANGALORE) = 2006-TIOL-1923-CESTAT-BANG
( b ) BHAGYANAGAR SERVICES VS. COMMR. OF C. EX., HYDERABAD 2006 (4) STR 22 (TRI-BANG) = 2006-TIOL-1253-CESTAT-BANG
(C) COMM OF CENTRAL EXCISE & CUSTOMS & ST, BBSR-I VS. M/S.NILALOHITA ENTERPRISES 2007-TIOL-680-CESTAT-KOL .
( d ) SANGAMITRA SERVICES AGENCY VS. CCE, CHENNAI 2007-TIOL-1335-CESTAT-MAD .
(e) K.D. SALES CORPORATION VS. COMMISSIONER OF C. EX., BELGAUM 2007 (6) STR 418 (TRI-BANG) = ( 2006-TIOL-1921-CESTAT-BANG )
(f) M/S. B.S.R. REFRIGERATION LTD. VS. COMMISSIONER OF SERVICE TAX BANGLORE 2006-TIOL-1189-CESTAT-BANG
(g) JAYLAXMI ENTERPRISES VS. CCE, MANGALORE 2007-TIOL-1905-CESTAT-BANG
( h ) M/S.U.M.THARIATH & COMPANY M/S. S.J.C. PHARMA VS. THE COMMISSIONER OF CENTRAL EXCISE, COCHIN 2007-TIOL-1655-CESTAT-BANG
( i ) M/S.MARAKADHAM AGENCIES VS. THE COMMISSIONER OF CENTRAL EXCISE, SALEM 2007-TIOL-1750-CESTAT-MAD .
(viii) Tax was calculated over and above the value taken by the Department, whereas under Section 67, the value is treated as cum-duty for which the Appellant relies on the following cases and therefore the demand, if any, has to be recomputed accordingly.
( a ) M/S. RAMPUR ENGINEERING CO. LTD. VS. CCE-JAIPUR -I 2006-TIOL-994-CESTAT-DEL .
(b) M/S. PROMPT & SMART SECURITY VS. THE COMMISSIONER OF CENTRAL EXCISE, SERVICE TAX, COMMISSIONERATE BANGALORE 2008-TIOL-97-CESTAT-BANG .
(ix) That the Appellant was not been provided relied upon documents including basis of the demand. But the Authority rejected the said plea baselessly.
(x) No penalty and interest can be charged on the amount already deposited before the issuance of Show Cause Notice relying on following decisions :
(a) RASHTRIYA ISPAT NIGAM LTD. VS. COMMISSIONER OF C. EX., VISAKHAPATNAM 2003 (161) ELT 285 (TRI-BANG) = ( 2002-TIOL-116-CESTAT-BANG ) .
(b) COMMISSIONER OF CENTRAL EXCISE, LUDHIANA VS. M/S. SIGMA STEEL TUBES 2007-TIOL-456-HC-P-H-CX
(c) COMMISSIONER OF C. EX., GUNTUR VS. ANDHRA CEMENTS LIMITED 2007 (216) ELT 362 (A.P.) = 2007-TIOL-1542-CESTAT-BANG
(d) UNION OF INDIA VS. T.P.L. INDUSTRIES LTD. 2007 (214) ELT 506 (RAJ.)
(e) COMMISSIONER OF CENTRAL EXCISE. , ROHTAK VS. S.B. PACKAGING LTD. 2008(9 )STR 124(P&H) = ( 2007-TIOL-141-HC-P&H-CX )
(f) COMMISSIONER OF CENTRAL EXCISE - I VS. GAURAV MERCANTILES LTD. 2005 (190) ELT 11 (BOM) = 2005-TIOL-231-HC-MUM-CX
(g) COMMISSIONER OF CENTRAL EXCISE VS. M/S. NACHIKETA PAPER LIMITED 2007-TIOL-608-HC-P&H-CX
( h ) M/S. GTN TEXTILES LTD. VS. THE COMMISSIONER OF CENTRAL EXCISE, HYDERABAD 2007-TIOL-551-CESTAT-BANG . Further, the CBEC instruction No.F.No.137/167/2006-CX.4 dated 3.10.2007 also clarified that Section 73(3) implies the conclusion of the entire proceedings in the Finance Act including Section 76, 77 and 78.
(xi) No penalty could be levied since the demand pertain to the period from 1999 onwards when the service tax was a new levy and questions involving interpretation of law was in debate. There was no deliberate defiance of law on the part of the Appellant. The Appellant relied upon the following cases in support of its claim :
(a) HINDUSTHAN STEEL LTD. Vs. STATE OF ORISSA 1978 (2) ELT (J 159 )( S.C.) = ( 2002-TIOL-148-SC-CT )
(b) COMMISSIONER OF CEN. EX., PUNE Vs . TELCO LTD.2006 (196) ELT 308(TRI-MUMBAI) = 2006-TIOL-199-CESTAT-MUM
5.1 Learned JDR Sri Loni appearing on behalf of Revenue submitted that the learned Adjudicating Authority had very correctly assessed the Appellant and proper SCN was issued well within jurisdiction providing copies of all relied upon documents. Assistant Director, D.G.C.E.I., Kolkata Zonal Unit, Kolkata , was vested with all powers of the Central Excise Officer of the rank of Assistant Commissioner for whole of India in terms of Notification No.3/04-ST dated 11.03.2004. The SCN having been issued on 13.09.2004, that was also well within limitation and jurisdiction. Entire amount received by the Appellant during the material period was in relation to "clearing and forwarding agency services". Plea of consignment Agency was discarded in view of nature of services provided. Therefore whole receipt was liable to tax and that was rightly done. Deductions claimed by Appellant did not justify for allowbility in accordance with law for which learned Commissioner by a reasoned and speaking order disallowed the same.
5.2 Shri Loni , also submitted that Law relating to service tax for taxing the "clearing and forwarding agency" service having come into force w.e.f . 16.07.1997 and Board instruction in F.No . B.43/7/97-TRU dated 11.07.1997 having clarified different nature of services usually provided by a clearing and forwarding agent, that clearly brought the Appellant to the ambit of law as "clearing and forwarding Agent". The Appellant sought registration on 27.05.2000 and started paying Service Tax w.e.f . 01.04.2002. This clearly established that order of adjudication was proper. Services provided by the Appellant during the period 01.09.1999 to 31.3.2004 should not go out of tax when liability arose from the year 1999 and the Appellant failed to comply with the law. The case being a breach of law and there was suppression of material fact to evade tax, invocation of longer period by SCN dated 10.09.2004 (issued on 13.9.04) was justified. Therefore, ( the proceeding was not at all time barred. Demand raised was nothing unjustified. The decisions relied upon by the Appellant in the course of hearing for all his contentions do not help it in view of elaborate reasons stated by learned Adjudicating Authority and statutory provisions. Even if tax was claimed to have been paid before issuance of Show Cause Notice, that shall not grant immunity to the Appellant from penalty following the decision of the Hon'ble High Court of Bombay in the case of CCE, Aurangabad v. Padmashree V.V. Patil , SSK Ltd. - 2007 (215) ELT 23( Bom ) = ( 2007-TIOL-419-HC-MUM-CX ) , when there was breach of law and suppression of fact, came to light by search on 19.4.02. Therefore penalty was rightly levied and does not call for waiver. Also when recovery of tax due was legitimate, that warranted levy of interest and that was rightly ordered. Revenue also relied on following decisions:
a) Medpro Pharma Pvt. Ltd. vs. CCE, Chennai 2006 (3) S.T.R. 355 (Tri.-LB.) = 2006-TIOL-320-CESTAT-DEL
b) Super Poly Fabriks Ltd. vs. CCE, Ludhiana 2006 (4) S.T.R. 595 (Tri-Del) = 2006-TIOL-1390-CESTAT-DEL
c) CCE, Chandigarh vs. Adhunik Steel Ltd.2006 (4) S.T.R. 542 (Tri-Del) = 2007-TIOL-593-CESTAT-DEL
d) CCE, Chandigarh vs. ADH Agencies 2007 (7) S.T.R. 660 (Tri-Del) = 2007-TIOL-899-CESTAT-DEL
e) Sony India Ltd. vs. CCE, Delhi 2004 (167) E.L.T. 385 (SC) = 2004-TIOL-43-SC-CX
f) CCE, Delhi-Ill vs. Machino Montell (I) Ltd. 2006 (202) E.L.T. 398 (P & H) = 2006-TIOL-276-HC-P-H-CX
g) CCE, Delhi-IV vs. Ilpea Paramount Pvt. Ltd. 2007 (213) E.LT. 500 (LB) = 2007-TIOL-1017-CESTAT-DEL-LB
h) CCE, Aurangabad vs. Padmashri V.V.K. Ltd. 2007 (215) E.LT. 23 ( Bom ) = ( 2007-TIOL-419-HC-MUM-CX )
6.1 Heard both sides and perused the record and considered the citations made by them.
6.2 Preliminary objection of the Appellant on the issue of jurisdiction/ relating to issue of SCN did not survive for the reasons argued by the learned JDR repelling contention of the Appellant. The Notification stated aforesaid had empowered the Notice Issuing Authority to exercise powers of Central Excise Officer in respect of the respective jurisdiction. Accordingly Appellant's objection on this score fails. Also nothing could be found to observe whether the Appellant was deprived of due process of justice without providing all relied upon documents for its defence . Accordingly Appellant's reliance on the decision in the case of ETA Travel Agency Pvt. Ltd. v. CCE - 2007 (7) STR 454 (Tri-Bangalore) = ( 2007-TIOL-1182-CESTAT-MAD ) was misplaced.
6.3 Record reveals that search was conducted on 19.4.02 and that brought out material facts to light for issue of SCN. The Appellant entered into contracts with M/s. TISCO and TRL. Scope of activity was as depicted by the learned Commissioner at page 2-3 of order of adjudication and as extracted in Para - 3 of this order. That remained undisputed all along in the course of hearing. The Appellant sought registration under the Act w.e.f . 27.05.2002 and this was after the date of search i.e. 19.4.2002. It started paying taxes from 01.04.2002 and sought clarification from Revenue by its letter dated 2.5.02 (copy at Page 41 of Paper Book) as to whether the Appellant was liable under the Act. The Appellant had deposited Rs.49 ,27,918 /-(Rupees Forty Nine Lakh Twenty Seven Thousand Nine Hundred and Eighteen only) on ad-hoc basis towards tax dues of past and Rs.26,07,629/-(Rupees Twenty Six Lakh Seven Thousand Six Hundred and Twenty Nine only) towards interest thereon.
6.4 According to the Finance Act, 1994 imposing service tax on certain taxable services, any service provided or to be provided by a "clearing and forwarding agent" to a "client" in relation to "clearing and forwarding operations" "in any manner" shall be taxable service under Section 65(105)( i ) of that Act. Incidence of levy is on the service of "clearing and forwarding operations" provided and measure of tax is "value" of such service. Thus service provided by a "clearing and forwarding Agent" to his client directly or indirectly in any manner gives rise to taxable event provided the service so rendered is "clearing and forwarding operation". Levy is attracted when there is provision of service:
(a) of clearing and forwarding operations;
(b) by a "clearing and forwarding agent";
(c) to a client;
(d) directly or indirectly; and
(e) in any manner.
6.5 The term "clearing and forwarding Agent was defined by Section 65(25) of the Act. Accordingly a "clearing and forwarding agent" is he who has been engaged in providing services of "clearing and forwarding operations" to a client directly or indirectly in any manner. Also by inclusive definition, that Section brought "consignment agent" to its fold to deal them as clearing and forwarding agent.
6.6 The Term "clearing and forwarding operations" was not defined by Finance Act, 1994. Accordingly, such term only calls for interpretation. Instruction No.F.No.B.43/7/97-TRU dated 11.07.1997 issued by CBEC stated that a clearing and forwarding agent normally undertakes following activities : -
(a) Receiving goods from the factories or premises of the principal or his agents;
(b) Warehousing these goods;
(c) Receiving dispatch order from the principal;
(d) Arranging dispatch of goods as per directions of the principal by/ engaging transport on his own or through various transporter for the principal;
(e) Maintaining record of the receipt and dispatch of the goods and the stock available on the warehouse;
(f) Preparing invoices on behalf of the principal.
Clearing forwarding operations as normally understood by trade and commerce appears to have been understood by Board's Instruction as above. Thus such operation has not only taken into its fold all such activities expected to be carried out by an agent on behalf of his principal to make or ensure that goods manufactured or traded by that principal to reach his buyer or consignment Agent from his premises or elsewhere, but also the activities of making or ensuring goods to reach from a manufacturer/trader to the principal of such Agent, in any manner, is covered by the levy. All services in relation to such act provided directly or indirectly, incidental or ancillary to achieve the main object of clearing of goods and or forwarding thereof, in any manner, attract incidence of levy. It is not necessary that the goods should be in the custody or possession of the Agent while carrying out aforesaid operations. But it is such service activity which enables the goods to reach its destination and may be through a series of several sub-activities, incidental or ancillary to the principal activity of clearing and forwarding operation. Various sub-activities integrally and inseparably connected with the principal activity of clearing and forwarding operation makes the operation performable without frustrating the contract. All such sub-activities even by their different character if any shall not oust the principal operation from being called as "clearing and forwarding operation", if such sub-activities independently carried out may fall under different class of taxable service.
6.7 With the passage of time, the Act has also recognized the concept of "pure agent" and such term has been defined by explanation 1 to sub-Rule (2) of Rule 5 of Service Tax (Determination of Value) Rules, 2006. That throws light that an agent even providing service to a single principal is also a taxable entity. Therefore a consignment agent in whatever name called, carrying out clearing and forwarding operations shall not be out of fold of law under the class of clearing and forwarding agent as taxable entity and that has been rightly done by legislature by inclusive definition of the term clearing and forwarding Agent. Mere nomenclature shall not alter incidence of tax and substance shall prevail over form.
6.8 In the present case, the Appellant appears to be an agent other than pure agent serving more than one client namely M/s. TISCO & M/s. TRL. Manner in which services were provided by the Appellant and scope of service so provided and as extracted in Para 3 aforesaid, remained undisputed. On the basis of aforesaid statutory provision and Board Instruction as well as activities carried out by the Appellant it is therefore possible to hold that the Appellant is a clearing and forwarding agent providing clearing and forwarding operations services during the impugned period. Even if it claimed to be consignment agent that shall not go out of clutches of law since such term is also brought under the class of "clearing and forwarding Agent" by inclusion of this term. Therefore claim of the Appellant that they were consignment agent and not liable to Service Tax was rightly discarded by learned Adjudicating Authority holding that it carried out clearing and forwarding operations on the basis of facts as well as statutory provisions contained in Section 65(25) and 65(105)( i ) of the Act which come into force w.e.f . 16.07.1997. We reiterate that the nature of activity carried out by a clearing and forwarding Agent if satisfies to be "clearing and forwarding operation", that only attracts the levy irrespective of the parties choosing to name the doer in any manner they like. The case of Coal Handlers Pvt. Ltd. v. CCE, Kol -I - 2006 (3) STR 286 (T- Kol ) = ( 2004-TIOL-579-CESTAT-KOL ) decided by this Tribunal had also view similar to our view as aforesaid. However that decision is awaiting decision of Apex Court having been appealed and admitted - 2006 (4) STR J 154 (SC).
The Appellant's reliance on Mahavir Generics v. CCE, Bangalore - 2004-TIOL-344-CESTAT-DEL shall not be of any help to it for the reason that the same was rendered on given facts and circumstances of that case as discussed in Para-8 thereof. But in the present case, the nature of activity carried out by the Appellant as depicted in Para-3 aforesaid, - does not grant the Appellant any immunity from the levy.
6.9 So far as the second issue of claim of deductions from the gross value of taxable service is concerned, modality of valuation of taxable service is provided by Section 67 of the Act. Value of taxable service is basis or measure of levy and rate of tax is applied thereto in terms of Section 66 of the Act to arrive at tax payable. Determination of value of taxable service is guided by Service Tax (Determination of Value) Rules, 2006, which of course have come into force w.e.f . 19.04.2006. Rule 5 thereof provides inclusion or exclusion of certain expenditure or cost incurred by service provider to determine value of taxable services. The Appellant had received consideration from two service recipients i.e. TISCO and TRL and its claim is that consignment agent services provided by it fetched an amount of Rs.49 ,27,918 /- and Rs.48,396/- and that shall not be taxable is baseless for the reasons stated above as well as on the touch stone of statutory provisions bringing the Appellant to the fold of law as "clearing and forwarding Agent". Those two receipts undoubtedly shall constitute value of taxable service for the services provided to TISCO and TRL. Of course that may be related to different period of time and taxability thereof is subject to limitation, if any.
6.10 Apart from the aforesaid two receipts, there were receipts claimed towards re-imbursement of expenditure of Rs.36 ,56,555 /-, bending and bundling charges of Rs.3,71,610/- and stock verification charges of Rs.80,402/-. The Appellant in the course of hearing simply submitted that reimbursement of expenditure, bending and bundling charges and stock verification charges are not relatable to the taxable service for which those receipts shall not be value of taxable service and there shall be no taxation under the provisions of the Act. Except such a bald argument, there was neither any evidence adduced nor the Appellant proved its stand demonstrating before us how all these receipts were not relatable to the service of clearing and forwarding operations provided to TISCO and TRL. Therefore each and every aspect of such claim calls for detailed examination on the basis of evidence. Their nature, live link and nexus to the principal service of clearing and forwarding operations shall be decisive. The learned Adjudicating Authority has merely held that above receipts were in relation to clearing and forwarding operations without bringing out relatability thereof by any cogent reason. In absence of any intimate connection or relation of expenditure to the principal activity of clearing and forwarding operations, those receipts may not assume the character of value of taxable service or contribute to that. If an expenditure is indispensable and inevitably incurred to provide a service, such cost should essentially form part of cost of service itself and shall contribute to value of taxable service. Thus expenditure incurred being incidental or ancillary to perform an act, shall essentially make value addition to the service. Therefore claim of Appellant in respect of above three items need to be remanded for re-examination and finding with reason, granting fair opportunity of hearing to the Appellant. In view of remand, the citations made by the Appellant calls for consideration by the learned Adjudicating Authority.
6.11 The third issue relating to limitation was answered by the learned Adjudicating Authority negatively and against the Appellant. It is noticeable that the Appellant has not disputed nature of different services provided by it as depicted in Para 3 hereinbefore. There was search on 19.4.02. After that date only, the Appellant sought clarification from the Authority by its letter dated 2.5.02 (at page 41 of Paper Book) as to whether it was liable under the Act while seeking registration on 27.05.2002 and started paying service tax w.e.f . 1.4.2002. All these act of the Appellant being much after the date of search, invocation of longer period prior to search whether warranted * and if so up to which date, calls for scrutiny of various evidence on the touch stone of law to suggest appropriate action under the law. However normal period falling within the impugned period, as envisaged by law shall not escape liability. Further more, the Appellant appears to have admitted its liability w.e.f . 1.4.2002. There is no doubt that liability from the date of issue of SCN has arisen. However entire liability is to be worked out afresh on the light of legal position, our observations and findings made by this order. Therefore to re-examine the issue of limitation we remand the matter. In view of the remand, citations made by the Appellant are of no relevance till the material fact is found for application of the law on the basis of evidence.
6.12 The Appellant was inflicted with penalties under Section 76, 77 and 78 of the Act. It may be appreciated that law of Service Tax was in infancy stage and meeting scrutiny in various forums. Record apparently does not bring out whether the Appellant had deliberately defied the law and had intention to evade Revenue willfully. That can only be known on rigorous scrutiny of the materials discovered in the course of search and intention if any to evade Revenue can be known by that process, in the course of re-adjudication. To arrive at such conclusion we are guided by decision of Hon'ble Supreme Court in the case of Sony India Ltd. v. CCE, Del - 2004 (167) ELT 385 (SC) = ( 2004-TIOL-43-SC-CX ) cited by Revenue. The Hon'ble Supreme Court in para - 7 held as under:
7. Now the other aspect that has to be considered is whether penalty imposed under Section 11 AC and interest under Section 11AB was justified in the circumstances that arise in the case. The Commissioner had imposed penalty to an extent of Rs . 2,07,64,870.16 equivalent to the duty that was payable by the appellant Under Section 11 AC of the Central Excise Act, the manner in which the whole transaction went on makes it very clear that the appellant became liable to pay duty under the circumstances which warrant application of the provisions of Section HA( i ) and, therefore, we think if the authorities chose to impose penalty equivalent to duty payable by the appellant, we do not think, there is any justification for us to interfere with the same. The decisions adverted to by the learned counsel have different complexions and bearing. These cited cases arose in the circumstances where certain actions had been taken in bona fide belief or the parties were under bona fide doubt as to under what tariff item they had to pay tax in question or where the assessee was under bona fide belief that his company was not required to be registered as dealer under the Sales Tax Act In the present case, earlier the appellant was paying duty at the rate of 18% ad valorem on the maximum retail price. It is only after 2-6-1998 change was sought by the appellant by not printing the price on the packed goods by removing the same to their depots from their factory in order to claim that the packed goods had not been priced at the time of their removal from the factory and gifts were offered by the appellant to indicate that the consideration in the sale transaction was not solely the price. These factors, we think, were rightly taken note of by the authorities and the penalty imposed need not be considered in the present proceedings.
Because penalty is prescribed by law, that should not be mechanically imposed. The matter of imposition of penalty can be looked into afresh while readjudication is done by the learned Adjudicating Authority in the course of readjudication . We make it clear that we are not inclined to agree with the Appellant's proposition that taxes paid before issuance of Show Cause Notice shall grant it immunity from penalty. For our declinition we are guided by the decision of the Hon'ble High Court of Bombay cited by revenue in the case of CCE, Aurangabad v. Padmashree V.V. Patil , SSK Ltd. - 2007 (215) ELT 23( Bom ) = ( 2007-TIOL-419-HC-MUM-CX ) . We are further guided by the decision in the case of CCE, Aurangabad v. Aurangabad Motor Manufacturers - 2008 (224) ELT 354 ( Bom ).
6.13 Having came to the conclusion as aforesaid we hold that the activities carried out by the Appellant squarely fall under the class "clearing and-forwarding agency" and liable to service tax, under the Act and remand limited issues to the extent indicated hereinbefore for re-examination. Learned Adjudicating Authority shall readjudicate the matter as early as possible and pass appropriate order in accordance with law. Of course, while doing so, the Appellant shall be afforded reasonable opportunity of hearing.
(Pronounced in the open court on 29.05.08 )
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