Cma Cgm Global (India) Pvt. Ltd vs Commissioner Of Central Excise, ...

(Arising out of Order-in-Original No. 05/KLG/Th-II dated 27.08.2009 passed by the Commissioner of Central Excise, Thane-II )

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. P.S.Pruthi, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

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CMA CGM Global (India) Pvt. Ltd. : Appellant

VS

Commissioner of Central Excise, Thane-II : Respondent

Appearance

Shri Prasad Paranjape, Advocate for Appellant

Shri K.S. Mishra, Additional Commissioner (A.R) for respondent

CORAM:

Mr. M.V. Ravindran, Member (Judicial) Mr. P.S.Pruthi, Member (Technical)

Date of hearing : 30/06/2015 Date of decision : 30/06/2015

ORDER NO.

Per : P.S. Pruthi

Appellant are in appeal against impugned Order whereby Service Tax of Rs. 1,24,87,065/- for the period July 2003  February 2006 is demanded. Amount of Rs. 47,57,661/- paid during the period June 2005-February 2006 has been appropriated. Penalties under Sections 76, 77 & 78 have been demanded along with interest under Section 75 of the Finance Act, 1994.

2. The issue that arises for consideration is whether the expenses charged directly from customers such as Bill of Lading (B/L) reissue 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.

3. For appreciation of facts it is seen that the appellant had entered into an Agency Agreement with CMA-CGM France (their Principals who are the owner 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 case of Revenue is that the activities undertaken by the appellant and mentioned in para 2 above i.e. B/L reissue charges, switch B/L charges, B/L surrender charges etc. are activities provided by the appellant to their Principal as part of the end-to-end supply chain solutions under the Agency Agreement. Therefore, these activities are customer management services and covered under the definition of Business Auxiliary Service under Section 65(19) of the Finance Act, 1994 effective from 1.7.2003. Revenue relies upon CBEC Circular 59/8/2003/ST dt. 20.6.2003 which states that While it is not possible to give an exhaustive list of business auxiliary services, the following are the illustrations of services that are covered under this category viz., evaluation of prospective customers, processing of purchase orders, customer management, information and tracking of delivery schedules, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, managing distribution and logistics. The service provided in relation to getting a customer, verification of prospective customer, processing of purchase order etc. would also be covered under service tax, as the law specifically provides for inclusion of such services as business auxiliary support services.

Revenue has also relied upon the Balance Sheets and its Notes to the Accounts which recognized commission income, documentation, administration communication fees, container handling charges on the basis of services rendered as per Agency Agreement with the Principal. 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.

4. The contention of the Ld. Counsel is 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 15th June 2005. However, w.e.f. 16th 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. The Counsel conceded that they are not disputing the service tax paid from 16.6.2005. According to him, the reference to  services  in Board Circular (supra) are actually activities which fall under the definition of Business Support Service (BSS) under Section 65(104c) which came into effect in May 2006. The main contention is 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. In any case the services relating to preparation of or reissue of documents such as bills of entry are not covered under any taxable service as supported by decision of Tribunal in the case of APL (India) Pvt. Ltd. Vs. Commissioner Chennai 2008 (12) STR 586 holding that recovery of service tax on documentation charges is not sustainable. And the Mumbai Service Tax Commissionerate dropped service tax proceedings on the same issue in respect of Mumbai office of APL (India) Pvt. Ltd.

5. We have carefully considered the submissions of both sides. We note that the show cause notice in the present case does not refer to any specific clause of the BAS Service which is reproduced below as it stood for the period upto 15.6.2005 business auxiliary service means any service in relation to, 

(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) promotion or marketing of service provided by the client; or

(iii) any customer care service provided on behalf of the client; or

(iv) procurement of goods or services, which are inputs for the client; or

(v) production of goods on behalf of the client; or

(vi) provision of service on behalf of the client; or

(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to manufacture within the meaning of clause (f) of section 2 of Central Excise Act, 1944 (1 of 1944).

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.

5.1 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 Ld. AR argued that the Agency Agreement clearly provides for payment of documentation charges to the Principal. The appellant provides end-to-end solutions to the customers and therefore, all charges including those directly paid by customers to the appellant are leviable to service tax. We cannot agree with this contention. 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 Ld. Counsel states that the latter payments are not credited to Principals 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 reissue 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 services 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.

Further Revenue has also not been able to justify how the said services of documentation etc. would be taxable under BAS in the face of the fact that similar services of documentation under the Agency Agreement were classified under Steamer Agent Service. Thus there appears to be a contradiction in the stand of Revenue. It is also not explained why the service tax is not demanded on similar activities in the case of M/s. APL (India) Pvt. Ltd.

6. 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. As we have decided the issue on merits we do not find it necessary to go into the aspect of limitation. We find there was benafide 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.

7. Appeal is allowed and impugned order is set aside in above terms.

(Pronounced in court)

(M.V. Ravindran) Member (Judicial)

(P.S.Pruthi) Member (Technical)

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