Cst, Chennai - I vs M/S. J.M. Baxi & Co

(Arising out of Order in Appeal No. 51/2005 (M-ST) dated 19.11.2005, passed by the Commissioner of Central Excise (Appeals), Chennai)

CST, Chennai - I : Appellant Vs. M/s. J.M. Baxi & Co. : Respondent

Appearance Shri Rammohan Rao, JC (AR) For the appellant Shri V.S. Manoj, Adv., For the respondent

CORAM

Honble Shri R. PERIASAMI, Technical Member Honble Shri P.K. CHOUDHARY, Judicial Member

FINAL ORDER No. 41779 / 2015

Date of Hearing/Decision: 02.09.2015

Per: P.K. Choudhary

The appeal was originally filed along with a COD application. Vide miscellaneous order No. 164/07 and Final Order No. 195/2007 dated 2.3.2007, COD application was rejected and the accordingly, the appeal was also dismissed. Against the above final order of the Tribunal the Commissioner of Service Tax filed CMA before the Honble Madras High Court and the Honble Madras High Court vide its order dated 14.08.2014 in CMA No. 2088/2007 and MP.No. 1/2007, set aside the order passed by the Tribunal and directed the Tribunal to take up the appeal

2. The brief facts of the case are that the respondent assessee is registered under service tax in the category of steamer agent and has been paying service tax on the service charges collected in respect of services rendered by them under the category of steamer agent. They also incur additional expenditure towards arranging drinking water, garbage clearance, transport for crew etc. The shipping line reimburses these expenses to the respondent and the same does not form part of the service charges. Charges for the services rendered as a steamer agent to the shipping line are collected separately and service tax is being paid on the said amount. The Department issued Show Cause Notice C. No. IV/16/134/2004-STC dated 17.12.2004 for the period 2001-02, 2002-03 on the ground that as per the books of account of the respondent, the collected of reimbursable expenses for the above mentioned period works ort to Rs.21,89,729/- and the surplus income generated by collecting excess amount over and above the actual expenses incurred attracts service tax and called upon the respondent to pay a sum of Rs. 1,55,740/- towards the excess value. The Show Cause Notice alleged that the said amount of Rs. 21,89,729/- also forms part of value of services rendered and also proposed interest and penalty of Rs. 100/- per every day under Section 76 and under Section 78. The respondent vide reply dated 19.01.2005 had objected to the proposals set out in the Show Cause Notice on various grounds. The Assistant Commissioner of Central Excise, Service Tax vide order in original No.2/2005 dated 28.02.2005 has confirmed the proposals set out in the Show Cause Notice. The Commissioner (Appeals) set aside the OIO and allowed the assessees appeal. Aggrieved by this Revenue preferred appeal before this Tribunal.

3. The LD. AR Shri R. Rammohan Rao, JC, appearing on behalf of the appellant Revenue reiterated the grounds of appeal and submitted that the amount collected as reimbursable expenses are more than the actual expenses incurred and has been wrongly accounted as collection of reimbursable expenses to avoid payment of service tax and the adjudicating authority has rightly construed the amount collected is for the serviced provided as a steamer agent. He relied on the LB decision of the Tribunal in the case of Sri Bhagavathy Traders Vs. Commissioner of Central Excise, Cochin  2011 (24) STR 290 (Tri.-LB).

4. The Ld. Counsel Shri V.S. Manoj, Advocate, appearing on behalf of the respondent assessee filed a copy of the trade notice No. 39-CE (Service Tax 39) 97 dated 11.06.1997 of the New Delhi Commissionerate giving clarifications of two services viz., custom house agents and steamer agents, wherein steamer agents have been defined in para 3.1 to 3.5. He relied on the Honble High Court of Madras judgment in the case of CST, Chennai Vs. Sangamitra Services Agency  2014 (33) STR 137 (Mad.).

5. Heard both sides and on perusal of the records we find that the issue is in a narrow compass as to whether the reimbursable expenses received by the steamer agent rendering services in connection with shipping husbandry should be included in the taxable value in relation to the services provided. Trade Notice No.- 39 which deals with steamer agents is reproduced as under for better interpretation of the statues:-

3.1 The expression steamer agent has been defined to mean any person who undertakes, either directly or indirectly,-

(a) to perform any service in connection with the ships husbandry or dispatch including the rendering of administrative work related thereto; or

(b) to book advertise or canvass for cargo for or on behalf of a shipping line; or

(c) to provide container feeder services for or on behalf of a shipping line;

3.2 The taxable service provided by a steamer agent to a shipping line, is the service provided by a steamer agent in relation to a ships husbandry or dispatch or any administrative work related thereto as well as the booking, advertising or canvassing of cargo, including container feeder services. The value of the taxable service in relation to service provided by a steamer agent to a shipping line, shall be the gross amount charged by such agent from the shipping line for services in relation to a ships husbandry or dispatch or any administrative work related thereto or in relation to the booking, advertising or canvassing of cargo, container feeder services including the commission paid to such agent.

3.3 Steamer agents incur various types of expenses on behalf of the shipping line such as pilotage and berth hire charges, Indian Coast light dues paid to the port authorities, cargo expenses paid to port authorities and transporters such as CONCOR/ railways, private transporters, chartered accountants fee, Income Tax, brokerage paid on export cargo, ship handing expenses paid to stevedoring agents. For all the above charges the Steamer agent is ordinarily reimbursed by the shipping line. Further, the steamer agent bills the principals i.e. the shipping line, for two types of service charges. One is called the husbandry fee which they charge for a ships husbandry. The second is the agency commission which is paid by the shipping line on the import and export cargo. These commission are usually paid as a percentage of the net ocean freight (basic freight) which is clearly indicated in the agreement entered into between the steamer agent and shipping line.

3.4 It is clarified that in relation to the steamer agent the service charges will constitute the husbandry fee as well as the agency commission on import/export cargo. Other expenses incurred by the steamer agent on behalf of the shipping line shall not be taken into account.

3.5 It has been represented that the accounting for purposes of service tax should be on per voyage, per vessel basis and further that the registration for service tax purposes should be done only of their sea port offices. It has been decided that only such sea port offices of the steamer agent should be registered for service tax purpose which are raising the bill to the shipping lines. The branch offices in ICDs which are just sales offices and do not raise any bills to the shipping line, need not be registered. This is for the reason that billing is done by the sea port offices and not the branch offices.

On going through para -3.4 above, it clearly mentioned that in relation to the steamer agent, the service charges will constitue the husbandry fee and agency commission on import/export cargo. Other expenses incurred by the steamer agent on behalf of the shipping line shall not be taken into account.

6. Further, We find that the nature of the expenses billed by the respondent assessee relates to the items like Marine Charges, Garbage and Sewage removal, Payment of air time charges for cellphones, Shipment of mail bags to France, supply of fresh water, potted plants, transport, toner cartridge, etc. On going through the OIA, we find that the Commissioner (Appeals) has discussed the issue in detail which is reproduced for better appreciation of the facts:-

On the merits of the case, I find that for the purposes of determining the tax liability of a steamer agent, sub-clause (i) of Section 65 (105) of the Act defines the taxable service as any service provided to a shipping line, by a steamer agent in relation to a ships husbandry or dispatch or any administrative work related thereto as well as the booking, advertising or canvassing of cargo, including container feeder services I find that as per the Departmental Clarifications on Frequently Asked Questions, in respect of the question of what would constitute value of taxable service in case of a Steamer Agent, it has been clarified, interalia :

 taxable service means any service provided to a shipping line, by a steamer agent in relation to a ships husbandry or dispatch or any administrative work related thereto as well as the booking, advertising or canvassing of cargo, including container feeder services I further find that the nature of expenses billed by the Appellant on which this dispute has emanated, relates to items like Marine Charges, Garbage and Sewage removal, Payment of air time charges for cellphones, Shipment of mail bags to France, supply of fresh water, potted plants, transport, toner cartridge, etc. By no stretch of imagination these services provided by the Appellant can be considered as service in connection with the ships husbandry or dispatch and the rendering of administrative work related thereto, as the statutory definition of Steamer Agent envisages. I further find that a ships husbandry service is related only to repairs, insurance, equipment management and other concerns of the ship.

Viewed in this context, the type of expenses involved in the present dispute will not definitely fall within the ambit of the taxable service vis-`-vis a steamer agency. They are only courtesy services or assistance rendered by the appellants to shipping lines, beyond the scope of their contractual obligations. Obviously, the Appellant is the ships conduit in the port of call for contracted steamer agency service. There would sometimes also arise requests for assistance for the ship or her officers, on issues not related to ships husbandry or booking etc. of cargo of the genre billed in this case. The Steamer Agent, by virtue of their ongoing relationship with the shipping line, inevitably extends any such assistance requested for. Items that may be required for the ship or her officers for personal use are thus very often procured from the market and supplied by steamer agent. In my view, the billings made by the Appellant for expenses incurred by them for supply of mobile phones, and airtime charges, crew medical etc. would fall in this category of other/ additional assistance rendered and the value thereof is not required to be added to value of taxable services and hence no tax liability will arise on such value.

I find that the lower adjudicating authority has sought to interpret the scope of the term directly or indirectly as follows:

It is not only the services rendered directly to the shipping line but also any services rendered indirectly in connection with the shipping line as steamer agent is covered under the definition I am afraid this is an inaccurate interpretation. The expression directly or indirectly merely implies that the agent can undertake all the specified services by himself, or he may get various parts of the services executed through intermediaries.

7. The judgment of the Honble High Court of Madras in the case of Sangamitra Services Agency (supra), Honble High Cout has held that if a receipt is for reimbursing the expenditure incurred for the purpose, the mere act of reimbursement, per se, would not justify the contention of Revenue that the same, having the character of the remuneration or commission deserves to be included in the sum amount of remuneration/commission. The relevant paras of the said order is reproduced as under:-

5.?In accepting the case of the respondent/assessee, the Customs, Excise and Service Tax Appellate Tribunal referred to the decision rendered by the Tribunal in the case of Sri Sastha Agencies Pvt Ltd., v. Asst. Commissioner reported in 2007 (6) S.T.R. 185 (Tri.-Bang.), holding that no element other than remuneration received by a Clearing & Forwarding agent from their principal was to be included in the taxable value of the service. Thus, the Tribunal allowed the appeal.

6.?Aggrieved by this, the present appeal has been preferred by the Revenue. Learned Standing counsel appearing for the Revenue submitted that as per the provisions of Rule 6(8) of Service Tax Rules, 1994, the value of taxable service in relation to the services provided by the Clearing and Forwarding Agent to the client for rendering services of Clearing and Forwarding operations, in any manner, shall be deemed to be the gross amount of remuneration or commission (by whatever name called) paid to such agent by the client, engaging such agent. He further submitted that considering the charges collected towards freight, labour, electricity, telephone, etc., in connection with clearing and forwarding services, the same would form part of remuneration/commission.

7.?We do not agree with the said contention. In the absence of any material to show the understanding between the Principal and the Client that the Commission payable by the principal was all inclusive, it is difficult to hold that the gross amount of remuneration/commission would nevertheless include expenditure incurred by the assessee providing the services; that all incidental charges for running of the business would also form part of the remuneration or Commission (by whatever name called). The phrase by whatever name called must necessarily have some link or reference or nature to the receipt of remuneration or commission. Thus, if a receipt is for reimbursing the expenditure incurred for the purpose, the mere act of reimbursement, per se, would not justify the contention of the Revenue that the same, having the character of the remuneration or commission, deserves to be included in the sum amount of remuneration/commission.

8.?As per Rule 6(8) of Service Tax Rules, 1994, the gross amount referred to therein would apply to receipts of such sum, which would bear the character of remuneration or commission, in that, the said sum is brought under the head receipts.

9.?As far as the present case is concerned, when the Revenues case does not rest on a contention that the expenditure incurred has the character to fall under the expression remuneration or commission, we have no hesitation in rejecting the Revenues contention. Accordingly, the Civil Miscellaneous Appeal is dismissed. No costs. The ratio of the above Honble High Court judgment squarely applicable to the present case. Therefore, we do not find any infirmity in the order of the Commissioner (Appeals), we uphold the impugned order and accordingly, the appeal filed by the Revenue gets rejected.

(Operative part of the Order pronounced in the Open Court)

(P.K. CHOUDHARY) (R. PERIASAMI) Judicial Member Tehnical Member

BB

(Order pronounced in the Open Court on 28.05.2015)

(P.K. CHOUDHARY) (R. PERIASAMI) Judicial Member Tehnical Member

BB

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