Dimensions Logistics Services Pvt. Ltd. vs Commr. of S.T.

This Appeal from the order passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench, Mumbai dated 5-5-2014 raises the following substantial questions of law:-

(a) Whether in the facts and circumstances of the case, the Appellate Tribunal was justified in directing the Appellant to deposit Rs. 40,57,603/- under Section 35F of the Act?

(b) Whether the Appellate Tribunal was justified in holding that service tax was applicable on amounts collected over and above the freight amount in the nature of margin/profit on freight, once the amount of freight is itself not liable to service tax?

(c) Whether the Appellate Tribunal was justified in holding that the service tax is applicable on the services received from foreign service provider covered under Rule 3(ii) of the Import of Services Rules when the same were performed entirely outside India?

(d) Whether in the facts and circumstances of the case the Appellate Tribunal was justified in holding that the Appellant has not made out a prima facie case for total waiver of duty?

(e) Whether in the facts and circumstances of the case, the impugned order of the Appellate Tribunal is sustainable in law?

We have heard Mr. Sridharan, learned Senior Counsel appearing in support of this Appeal and Mr. Jetly, learned counsel appearing on behalf of the Revenue. The Appellant carries on business as Clearing and Forwarding Agent. The Appellant was proceeded against and the show cause notice was issued essentially on the allegation that as a Clearing and Forwarding Agent the cargo imported resulted in the appellant clearing the same for client/importer and raising the bill for the actual expenses. The allegation is that the actual expenses and something more are merged and in such a way that it is difficult for the Revenue to ascertain exact quantum of service tax evasion. However, this is a modus operandi to evade the service tax is the allegation.

The show cause notice was adjudicated and the demand was confirmed resulting in Appeal to the Tribunal. The Tribunal found that on the clearing and forwarding charges the service tax liability cannot be imposed. The Tribunal found, from the wording of relevant provisions, that the service tax is leviable on taxable service provided or to be provided to the client by the clearing and forwarding agent in relation to clearing and forwarding operations in any manner.

Mr. Sridharan submits that if the clearing operation is separate from forwarding, then, the levy of tax should not be attracted. Reliance is placed on the judgment of the Punjab and Haryana High Court in the case of Commissioner of C. Ex. Vs. Kulcip Medicines (P) Ltd., .

On the other hand, Mr. Jetly submits that the Tribunal has substantially relieved the Appellant from the condition of pre-deposit of service tax. The waiver was claimed of the adjudicated sum to the tune of Rs. 4,01,88,137/-. Inviting our attention to paragraphs 8 and 9 of the order under challenge Mr. Jetly would submit that the Appeal does not raise any substantial question of law and it, therefore, deserves to be dismissed.

We have, with the assistance of the learned counsel appearing for the parties, perused the Appeal memo and annexures thereto including the impugned order.

The Appellant prima facie was registered as a Clearing and Forwarding Agent. The returns for service tax were filed. During the audit the difference was noted in the amounts received from the clients in the balance sheet and in the amounts on which service tax was paid as per the statutory returns. The Appellant failed to reconcile this difference, therefore, the demand was confirmed.

The component has been bifurcated and the Tribunal was shown that the amount of freight was taken into consideration while confirming the demand and which cannot form a part of taxable service. The amount received as destination charges which are in respect of clearance of goods at the destination by the foreign service provider is the component that could not have been taken for the purpose of service tax liability. If these are destination charges collected from the customers in India and the amount has been taken again while confirming the demand, then, the service which is ex facie not taxable has been brought to tax.

We find that as against the adjudicated demand the Tribunal has found substance in the argument of the Appellant and scaled down the tax liability. That is how prima facie exercise at paragraph 9 of the order under challenge would read. However, what we find further is that in respect of the element of destination charges and which have been sums received from the foreign service provider, the Tribunal has rendered a prima facie finding against the Appellant. To our mind this aspect was imminently arguable. There could not have been confirmation and even at this prima facie stage to this extent at least. In these circumstances the Tribunal should have balanced the rights and equities. As a result of the above discussion and without entering into any wider controversy we are of the opinion that interest of justice would be served if the order of the Tribunal is modified and the Appellant is directed to deposit a sum of Rs. 20 lacs in cash with the Commissioner within a period of eight weeks from today. If the amount is deposited the Tribunal shall hear the Appeal in accordance with law and uninfluenced by any observations made earlier. Barring this modification and to the sum directed to be deposited above, this Appeal need not be entertained. It is, accordingly, disposed of.