Payment
of service tax
CESTAT, BANGALORE BENCH
Evergreen Suppliers
v.
Commissioner of Central Excise, Mangalore
DR. S. L. PEERAN, JUDICIAL MEMBER
AND T. K. JAYARAMAN, TECHNICAL MEMBER
FINAL ORDER NO. 1215 OF 2007
APPEAL NO. ST/23 of 2007
October 6, 2007
Section 68 of the Finance Act, 1994 - Payment of Service tax - Period
1-4-2003 to 29-02-2004 - Assessee had undertaken various activities in relation
to clearing of goods and transporting same to and from manufacturer port - It
was registered with department as cargo handling service provider and clearing
and forwarding agent - Assessee had also undertaken above activities for
various custom house agents on sub contract basis - Revenue viewed that
assessee was liable to pay service tax on said service rendered by it in
capacity of sub-contractor - Assessee through its letter informed department
that its principals were paying service tax on consideration received by it
from clients in respect of work sub-contracted to it - Assessee contended that
in view of trade notice No.39 dated 11-6-1997 when CHA sub-contract their work
and if CHA pays service tax then sub-contracting CHA need not pay Service tax -
Revenue authorities did not verified fact that principals were paying service
tax, rather through show cause notice dated 21-2-2005 demanded service tax from
assessee under category of C&F agent and cargo handling service - Said
demand was confirmed by adjudicating authority - On appeal, Commissioner
(Appeals) remanded issue relating to C&F service but confirmed liability
pertaining to cargo handling service - Whether since assessee had informed
department one year before show cause notice was issued that, its principals
were paying service tax, it was for department to verify that facts and take
proper action - Held, Yes - Whether such failure of department could not be
used against assessee to demand service tax when it was not liable in terms of
trade notice/Circulars issued by department - Held, yes - Whether, therefore,
appeal of assessee against impugned order was to be allowed - Held, yes
Trade Notice No.39 dated 11-6-2007 issued by CCE, Delhi
The assessee was undertaking various activities in relation to the clearing of the goods and transporting the same to and from manufacturer port. The assessee was also issued with a registration certificate as clearing and forwarding agency within the premises of the port. It had undertaken the above activities for various Custom House Agents on sub-contract basis. In some other cases, the assessee had received cargo directly from the customer and not through CHA. In such cases it billed the customer directly. Revenue was of the view that the assessee was liable to pay service tax for the services rendered by it in the capacity of sub-contractors to CHAs. Accordingly, the adjudicating authority confirmed demand on the assessee under category of clearing and forwarding agent and cargo handling service.
On appeal, the Commissioner (Appeals) remanded the issue relating to C&F services. However, he confirmed the liabilities pertaining to cargo handling services including interest and penalty.
On appeal:
The assessee had obtained registration from the department under the category of cargo handling service and C&F service. When the departmental auditor visited the assessee’s unit they were of the view that the services undertaken by the assessee would fall under the category of port services. Consequently, the assessee wrote to the departments on 12-4-2004 to cancel the registration under cargo handling service and issue registration under the category of Port Services. In response to the above letter the department wanted various particulars. On 6-7-2004, the assessee received a letter from the department requiring it to pay differential service tax. The assessee informed the department vide their letter dated 12-7-2004 that its principals were paying service tax on the consideration received by it from the clients in respect of work sub-contracted to it. However, revenue issued show cause notice dated 21-2-2005 alleging that the assessee had provided cargo handling services and C&F services for the period from 1-4-2003 to 29-2-2004. (Para 4)
The assessee contended that the trade notice dated 11-6-1997 issued by the Commissioner of Central Excise, New Delhi had clarified that when CHAs sub-contract their work and if the CHA pays service tax then the sub-contracting CHA need not pay service tax. (Para 4)
The assessee in its letter dated 12-7-2004 had informed the department that it acted as sub-contractors to CHAs and its principals were collecting service tax from the customers including for the services rendered by the assessee. (Para 8)
Neither the original authority nor the first appellate authorities had discussed the submission of the assessee with regard to sub-contracting and payment of service tax by the principals. There was no dispute regarding the fact that the services rendered by the assessee fell under the category of taxable service. The assessee was also not disputing that fact. (PARA 8.1)
It was not necessary that CHAs should sub-contract only a particular category of service. They can sub-contract any activity undertaken by them. When they deal with the customers directly and pay service tax there is no need for the sub-contractor to discharge service tax liability. This principle was applicable to all services and not only to particular services as stated by the department. The assessee had informed the department one year before the show cause notice was issued, that its principals were paying the service tax. It was for the department to verify the facts and take proper action. It was clear from the records that revenue was not very clear about the category to which the services rendered by the assessee belonged. There was no proper application of mind by the lower authorities to the submission made by the assessee. The impugned order with regard to the demand of service tax on the assessee in respect of cargo handling service and confirmation of interest and penal liabilities was not sustainable. The lower authorities had not stated the reasons for not following the trade notice/circulars issued by the department. Moreover, the concerned field officers had failed in their duty to verify whether the principals had discharged the service tax liability as stated by the assessee. This was sheer negligence on the part of the jurisdictional authorities. Before issuing show cause notice, the department ought to have verified the facts stated in the assessee’s letter. The failure of the department could not be used against the assessee to demand service tax when it was not liable in terms of a trade notices/circulars issued by the department. Hence, the appeal was to be allowed. (PARA 8.2)