In the significant case of Kajaria Ceramics Limited, the Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) held that amount deposited by way of Handling Charges are not leviable to service tax as the same are includible in the assessable value for the purpose of determining the VAT or CST.
The appellant filed the appeal challenging the order whereby the demand of service tax along with interest and penalty was affirmed. The appellant is manufacturing ceramic tiles and is having central excise registration as well as service tax registration. Considering the fragile nature of the tiles being prone to breakage/quality defect and also to maintain the “Kajaria” brand value, the appellant company charges handling charges @0.6% to 1% from their dealers/customers, which is part of sales consideration and appropriate VAT/CST is paid thereon.
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According to the appellant, the handling charges were charged in the invoice raised to dealers/buyers in connection with the sale of tiles and thus, forms part of the sale value for the purpose of leviability of VAT/CST. The handling charges are not in the nature of services and they are not providing any kind of service to the dealers or buyers against such handling charges rather it is in the nature of business of the appellant company to compensate the breakage or quality defect claim so as to sustain the market.
It was alleged that the company has indulged in charging insurance premium @0.6% to 1% in the name of handling charges from the dealers/customers, but did not pay service tax on the same. Further, the allegation was that the amount was collected as insurance premium under the guise of handling charges without having authorisation from Insurance Regulatory and Development Authority of India for providing insurers‟ services. Hence, show cause notice dated 02.10.2017 was issued demanding service tax amounting to Rs.2,76,24,088/- for the period 20.12.2013 to December, 2015 along with interest and penalty. The said demand under the show cause notice was confirmed by the impugned order. Hence, the present appeal has been filed by the appellant before this Tribunal.
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It was submitted that the present controversy has been decided by the Tribunal in the case of Gujarat Borosil Ltd. Vs. Commissioner of Central Excise and Service Tax,where the issue involved was whether the amount equal to 7% of the value of the goods, collected as insurance charges under the head “cost of transportation” from the dealers/buyers is includible in the assessable value and chargeable to duty. The Tribunal arrived at the conclusion that the amount equal to 7% of the value of the goods collected as insurance charges under the head “cost of transportation” from the dealers/buyers is not the excess amount of insurance charges collected and retained by the appellant but the amount has been collected as compensation for breakages during the course of transit by issuing credit notes. T
On the issue of invocation of the extended period of limitation, the Tribunal observed that once the facts are within the knowledge of the Department, being always in dispute, hence the allegation that they have suppressed the facts from the knowledge of the Department is not acceptable in view of the principle of law laid down by the Apex Court in Pushpam Pharmaceuticals Company Vs. Collector 4 and P and B Pharmaceuticals Pvt. Ltd. Vs. Collector 5.
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In light of the judgement, the two member bench of Binu Tamta, Member (Judicial) and Hemambika R. Priya, Member (Technical) held that the amount deposited by way of handling charges in the present case are not leviable to service tax as the same are includible in the assessable value for the purpose of determining the VAT or CST.
While allowing the appeal, the CESTAT set aside the impugned order. Bimal Jain, Advocate appeared for the appellant and S.K. Meena, Authorised Representative appeared for the respondent.
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