The Kolkata bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) set aside the demand of service tax as Overseas Logistics Service Providers ( OLSPs ) are not providing service as an agent of assessee. The Tribunal observed that the services provided by the OLSPs will be taxable under clause (vi) of Section 65(19) of the Finance Act only if the services are provided on behalf of the Appellant to the customers of the Appellant.
The appellant M/s. TKM Global Logistics Limited challenged the Order-in-Original No. passed by the Commissioner of Service Tax, wherein the Commissioner has confirmed the demand for service tax of Rs. 22,25,87,789/- along with interest.
The Appellant enters into a contract with its clients to render services about the import of goods from abroad. Since the Appellant has no physical presence abroad, for the performance of the overseas part of the above-mentioned services, it has entered into contracts with various Overseas Logistics Service Providers (OLSPs). In terms of the said agreement, the OLSPs raise invoices on Appellants for handling the overseas part of the operations.
A Show Cause Notice dated 21.10.2010 was issued to the Appellant demanding service tax of Rs. 22,25,87,789/- along with the proposal to demand interest under Section 75 and penalty under Sections 76, 77 and 78 of the Finance Act, 1994 for the period April 2005 to March 2010. The notice was adjudicated by the Commissioner of Service Tax vide the impugned order, wherein the demands raised in the Notice are confirmed along with interest and penalty.
The OLSPs have undertaken the services such as collecting cargo from the customer’s place of the Appellant, arranging for storage in foreign land, undertaking customs clearance in abroad, booking space in the aircraft/ship and handing over the cargo to the airline/shipping line for landing in the territory of India.
The Appellant classified the said activities under the category of ‘Clearing and Forwarding Agency Service’ and contended that such services are not liable to service tax in view of Rule 3(ii) of the Taxation of Services (Provided from Outside India and received in India) Rules, 2006.
The impugned order has demanded service tax on the services provided by the OLSPs to the Appellant under the category of “business auxiliary service” under Section 65(19)(vi) and (vii) read with Section 65(105)(zzb) read with Section 66A of the Finance Act, 1994. Hence, it is enough to examine whether the above said services rendered by the OLSPs to the Appellant would fall under any of the sub clauses of Section 65(19) of the Finance Act or not.
The Commissioner has classified the services rendered by the appellant under Clause (vi) of Section 65(19) of the Finance Act, 1994 mentioned above, so as to bring it under the category of ‘Business Auxiliary Service’.
The Tribunal observed that the services provided by the OLSPs will be taxable under clause (vi) of Section 65(19) mentioned above, only if the services are provided on behalf of the Appellant to the customers of the Appellant. The OLSPs are not acting as ‘agents’ of the Appellant while handling the cargo of the customers of the Appellant. The OLSPs book space on various shipping lines/airlines for the purpose of transportation of the goods from abroad to India. The contract is with the shipping line/airline and OLSPs.
A two-member bench of Shri Ashok Jindal, Member (Judicial) and Shri K Anpazhakan, Member (Technical) held that the services rendered by the OLSPs cannot be categorized under the category of ‘Business Auxiliary Services’. The CESTAT held that the demand of service tax confirmed along with interest and penalty confirmed in the impugned order under the category of ‘Business Auxiliary Service’ is not sustainable and set aside the same.
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