Service Tax can’t be levied on Container Detention Charges and Toll Tax: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi bench has held that the service tax cannot be levied on container detention charges and toll tax.

The appellant is a multi-modal goods transporter under the Multi-modal Goods Transport Act, 1993. For the relevant period, the service tax department demanded asked the appellants to pay service tax on the container detention charges and toll tax collected from its customers.

According to the appellants, the shipping containers are owned by the shipping lines which charge detention charges if the containers are held up beyond the free period. They pay the detention charges to the Shipping line and recovers the same from its customers. Similarly, where toll tax is charged by the local authorities, the appellant pays it and recover it from its customers.

While disposing the appeal, CESTAT President Justice Dilip Gupta and Technical Member Mr. P Venkata Subba Rao found that these are charged by the owner of the container if the container is not returned to it within time.

“In other words, it is in the form of a penal rent. It is in the form of liquidated damages for failure to return the container within the time indicated in the contract and not a consideration for a service. There is a difference between consideration under the contract which is what each party to the contract does in return to the other party doing its part of the contract and compensation under the contract‘ which is a penalty for breach of contract by either frustrating the contract through nonperformance or by not performing as per the conditions in it. This compensation can take the form of unliquidated damages where the court awards the compensation or liquidated damages where the compensation for breach of contract or its conditions is pre-decided and incorporated in it. The liquidated damages are not the purpose of the contract but are in terrorem to provide a strong incentive against breaching its conditions,” the Tribunal held while setting aside the order.

With regard to the levy of service tax, the CESTAT held that “toll tax is an amount paid by the appellant to the authorities which it gets reimbursed by its Customers. None of the elements required to levy service tax are present in such a transaction. No service tax can be levied on these amounts as well.”

To Read the full text of the Order CLICK HERE

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