Services under Separate Agreements Can’t be Clubbed together to Levy Services Tax: CESTAT [Read Order]

The New Delhi Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) has held that, services under Separate Agreements cannot be clubbed together to levy the Service Tax.

The appellant has filed this appeal before Customs, Excise & Service Tax Appellate Tribunal New Delhi challenging the Order passed by the learned Commissioner of Central Excise by which the Commissioner has confirmed the demand of service tax under Section 73(2) of Chapter V of the Finance Act, 1994 along with penalty under Section 78 (1) of the Act on the Appellant.

Brief facts of the case are that the appellant is registered with the service tax department for services falling under the category of “clearing and forwarding agent” and Goods Transport Agency (GTA) service and paying service tax as per the rate prescribed under the Act read with Service Tax Rules, 1994. During the course of audit by the department, it was observed that the appellant had entered the First Agreement with its principal Akzo Nobel India Limited who appointed it as clearing and forwarding agent. Later on M/s Akzo and the appellant entered into another agreement for providing GTA service,

The Revenue contended that the Second Agreement has been entered into by the appellant with Akzo during the validity of First Agreement in order to avoid payment of service tax on C & F service, hence it appeared that the Second Agreement was with sole intention to pay service tax on 25% of the value under „Goods Transport Agency Service‟ and to avoid the service tax on 75% on the gross value. Therefore, the appellant was requested to deposit the service tax along with applicable interest, which was not complied with leading to the issuance of the impugned SCN and consequently the subject impugned order.

The appellant submitted that the C & F agent and Transportation Services are two independent services and were rendered under two separate contracts, and therefore, the consideration for both the services cannot be clubbed together to levy services tax under the single service category of C & F service. This will be contrary to the Principle of classification of services as provided under Section 66 F of the Act. It is submitted that the appellant has never rendered or claimed reimbursement for freight services form Akzo. During this period the Akzo used to arrange transportation of their own for this which is evident from the transporters bill in the name of Akzo.

Transportation is the part second agreement. It is only after the agreement the appellant started transportation of consignment apart from C & F agreement.  And also said that no fresh liability of service tax can be imposed on the appellant as Akzo as already been discharged applicable service tax under reversed charge in accordance with the provisions of Finance Act and Rules.

Appellant submitted in the light of judgements in Coal Handlers Pvt Ltd. Vs CCE, [2015 (38) STR 897 (SC)] , E V Mathai & Co. Vs. CCE, [2003 (157) ELT 101(Tri.- Bang.)] , Toll India Logistics Pvt Ltd. Vs CCE, Final Order No. 40503/2018 , Ashok Agarwal vs. CCE, [2012 (28) STR 362(Tri.-Del.)] 5 , United Shippers Ltd. Vs CCE, [2015 (37) STR 1043(Tri.- Mum)] [Maintained in 2015 (39) STR J369(SC)] ,South India Corporation Ltd. Vs CCE, [2011 (22) STR 70 (Tri.-Chennai)] , Balaji Heavy Lifters Pvt Ltd. Vs CCE, 2013 (3) STR 255 (Tri.-Ahmd)]  that the appellant is not engaged in clearing of the goods, and therefore, even if it is C & F Service the demand of the tax on transportation service does not fall within the ambit of the C & F services as per the law laid down by the various Court and Tribunals. The levy of service tax under the category of C & F Agent Service is possible only when the service provider is engaged in both clearing and forwarding operations.

The members of appellate authority Mr. Anil Choudhary and Mr. Bijay Kumar, held that it is evident that the second agreement is offered for GTA service for the first time after execution of the second agreement which is specific to the transportation of the goods of the principal as per their direction. Therefore, the first agreement cannot be treated as a part of the second agreement as contended by the Revenue. In view of aforesaid analysis and precedent decisions of this Tribunal, the authority allows the appeal with consequential benefit and held that the impugned order is not sustainable, accordingly, there is no question of imposition of any interest and penalty also.