Commercial Chartering Services by Shipping Ministry liable to service tax on 1% commission, Extended Limitation Period Not Applicable: CESTAT
The Tribunal found no intent to evade and a bona fide belief of non-taxability, it limited the demand to the normal period with interest and waived all penalties under Section 80.
The Principal Bench ofCustoms, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, ruled that the Ministry of Shipping’s Chartering Wing provided taxable Business Support Services by charging a 1% commission for chartering activities, rejecting arguments of sovereign or non-commercial exemption and held that only the normal limitation period applied since there was no intent to evade and the department acted under a bona fide belief.
The Tribunal heard an appeal filed by the Appellant, Principal Commissioner of CGST & ServiceTax-Delhi South against the Respondent, Chatering Wing (Tranchart) of the Ministry of Shipping. The Revenue challenged an order dated 29.12.2017, which had dropped service tax proceedings against the Respondent.
The Respondent entered into Charter Party Agreements with Indian ship owners and PSUs/government departments during 2009-10 to 2014-15. Under these agreements, the Wing arranged shipping space for transportation of government cargo and charged 1% of freight, dead freight, and demurrage as chartering service charges. The PSUs directly deposited this 1% charge through challans to banks, deducting the amount from payments due to ship owners.
No separate invoices were raised by the Respondent. The Appellant issued a Show Cause Notice dated October 21, 2014 covering the period 2009-10 to 2013-14, invoking extended limitation, and a Statement of Demand dated April 13, 2016 for 2014-15, demanding service tax under Business Support Services with interest and penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
The Respondent had neither paid service tax nor obtained service tax registration for these transactions. The Appellant dropped the proceedings, which the Revenue challenged before the CESTAT.
The Counsel for the Appellant, Rajeev Kapoor, Authorized Representative, argued that the Appellant erred in dropping the proceedings by overlooking the clarification on 'Government' and 'local authority' in the Education Guide. It stated that there was no blanket exemption from service tax for governmental authorities, and even government departments like Railways, CISF, and Department of Posts paid service tax despite crediting collections to the Consolidated Fund of India.
Further, the Counsel emphasized that taxability depended on the nature of service rendered, not on whether the entity was part of the government. The services constituted Business Support Services up to June 30, 2012, and remained taxable thereafter as they were not in the negative list under Section 66D of the Finance Act, 1994. The Counsel argued that providing shipping arrangements to PSUs for 1% consideration was a taxable commercial activity, and the impugned order should be set aside with the demand confirmed.
On the other hand, the Counsel for the Respondent, Jai Vardhan, stated that these were commercial activities falling under "Business Support Services" and were taxable, regardless of the Respondent being part of the government or crediting funds to the Consolidated Fund of India. They also argued that there was no blanket exemption for government services.
Further, the Counsel argued that it was not a profit-making or commercial organization, its charges were for administrative expenses, and it provided free services to PSUs, collecting charges from ship owners, a claim the Tribunal found factually incorrect. They also stated that their agreements did not provide for service tax, and a Joint Secretary of the Ministry of Shipping had opined that no service tax was payable.
Read More: Service Tax Liability on Activities for Road, Dam, Canal Projects Fully Exempt: CESTAT
The Tribunal, consisting of Judicial Member, Rachna Gupta, and Technical Member, P.V Subba Rao, heard and reviewed the matter.
The Tribunal, after considering the submissions made, found that the Respondent was indeed providing a taxable service to PSUs for a consideration, similar to commercial brokers. It clarified that taxability did not depend on profitability, whether an activity was statutory, or if an agreement mentions tax. It also noted that "Government" was included in the definition of "person" for service tax purposes after 01.07.2012. Therefore, the service was held to be taxable.
Further, regarding the extended period of limitation and penalties, the Tribunal found no evidence of fraud, collusion, wilful misstatement, or suppression of facts with an intent to evade tax. It concluded that the Respondent genuinely believed service tax was not payable. Consequently, the extended period of limitation was not invoked, and penalties under Sections 76, 77, and 78 were waived under Section 80 of the Finance Act, 1994.
Thus, the Tribunal partly allowed the appeal, modifying the impugned order. It confirmed the demand for service tax and interest against the respondent, but only for the normal period of limitation, setting aside the rest of the impugned order.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
