ORDER
T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Order-in-Appeal No. 269/2006 Central Excise dated 29.08.2006 passed by the Commissioner of Central Excise (Appeals), Mangalore.
2. The appellants undertake various activities in relation to the clearing of the goods and transporting the same to and from manufacturer port. In other words, they are engaged in the activity of stevedoring within the Mangalore Port. They are licensed by the New Mangalore Port Trust to undertake the above activity. The appellants are also issued with a registration certificate as clearing and forwarding agency within the premises of the port of New Mangalore. They undertake the above activities for various Custom House Agents (CHA) like M/s. Aspinwall & Co. Ltd., M/s. J.M. Bakshi & Co. etc. on sub-contract basis. In some other cases, the appellants receive cargo directly from the customer and not through CHA. In such cases they bill the customer directly. As far as the present appeal is concerned, the dispute relates to the leviability of Service Tax in respect of the value of the taxable services rendered by the appellants in the capacity of subcontractors to CHAs. Revenue is of the view that the appellants are liable to pay service tax for the services rendered by them in the capacity of subcontractors to CHAs. The original authority confirmed the following demands.
(i) Rs. 2,791/- in the category of clearing and forwarding agency service.
(ii) Rs. 20,69,269/- in the category of cargo handling service under Section 73 of the Finance Act 1994 Interest under Section 75 was also demanded. A penalty of Rs. 100/- per day was demanded under Section 76 of the act. A penalty equal to the service tax demanded was imposed in terms of Section 78 of the Act. The appellants appealed to the Commissioner Appeals. The Commissioner Appeals remanded the issue relating to C&F services. However he confirmed the liabilities pertaining to cargo handling services including interest and penalty. Therefore the appellants have come before this tribunal for relief.
3. Shri. G. Shivdas learned advocate appeared on behalf of the appellants and Ms. Sudha Koka Learned SDR for the Revenue.
4. We heard both sides. The learned advocate informed the bench that the major portion of the activity undertaken by the appellants relates to sub-contracting from CHAs. The activity undertaken is stevedoring which is actually loading and unloading of cargo. The fact that the service undertaken is a taxable service is not in doubt. The appellants obtained registration from the department under the category of cargo handling service and C&F service on 29.10.2003 and 18.07.2003. When the departmental auditor visited the appellant’s unit they were of the view that the services undertaken by the appellants would fall under the category of port services. Consequently the appellants wrote to the departments on 12.04.2004 to cancel the registration under cargo handling service and issue registration under the category of Port Services. In response to the above letter the department wanted various particulars. On 6.7.2004, the appellants received a letter from the department requiring them to pay differential service tax. The appellant informed the department vide their letter dated 12.07.2004 that their principals are paying service tax on the consideration received by them from the clients in respect of work sub-contracted to them. However Revenue issued show cause notice dated 21.02.2005 alleging that the appellants provided cargo handling services and C&F services for the period from 1.4.2003 to 29.02.2004 and had paid only a sum of Rs. 85,084/-instead of Rs. 22,20,240/-. Hence, the full amount was demanded. It is the contention of the learned advocate that the appellants undertake work sub-contracted to them by the CHAs. The CHAs deal directly with the customers, collect service tax from them and pay the same to the department. This information was given to the department on 12.7.2004 and also in their reply dated 11.7.2005. Our attention was invited to the trade notice dated 11.06.1997 issued by the Commissioner of Central Excise New Delhi clarifying that when CHAs sub-contract their work and if the CHA pays service tax then the subcontracting CHA need not pay service tax. It was urged that similar circulars have been issued in respect of architects, market research agencies, consulting engineer, etc. The learned advocate relied on the following case laws:
i. BBR (India) Ltd. v. CCE 2006 (4) STR 269 (Tri.-Bang)-(Paragraph 6.4)
ii. Crompton Greaves Ltd. v. CCE 2006 (2) STR 67 (Tri.-Mum)
iii. Airconditioner Company of India v. CCE 2006 (3) STR 259 (Tri.-Del)-(Paragraph 2)
5. Further it was argued that the entire issue is one of revenue neutrality as the CHAs would be entitled to take credit of the service tax paid by the appellants. In such case it is well settled that no intention to evade payment of duty can be attributed to the person liable to pay duty. The following case laws were relied on:
i. Amco Batteries v. CCE
ii. CCE, Mumbai v. Mahindra & Mahindra Ltd. 2005 (171) ELT 159 (SC)
iii. CCE, Mumbai v. Mahindra & Mahindra Ltd.
iv. CCE v. Naramada Chematur Pharmaceuticals Ltd. 2005 (179) ELT 276 (SC)
v. CCE v. Narayan Polyplast 2003 (179) ELT 20(SC)
5.1 He stated that the longer period has been invoked in the show cause notice dated 21.02.2005. Therefore the demand is not sustainable. Reliance was placed on the decision of the Apex Court in the case of CCE v. HMM Ltd. reported in 1995 (75) ELT 497 (SC).
6. The learned departmental representative Ms. Sudha Koka argued at length on the issue. She said that the appellants are undertaking cargo handling service and had suppressed this fact from the department. She said that the trade notice cited by the learned advocate would not be applicable to subcontractors who undertake services other than CHA services. She further stated that all the other clarifications in respect of engineering services etc. would not be applicable to the present case. She urged that so long as the appellants render taxable services they are liable to pay service tax to the department irrespective of the fact whether they are subcontractors or main contractors. Further she stated that during the period when the trade notice and circulars relied on by the learned advocate were issued, there was no facility of availing credit of service tax. Since during the period of dispute the facility of taking service tax credit was available, the earlier circulars, trade notices relating to subcontractors would not be applicable at all. She made the point that the appellants had not produced any evidence to show that the CHAs who subcontracted the work to the appellants actually discharged the service tax liability.
7. The learned advocate responded to each of the contentions of the learned departmental representative. He said that during the period under dispute, the trade notices/ Board’s circulars issued earlier were not rescinded. Moreover the appellants in their letter dated 12.07.2004 well before the issue of show cause notice informed the department that their principals are paying service tax on the consideration received by them from their clients. He said that nothing prevented the department from verifying the averments of the appellants.
8. On a very careful consideration of the issue, we find that the appellants in their letter-dated 12.07.2004 had informed the department that they act as subcontractors to CHAs and their principals are collecting service tax from the customers including for the services rendered by the appellants. We are reproducing the said letter of the appellants.
Date: 12-7-2004
Mr. K.U. Rajagopal
Superintendent of Central Excise
Service Tex Range III
Punja Building Annexe
Lalbagh, Mangalore
Dear Sir,
Kindly refer to your letter dt. 6/7/2004. We request to submit following few lines for your kind consideration.
We are acting as a cub contractor to Customs House Agents like Aspinwall and Co., Arcadia Shipping and Trading Co. etc. We are not dealing with any customers directly. Our Principals (Main Contractor) are collecting service tax from the customers including for the service rendered by us.
For the services rendered to our Principals viz “Stevedoring” (Loading to ship and unloading from ship) and “Clearing Forwarding” (receiving the cargo at Yard and transportation of the same to along side vessel) are compensated to us try reimbursing the actual expenditure Incurred plus our service charges fixed by them on the basis of quantity handled. Copies of work order enclosed for your verification.
We have collected service tax on these service charges due from our clients and remitted to central Govt. Account. The Annexure showing details of tax collected and remitted and balance payable is enclosed herewith for your verification. Therefore we cannot agree with the views of your department internal auditors that we have not arrived at the value of taxable service correctly.
As regarding delayed payment we request your benign forgiveness in the matter Interest paid challan for delayed payment of service tax is also enclosed.
Thanking You
Yours faithfully
For Evergreen Suppliers
Partner
8.1 Neither the original authority nor the first appellate authorities had discussed the submission of the appellant with regard to subcontracting and payment of service tax by the principals. There is no dispute regarding the fact that the services rendered by the appellant fall under the category of taxable service. The appellants are also not disputing that fact. However trade notice No. 39 Central Excise dated 11.06.1997 of New Delhi Commissionerate case contains the following clarification in Para 2.6 which is reproduced below:
2.6 Sometimes CHAs sub-contract their work to CHAs located in other stations. In such cases, it is possible that the sub-contracting CHA raises the bill on the main CHA who inturn raises the bill to the client. It has been decided that in such cases the sub-contracting CHA will not be required to pay service tax on the bills raised by him on the main CHA. The service tax will be payable by the CHA who provides the actual service to the client and raises the bill to the client.
8.2 It is not necessary that CHAs should subcontract only a particular category of service. They can subcontract any activity undertaken by them. When they deal with the customers directly and pay service tax there is no need for the sub contractor to discharge service tax liability. This principle is applicable to all services and not only to particular services as stated by the learned departmental representative. The learned departmental representative requested the bench that the issue may be remanded to the lower authority for giving a finding on the point of liability of sub-contracter. We do not feel it necessary to remand the matter. The appellants had informed the department one year before the show cause notice was issued that their principals are paying the service tax. It is for the department to verify the facts and take proper action. No other useful purposes will be served by remanding the case. It is clear from the records that Revenue was not very clear about the category to which the services rendered by the appellants belonged. There is no proper application of mind by the lower authorities to the submission made by the appellants. The impugned order with regard to the demand of service tax on the appellants in respect of cargo handling service and confirmation of interest and penal liabilities is not sustainable. The lower authorities have not stated the reasons for not following the trade notice/circulars issued by the department. Moreover, the concerned field officers have failed in their duty to verify whether the principals had discharged the service tax liability as stated by the appellants. This is sheer negligence on the part of the jurisdictional authorities. Before issuing show cause notice, the department ought to have verified the facts stated in the appellant’s letter reproduced supra. The failure of the department cannot be used against the appellant to demand service tax when they are not liable in terms of a trade notices/circulars issued by the department.
9. Hence we allow the appeal with consequential relief.
(Pronounced in open Court on 26 Oct 2007)