Brief Facts of the Case s11
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BRIEF FACTS OF THE CASE :-
An Intelligence was received that majority of the Custom House Agents (hereinafter referred to as the “CHA”) had been raising two sets of invoices for so called reimbursement of various expenses incurred by them at the time of providing services to their clients viz. importer / exporter; that one invoice was raised towards the Services / Agency charges and the second for the so called reimbursement of other charges/ expenses so incurred; that the invoice issued for Services/ Agency Charges was used for payment of Service Tax by CHA whereas the second invoice was raised only for so called re-imbursement of expenses incurred by them; that the invoice Serial Numbers were identical except minor difference being an addition of an alphabet or a number to the existing invoice serial number of the invoices issued for the so called reimbursement of other charges/expenses incurred by them during the course of services provided by them to the importer / exporter. The said procedure of issuing two sets of invoices to exporter / importer by CHA started after introduction of service tax on CHAs. The same was done to suppress the actual service / agency charges and thereby paying less service tax.
2. Intelligence further revealed that the CHAs were taking advantage of the following clause of Circular F.No.B43/1/97-TRU dated 06.06.1997 which envisages “payments made by CHA on behalf of the client, such as so called reimbursement expenses incurred are not to be included for computing the Service Tax”. Accordingly, the procedure of issuing another set of invoice was initiated. The genuine expenses shown in the invoices were accompanied by documentary evidences, whereas the other expenses shown in the invoices being nothing but a part of the total service / agency charges had been incorporated to disguise a part of service / agency charges. Thus, the intelligence indicated that the CHAs were suppressing the actual service / agency charges and thereby paying less Service Tax in respect of the following expenses.
(i) Customs Examination Charges.
(ii) Miscellaneous Expenses.
(iii) Sundry Expenses.
(iv) Strapping and re-strapping charges.
(v) Documentation Charges etc.
3. Value of the taxable service shall be the gross amount charged to the client. Thus, no deduction was available for various expenses incurred while providing the taxable service. The Service Tax (Determination of Value) Rules, 2006 have been prescribed with effect from 19.04.2006. These Rules very clearly enunciate situations in which an assessee may claim the exclusion of expense recoveries on the grounds of so called reimbursement of expenses. Primarily, the expenses are to be incurred by the service provider as an agent of the service recipient. The service provider has to fulfill eight conditions specified in Rule 5(2).
4. The claim of various so called reimbursement of expenses also needed to be governed by Rule 5(2). For example, the various so called reimbursable expenditures claimed by the service provider were not covered under the ambit of Pure Agent category.
5. Acting on the said intelligence, a letter dated 10.10.2008 bearing. F.No.STC/04-62/Gr.II/Prev/2008-09 was issued to M/s. Agility Logistics Pvt. Ltd., located at 3 floor, Suncity House, Near Pantaloon, Nr. Mithakali Six Road, Ellisbridge, Ahmedabad (hereinafter referred to as ‘the said service provider’) asking them to furnish copies of ST-3 returns, Balance Sheets, etc. for the last five years and also details of method and manner of invoices raised during the last 5 years along with specimen copies of invoices. They were also asked to provide relevant information/documents with regard to any other associated firms functioning from the above said premises or elsewhere and providing the service of Freight Forwarding, Cargo Handling, etc. The said service provider furnished copies of ST-3 returns for the period from 2004-05 to 2008-09, sample invoices raised by them, Profit and Loss Account for the period from 2004-05 to 2007-08; Profit and Loss Account Grouping for the period from 2005-06 to 2008-09; Cost details i.e. expense details for the period from 2005-06 to 2008-09 etc.
6. The said service provider submitted the aforesaid details/documents from time to time, after being constantly persuaded, in writing, telephonically and verbally. They were not found to be fully cooperative as they invariably delayed submission of requisite details/documents correctly & promptly. In wake of the circumstances the investigating officer accompanied by the Assistant Commissioner (Preventive), Service Tax, Ahmedabad, visited the office premises of the said service provider on 01.04.2009, when they had shown their inability to extend co-operation, stating that the quantum of information was high and the same needed referring of voluminous documents. Even they failed to provide certain documents such as invoices pertaining to the period from 2004-05 to February’2007 issued in respect of CHA service, wherein they had charged the service tax from their clients under the guise of “Service Charges” but had not deposited the same with the government exchequer. Also they did not provide details of Cenvat Credit availed and utilized.
7. During the course of investigation it was observed that they were issuing single invoice wherein Agency charges as well as so called ‘Reimbursement charges’ were shown in one invoice only. For instance - Invoices No. 34003603 dated 02.09.2005; 34006242 dated 06.09.2006 issued by M/s Geologistics Private Limited to M/s Radiant Trading Corporation & M/s Electronics & Quality Development respectively in which various charges under the head of Agency Charges; Documentation Charges; Examination; Loading/Unloading; Misc. Charges; GESC Charges; Service Charges; Delivery Order (DO) Fees; etc were shown to have been collected. It was observed that no service tax had been paid on all such charges till February’2007. In this regard, it was found pertinent to mention that the service tax collected/claimed under the guise of “Service Charges” was not paid at the relevant period of time but subsequently, in the year 2007, they realized their service tax liability and started discharging the same. It was also observed that though they had started providing the “Business Auxiliary Service” from October’2004, “Business Support Service” from May’2006 and “Clearing & Forwarding Agent Service” from April’2006, they obtained service tax registration in March-2007 and filed ST-3 returns for the past period. First ST-3 Return i.e. for the 2nd half of the year (Oct’2004 to March’2005), for the category of “Business Auxiliary Service”, was filed on 19.11.2007, either through hand delivery or through post. The authenticity of filing of said ST-3 Returns as well as acknowledgement of the same could not be justified or verified due to time constraint.
8. A statement of Shri Tripati Balaji Patro, General Manager (Finance), Western Region in M/s. Agility Logistics Pvt. Ltd., was recorded on 05.10.2009 under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 wherein he inter alia submitted that he was working in M/s Agility Logistics Private Limited as General Manager (Finance), Western Region, since February’2009 and joined the company 5 years back and also well conversant with Accounts maintained at their branch office at Ahmedabad; that he had been duly authorized by the Vice President (HR) of the company to deal with certain matters related to Service Tax.
8.1 He stated that M/s Agility Logistics Private Limited (formerly known as M/s Geologistics Private Limited) having Head Quarter office at Mumbai, was engaged in business as “Freight Forwarding Agent” and “Third Party Logistics”. They were also registered as IATA Agents for the transportation of goods by Air. They were registered with Service Tax department for the following services, the details of which are given as under:
Sl. No. / Category of Service / Date from which started paying Service Tax (After obtaining ST Registration / Registration No. / Date / *Remarks Date on which ST-3 Return shown to have been filed1 / Business Auxiliary Service / October’2004 / AAACL3717AST017 / 10.03.2007 / 19.11.2007
2 / Clearing and Forwarding Service / April’2006 / AAACL3717AST017 / 10.03.2007 / Sent by post on 18.03.2009
3 / Business Support Service / May’2006 / AAACL3717AST017 / 10.03.2007 / Sent by post on 24.04.2009
4 / Custom House Agent Service / February’2007 / AAACL3717AST017 / 10.03.2007 / 26.06.2007
8.2 He stated that the name of M/s Geologistics Private Limited which was originally incorporated on 13.01.1998 as LEP International (I) Private Limited had been changed to M/s Agility Logistics Private Limited, and produced a letter dated 15.01.2007 issued by the Registrar of Companies, Mumbai, Maharashtra, in this regard.
8.3 He further stated that M/s Agility Logistics Private Limited was an IATA approved “Cargo Agent’. Airlines provide them their Air Way Bill so as to book cargo from clients (shipper). Thus they book cargo using the air way bill on behalf of airlines. Airway Bill contains various details which include the name of the shipper, name of the IATA Agent, destination airport, gross weight of the cargo, chargeable weight, rate/charge and total freight charges. The Airlines pay them, a consideration in the form of Commission & incentive. Every fortnight the respective Airlines raise invoice on Agility showing the details of cargo loaded along with the freight rate, freight amount due, commission due etc. Airlines may give consideration as commission, discount/incentive and some treat them as market price adjustments. The airlines also furnish them the published tariff circular showing rates for various destinations. On getting an order from the customer, Agility enquires/floats multiple enquiries with various Airlines regarding availability of space & rate and the Airlines which gives the least rate was selected.
8.4 He further stated that such commission or Incentive was adjusted in the Freight cost and was not separately shown under Revenue heads/codes. The invoice raised by Airlines indicate the commission payable which was deducted from the total Air freight payable to the said Airline and net amount was only booked as Freight Charges. Therefore, the commission amount was not reflected under Revenue/Income heads in the Profit & Loss account, separately.
8.5 He further stated that they had been paying service tax regularly on such commission earned from airlines under the category of “Business Auxiliary Service” from October2004 i.e. when they started providing the said service. The income figures reflected in ST-3 returns, for the category of “Business Auxiliary Service” for the years 2004-05, 2005-06, 2006-07, 2007-08 & 2008-09 was the amount of Airline Commission received by them which was not reflected in the P&L heads/codes due to netting of income.
8.6 He also stated that apart from the above said Commission from Airlines as IATA agent they were also engaged in the business wherein they rendered import & export service and the nature of service rendered depended on the requirement of the customers.
In respect of logistics relating to export of goods:
> Laising with the Shipping/Airline in respect of the space and in forming the same to customer.
> Arranging pick up of the consignment from the Customer’s premises.
> Transportation of the same to the port/Airport.
> Ensuring consignment is loaded on the Ship & delivering documentary proof of the same.
> Tracking the consignment.
In respect of logistics relating to import cargo:
> Laising with the Shipping/Airline in respect of the space and informing the same to customer.
> Tracking the same.
> After the goods arrive, giving the DO to the customer, if the customer desires to clear the goods on his own.
> Transportation of the consignment from port/Airport to the customer’s premises.
The customer may avail of all or only part of the aforesaid services.
He stated that therefore, as Freight forwarders / Third Party Logistics they were engaged in the activities of arranging of all facilities such as handling, loading and unloading, transportation, warehousing, stuffing and destuffing etc. and also compliance of statutory formalities with Customs and other Container Terminals. For the above said activities they charge their clients :-
a. towards various expenses incurred on behalf of their clients which are accounted on various revenue heads such as Handling fees, Warehousing Rent, Warehousing charges, Terminal Handling charges, DO Charges, LCL charges etc.
b. towards the freight charges for the movement of the cargo from the premises to the required destination and vice versa.
On behalf of the clients, they undertake loading of goods, storing the same in the concerned Container Freight Stations/Airport, filing of Shipping Bills with the Customs, processing the shipping bills, stuffing the cargo in the concerned containers, presenting the cargo for inspection/examination by the Customs authorities, attending to the customs clearance, repacking and restuffing of the cargo opened during inspection by the Customs, documentation work, attending to the work relating to port/Airport formalities, filing Bills of Entry with the Customs, processing the Bills of Entry, attending to the clearance of import consignment from customs, processing the Bills of Entry, attending to the clearance of import consignment from the CFS/Airport after fulfilling all the formalities including, customs/ examination / Inspection.
He further clarified that they were collecting from their customers an amount towards the cost of Freight which was nothing but the charges for transportation of cargo from the customers premises to the desired destinations or vice versa. They undertake to transport the said cargo as per the directions of the customers. For executing the said job, they identify the suitable mode of transport, timely supply of transport vehicle, managing and distributing the logistics etc. The freight charges were collectable from the customers for movement of goods from one place to another place and that there could be a mark-up of freight (profit element) or in some cases there can be loss also. He could not provide one to one co-relation in respect of freight collected vis-à-vis freight expense incurred.
8.7 He further stated that they have their own transport department which looks after the business of transportation of goods. They have not taken registration under the category of GTA as the liability of service tax was either on consignee or consignor.
8.8 Further, on being asked to describe the nature of services so provided to their customers as well as composition of various heads/codes of “Income” shown in Profit & Loss Account Grouping for various years, as mentioned in column No. 2 below, he submitted his specific replies in Column No. 3, corresponding to the various heads/codes of income, shown in column No. 2 below: