MUMBAI, OCT 09, 2014: THE appellant entered into a C&F agency agreement and also a warehousing service agreement with M/s. Abbot India Ltd. The warehousing agreement was for storage of goods and the clearing and forward agency agreement was for the purpose of handling, carrying forwarding and shipping of the products. Service tax liability was discharged on the warehousing rent and also on the C&F agency charges.
In addition to the above, the appellants made certain payments on behalf of the service recipient by way of freight charges, octroi, sales tax and licensing fees, courier charges and telephone charges, electricity charges, DFC unloading charges and statutory charges, packing material, octroi, etc., Genset and cool room expenses and they got reimbursement of the expenses incurred from M/s. Abbot India Ltd.
The department was of the view that these reimbursements are also liable to service tax under the category of C&F Agency Services and accordingly issued a SCN for the period from 01/04/2004 to 31/03/2005 demanding ST of Rs.58,91,811/-.
The CCE, Pune-III upheld the charges along with imposition of interest and penalty and, therefore, the appellant is before the CESTAT.
The appellant inter alia relied on the Larger Bench decision in Sri Bhagavathy Traders - 2011-TIOL-1155-CESTAT-BANG wherein it was held that only when the service recipient has an obligation, legally or contractually to pay certain amount to a third party and the said amount is paid by the service provider on behalf of service recipient, the question of reimbursing the expenses incurred on behalf of the recipient shall arise and accordingly the question of levying service tax by including reimbursements in the assessable value would not arise. It was also submitted that in view of the decision in J. Walter Thompson- 2013-TIOL-1899-CESTAT-MUM the demand beyond the period of normal limitation is not sustainable.
The AR reiterated the findings of the adjudicating authority and also placed reliance on the Tribunal decision in Naresh Kumar & Co. Pvt. Ltd.- 2008-TIOL-1016-CESTAT-KOL wherein it was held that if an expenditure is indispensable and inevitably incurred to provide a service, such cost should essentially form part of cost of service itself and shall contribute to value of taxable service. Inasmuch as in the present case, the expenditure incurred by the appellant is inevitable expenditure in rendering C&F agency service and, therefore, the demands are sustainable, submitted the AR.
The Bench observed:
++ We notice that the service recipient had entered into a separate agreement with the transporter for transporting of goods from Pune to various destinations and in terms of the agreement it was the service recipient's obligation to discharge the freight expenses. The appellant only paid these expenses and got them reimbursed from M/s. Abbot India Ltd. Thus, they were acting as a pure agent as the transportation was undertaken not as part of C&F agency functions but independently of the said function and, therefore, the question of including the expenditure incurred on freight in the consideration received is clearly unsustainable in law.++ Reimbursement towards statutory levies such as octroi etc. - We have seen the invoices and it is clear from these invoices that the statutory levies are on the service recipient, and the appellant has paid these charges and got it reimbursed from the service recipient. Here also, the appellant has acted as a pure agent and, therefore, these costs are also not includable for the purpose of levy of service tax.++ DFC unloading chargesare for transportation of the goods from the premises of the loan-licensee of Abbot India Ltd to the appellant's warehouse and it has no relation with the C&F agency agreement between the appellant and M/s. Abbot India Ltd. Therefore, the question of adding these charges as part of the consideration received will not sustain.++ Courier, fax and telephone charges; electricity charges and stationery and related charges - These charges have been incurred by the appellant as part of the C&F agency function which they have undertaken and are towards running of the office or providing cold storage facilities or for issuing various documents in relation to C&F agency functions. It is also noticed that the electricity charges are reimbursed only for a quantity of 3000 units per month and in respect of such electricity charges over and above 3000 units the appellant have to bear the cost. Therefore, it cannot be said that the electricity charges are not part of cost for providing the service. Therefore, in respect of these three charges the consideration received by the appellant has to be added to the taxable value of the service and the service tax levied accordingly. The appellant also would be liable to pay interest on the service tax liability attributable to these charges.++ Since the matter involves interpretation of statute, imposition of penalty is not warranted.
Conclusion:
++ On the freight charges, octroi, sales tax, licence fees and DFC unloading charges since the appellant has rendered services as a pure agent, reimbursement made in this regard will not be liable to service tax.++ Courier, fax and telephone charges, electricity charges and stationery charges, packing material,Genset and cool room expenses -reimbursement received is addable to the taxable value of the service and the service tax is to be levied accordingly along with interest -matter remitted back to the adjudicating authority for this limited extent.
The appeal was partly allowed.
(See Taxindiaonline.com )
S.10A : Free trade zone – Computation of profits – Unabsorbed depreciation and business loss of same unit brought forward from earlier years have to be set off against the profits before computing exempt profits. [S.10B]
The assessee set up a 100% EOU in AY 1988-89. For want of profits it did not claim benefits u/s 10B in AYs 1988-89 to 1990-91. From AY 1992-93 it claimed the said benefits for a connective period of 5 years. In AY 1994-95, the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of AY 1988-89. It claimed that as s. 10B conferred "exemption" for the profits of the EOU, the said brought forward depreciation could not be set-off from the profits of the EOU but was available to be set-off against income from other sources. It was also claimed that the profits had to be computed on a "commercial" basis. The AO accepted the claim though the CIT revised his order u/s 263 and directed that the exemption be computed after set-off. On appeal by the assessee, the Tribunal reversed the CIT. On appeal by the department, the High Court(CIT v. Himatasingike Seide Ltd. (2006) 286 ITR 255 (Kar)) reversed the Tribunal and held that the brought forward depreciation had to be adjusted against the profits of the EOU before computing the exemption allowable u/s 10B. On appeal by the assessee to the Supreme Court HELD dismissing the appeal:Having perused the records and in view of the facts and circumstances of the case, we are of the opinion that the Civil Appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly (19 September, 2013) (A.Y.1994-95)Himatasingike seide Ltd. v. CIT (SC) www.itatonline.org
Before this judgement ,many high courts/ITATs have given verdict against the revenue. officers need to find all those cases and to take necessary action for recall of orders of appellate autorities.
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Show cause notice issued with predetermined conclusions and closed mind is not valid
Bharat Marine Co Vs. Commissioner of Customs (Seaport-Import) and others [2014-TIOL-1 703-HC-MAD-CUS]
Bharat Marine Co. (the Petitioner) challenged the Show Cause Notice (the SCN) issued by the Department on the ground that the contents of the SCN discloses a pre-conceived and closed mind. It was further contended that the findings of Revenue were categorical in nature, without leaving any scope for the Petitioner to explain. The Petitioner even highlighted few of the paragraphs of the SCN to support his contentions.
The Hon'ble High Court relied on the case of SBQ Steels Ltd. Vs. Commissioner of Customs, Central Excise and Sales Tax, Guntur [2014 (300) E.L.T. 185 (A.P.) 2012- TIOL-1106-HC-AP-CX ] ("the SBQ Steels Ltd. case"), wherein the Hon'ble Andhra Pradesh High Court took exception even to use of the words "it is clear" in the SCN.
Relying on the decision of the SBQ Steels Ltd. case, the Hon'ble High Court held that if the SCN is issued with pre-determined conclusions and with closed mind, the requirement of giving an opportunity to show cause becomes nugatory. Therefore, the SCN was set aside.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)
- See more at: http://taxguru.in/custom-duty/show-notice-issued-predetermined-conclusions-closed-mind-valid.html#sthash.ORbA8XSc.dpuf
Subject: CONTRARY JUDGEMENTS OF TWO HIGH COURTS ON SAME FACTS
To:
To:
CIT v/s DEUTSCHE POST BANK HOME FINANCE LTD. (2014) 98 DTR(DEL)`144 , IT APPEAL NO.312 OF 2012
CIT v/s SIEMENS PUBLIC COMMUNICATION NETWORK LTD(2014) 98 DTR(KAR) 151 ,IT APPEAL NOs 59,488& 489 of 2007
Issue- whether subvention payment received from parent company is revenue receipt or capital receipt ?
Delhi high court decides in favour of assessee whereas Karnataka High court decides in favour of revenue.
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