ANIL CHOUDHARY,MEMBER (J) -
(1.)THERE are cross appeals each by the Revenue and the assessee, arising from the common Order -in -Original 32/STC/BR/08 -09, dated 4 -11 -2008 passed by the Commissioner of Service Tax, Mumbai dropping the demand of Rs. 3,06,21,823/ - and confirming the demand of Rs. 12,65,105/ - with penalties against the assessee. As such both the appeals are taken up together for consideration and disposal. The brief facts of the case are as follows: - -
"1.1 The assessee - Bulk Cement Corporation (India) Ltd. (BCCL for short) was set up as a joint venture among (i) ACC Ltd., (ii) the Government of India, Ministry of Industries, (iii) IDBI, and (iv) ICICI Bank. BCCL is primarily a packing station to receive cement in bulk and storing the same and distributing as per instructions of ACC Ltd.
1.2 BCCL under agreement have acted as a clearing and forwarding (C&F) Agent for ACC Ltd. and carried out its C&F activities at its warehouse at Kalamboli, near Panvel under year -wise agreements. It is registered with Service Tax Department since 18 -12 -2003.
1.3 The scope of service includes -
(a) The noticees are providing their special rail wagons for transport of the cement; (b) the noticee makes available special wagons for transportation in Indian Railways from M/s. Associated Cement Companies Ltd., Wadi Plant located at Wadi (Karnataka) to Kalamboli (Maharashtra); (c) the noticee makes available its specialist equipment and arranges for unloading cement brought in on account of the client, into silos; (d) the noticee will block silo space for storage of clients cement; (e) the noticee will load clients cement available in its silos into special tanker trucks for dispatch for its use at the client's project; (f) the noticee will arrange to unload cement from their tanker trucks using compressor/blower installed at client's site. For this the noticee bulker will also use the compressor shortages in quantities up to clients project in case the shortages are caused by the noticee omissions or commissions; (h) the noticee is fully responsible to supply required cement at site of client if any shortages due to railway wagons, tanker trucks and silos in time. Losses which will be incurred by client will be borne by the noticee. Client will not be responsible for damages of loss of goods in transit.
1.4 For the above clearing and forwarding operation, the noticee received remuneration which they split into heads like "Handling charges', 'freight rebate' 'reimbursement of primary freight' and 'reimbursement of secondary freight'. The various heads are defined as under: - -
(A) Freight Rebate : Freight rebate is the arrangement made by the noticees with Indian Railways in which the Railway grants to the noticees a compensation of 22.5% of the freight paid by the consignor in order to remunerate for the ownership of 125 wagons whose original cost is Rs. 25.79 crores. Freight rebate is received by them from M/s. ACC Ltd. who is their client. M/s. ACC Ltd. pays 77.5% of the freight to the Railways and the balance 22.5% directly to the noticees. They are not paying service tax on the income received as 'freight rebate'. The providing of wagons by the noticee is a 'means of transport' and not for the business of transportation.
(B) Handling charges : The noticee is receiving handling charges from their clients for stocking and dispatch of cement. These charges are received for providing handling, packing and dispatch of cement as per the schedule given by their clients. The current applicable rate is Rs. 125/ - per MT (incl. of Service Tax) for up to 42000 tons per month and Rs. 50/ - per MT (incl. of Service Tax) beyond 42000 tons per month. The rates are as per the contracts with their clients.
(C) Reimbursement of Primary Freight: The clients other than M/s. ACC Ltd. are liable to make payments to the Railways for movement of their materials from 'Wadi' to 'Kalamboli'. But, as the cement moved by such clients is negligible in quantity, M/s. ACC Ltd. makes the payment of the freight amount of the entire rake to the Railways. The noticee then recovers the freight amount from the other clients and reimburses 77.5% to M/s. ACC Ltd. and retains 22.5% with themselves towards freight rebate. The noticee is not paying Service Tax on these charges.
(D) Reimbursement of secondary freight : For movement of cement by road from 'Kalamboli' to the site of the clients, M/s. ACC Ltd. has entered into a contract with 'M/s. Allsinghani Transport'. M/s. ACC Ltd. is making the payments for all the consignments directly to the transporter which includes "octroi & cess". In respect of goods pertaining to clients other than M/s. ACC Ltd. the noticee is recovering the 'Road transportation charges' by issue of an invoice and reimbursing the same to M/s. ACC Ltd. Besides the invoice, the noticee is not issuing any document like 'consignment note', etc. The noticee is not paying Service Tax on this income.
1.5 The Revenue felt that since the assessee provided the services of movement in specialized containers/wagons, unloading, stocking, and dispatch of the cement on behalf of their clients, the services provided by the noticees would therefore fall within the definition of 'Clearing & Forwarding Agents Service' as defined under Section 65(25) of the Act. As per Clearing & Forwarding operations agreements between the assessee and M/s. ACC Ltd., the assessee is responsible for movements of cement in specialized containers/wagons, unloading, storage in silos, repacking into bags and sacks, stocking, loading, dispatch, unloading of cement at clients site, to make good any shortage in quantity of the cement, etc., on behalf of M/s. ACC Ltd. For the above 'clearing & forwarding operation', the assessee received remuneration which they splitted into heads like "Handling Charges'. The amounts accounted as 'Freight rebate' is nothing but additional consideration flowing from M/s. ACC Ltd. to the assessee. In respect of other clients, the assessee received part of the remuneration as freight for movement of cement in specialized rail wagons from 'Wadi' to 'Kalamboli'. The assessee pays 71.5% of such remuneration to M/s. ACC Ltd. as 'reimbursement of primary freight' and retains 22.5% with itself which is accounted in its books of account as freight rebate. The assessee also received additional remuneration (from its clients other than M/s. ACC Ltd.) as 'road transportation charges' for movement of cement in specialized trucks from 'Kalamboli' to the site of the clients. A common invoice is issued for recovering 'handling charges' and 'road transportation charges'. The assessee pays the 'road transportation charges' to M/s. ACC Ltd. under the head 'reimbursement of secondary freight'. There is no provision in the agreements either with M/s. ACC Ltd. or with any of their clients for payment of such amounts to M/s. ACC Ltd. The assessee claims that the remuneration received from its clients under the heads "primary" and "secondary" freight are reimbursements, is factually incorrect as the assessee has not spent any of these amounts on behalf of their clients. Therefore, recovering these amounts as reimbursements, without spending them on behalf of the clients, is incorrect. They have termed such remunerations as 'reimbursements' with the intention of suppressing the correct value of taxable service rendered in order to evade payment of Service Tax. Thus, the activities of the assessee such as: - -
(a) Providing of specialized wagons for movement of cement (amount collected is termed as 'Freight Rebate Income');
(b) Providing of wagons to client other than M/s. ACC Ltd. (amount collected termed as 'reimbursement of primary freight');
(c) Effecting delivery of cement to the client's places from assessee's unit at Kalamboli (amount collected termed as 'reimbursement of secondary freight');
(d) providing storage and handling of Bulk Cement (charges received are termed as 'Handling charges income'); are integral and inseparable activities of Clearing and Forwarding Agent's Service being provided by them. However, these were used as colourable devices, by them to suppress their Service Tax liability with an intention to avoid correct tax payment.
1.6 A show cause notice dated 13 -10 -2006 was issued to BCCL for the period April, 2001 to March, 2006 demanding service tax of Rs. 3,18,86,928/ -. The break up of the demand was Rs. 3,06,21,823/ - towards Freight rebate, Primary Freight reimbursement, Secondary Freight reimbursement and Rs. 12,65,105/ - towards recovery of Facility Charges.
1.7 The adjudicating authority in his Order -in -Original dropped the demand of service tax on Freight rebate, Primary and Secondary Freight reimbursement, however, upheld the service tax demand in respect of the facility charges under Clearing and Forwarding service. Hence, both the Revenue and the assessee are in appeal. Now we take up each of the appeals for consideration."
Appeal No. ST/14/2009 (Revenue's Appeal)
This appeal has been filed by the Revenue against the OIO passed by the Commissioner, dropping service tax demand of Rs. 3,06,21,823/ - against Freight rebate, Primary and Secondary Freight reimbursement recovered by the assessee.
(2.)THE ld. AR submits that the adjudicating authority has erred in dropping the demand in respect of Freight rebate, Primary and Secondary Freight reimbursement charges since the respondent -assessee had used their wagons for providing C&F services and considering the definition of C&F services the amount recovered by the respondent for providing wagons for transportation of goods is includible in the assessable value.
(3.)THE ld. counsel for the respondent submits that the ld. Commissioner has rightly dropped the demand of Rs. 3,06,21,823/ -. At the outset, he highlighted that while the Revenue is objecting to dropping of demand for all charges i.e. Freight rebate, Primary and Secondary Freight reimbursement charges, there is no appeal filed for dropping of demand for secondary freight reimbursement. Therefore, dispute only with respect to Freight rebate and Primary Freight reimbursement must be considered.
4.1 With respect to Freight rebate the learned counsel for the respondent makes the following submissions:
4.2 The respondent -assessee had invested approximately Rs. 25.79 crores for owning 125 railway wagons which are used for carrying cement in bulk form from Wadi (Karnataka) factory of ACC Ltd. to the warehouse of respondent at Kalamboli. Due to this investment, Indian Railways by way of a specific circular in this regard permitted respondent to retain 22.5% of the total rail freight charged by the Indian Railways to ACC Ltd. This amount of 22.5% is termed as "Freight rebate" and was sought to be levied with service tax under the category of C&F agent services under the show cause notice dated 13 -10 -2006.
4.3 The manner in which this transaction is carried out from a fund flow perspective is that the Indian Railways would issue a rail receipt to ACC Ltd., indicating total freight payable amount; out of which ACC Ltd. would pay 77.5% to Indian Railways and balance 22.5% to the respondent.
4.4 The rail freight portion of 22.5% so received from ACC Ltd. is purely in the nature of rebate or subsidy received from Indian Railways on account of respondent having invested in 125 wagons. This amount is not due by ACC Ltd. to the respondent for any contractual obligation of service between ACC Ltd. and respondent. The said amount is in the form of rebate for respondent's investment in wagons and is due from Indian Railways to the respondent and not towards C&F services. To be eligible to receive this amount the respondent is not required to carry out any C&F function. The C&F activity of respondent commences only after receiving the goods at the warehouse at Kalamboli.
4.5 The grounds of appeal raised by the Revenue does not bring out in any manner as to how the freight rebate received by the respondent is connected with clearing and forwarding operations and in fact admits that the said amount is received as freight rebate.
4.6 With respect to primary freight reimbursement the learned counsel for the respondent makes the following submissions:
4.7 Primary freight reimbursement is similar to freight rebate received by the respondent. The nature of transaction in this case is that clients of ACC Ltd. who cannot afford to hire entire wagon, requests ACC Ltd. to incur the rail freight for them and the same is reimbursed to ACC Ltd. through the respondent. As in the case of freight rebate transaction, the respondent is entitled to retain its share of 22.5% of the total freight amount which is termed as primary freight reimbursement. The fund flow of this transaction is that the customer of ACC Ltd. would pay the entire freight amount to the respondent and after retaining 22.5% for itself the respondent would remit the balance 77.5% to ACC Ltd. which in turn would be remitted to Indian Railways by ACC Ltd.
4.8 Since the primary freight reimbursement is similar to the freight rebate received from Indian Railways, through ACC Ltd. as submitted for Freight rebate, primary Freight reimbursement shall also not be leviable to service tax.
Appeal No. ST/25/2009 (Assessee's appeal)
This appeal is filed by the assessee against confirmation of demand of Rs. 12,65,105/ - by the learned Commissioner towards handling/facility charges recovered by them from ACC Ltd. during the period 2001 -02 to 2005 -06.