Facts of the Case

1.    M/s MCM Transport Private Limited (the “Appellant”) started providing sub-agency services to various shipping lines in respect of ‘Transportation of Goods by Sea’. While providing said services, appellant also earns profit by doing trading in cargo space.

2.    Appellant entered into sub-agency agreements with the principals for acting as sub-agents for all shipping services of the principals. As per terms of the agreement, appellant was entitled to commission at specified rates.

3.    The details of amounts collected on behalf of principals along with applicable services as also remitted to them along with collected services tax are as under:

(A) Collection details

 

Particulars	2005-06	2006-07	2007-08	2008-09	2009-10	Total
Basic Value	4,34,29,696	3,86,95,393	2,93,27,318	2,76,24,695	5,67,048	13,96,44,150
Services Tax	–	12,27,834	10,79,833	12,42,975	40,169	35,90,811
Assessed Invoicing for Principal (A)	4,34,29,696	3,99,23,227	3,04,07,151	2,88,67,670	6,07,217	14,32,34,961

 

(B) Remittance details

 

Particulars	2005-06	2006-07	2007-08	2008-09	2009-10	Total
Basic Value	3,43,36,781	3,12,98,845	2,69,32,152	2,11,51,365	Not consider -ed	11,37,19,143
Services Tax	–	7,72,073	7,51,423	4,92,133		20,15,629
Assessed Remittance to Principal (B)	3,43,36,781	3,20,70,918	2,76,83,575	2,16,43,498		11,57,34,772

4.    The services tax for an amount of Rs. 15,75,182/- (35,90,811 less 20,15,629) was not remitted to the Principals as on date when Anti-Evasion wing of services tax department conducted search at the premises of appellant. Further, the difference between amounts collected and remitted to principals represented the commission of appellant as also profit earned by doing trading in cargo space.

5.    Services tax department issued Order-in-Original confirming the demand towards services tax for an amount of Rs. 38,53,951/- (though appellant collected only Rs. 35,90,811/-) and determined the commission for Rs. 2,70,46,820/- (i.e., difference between amounts collected and remitted to principals) and confirm demand of Agency Commission thereon for Rs. 31,18,142/-.

Legal Position

6.    Section 73A of the Finance Act, 1994 is applicable on transactions where an amount in the name of services tax is collected and ‘retained as his’. In the present case, appellant did not retain the amount ‘as his’ and have undisputably remitted an amount of Rs. 20,15,629/- to the principals. Therefore, demand to that extent was cleary

7.    The balance amount of Rs. 15,75,182/- was deposited to the credit of Government Treasury by way of Challan dated 23.07.2013. Hence, the same is liable to be appropriated.

8.    For the demands proposed under section 73A, penalty cannot be confirmed u/s 78 of the Act. Therefore, the demand towards equivalent penalty is liable to be dropped in entirety, in either of the circumstances.

9.    The Agency Commission is to be calculated in terms of the agreements wherein rates are already specified. Further, reference can also be made to the Form 26AS wherein the amounts on which TDS is deposited by principals were reflecting.

10. Hence, the demand on amounts representing ‘profit due to trading in cargo space’ i.e, (Rs. 2,70,46,820/- less Agency Commission) was clearly erroneous as the same is not a taxable service at all. Further, said amount is also liable to be reduced to the extent of amount shown as payable towards Principals as on last date of last financial year.

Judgment CESTAT

11. CESTAT Hyderbad observed that the practice of remitting the services tax to principals is clearly erroneous to the provisions of Section 73A. Further, CESTAT did not consider the ST payment challan dated 23.07.2013. Hence, entire demand was upheld along with applicable interest as well as penalty. [Para 4]

12. CESTAT appreciated the submissions that ‘profit earned by trading in cargo space’ is not taxable at all and hence, remanded back the matter on this issue for re-adjudication. [Para 6]

Remarks

13. On the issue of demands confirmed under section 73A of the Finance Act, appellant filed an appeal before Hon’ble Telangana High Court [CEA No. 07 of 2023] which has been allowed and entire demand confirmed on said issue is dropped by the Hon’ble Court.

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