Services Tax collected on behalf of Principals and remitted to them

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/-.
6. On an appeal filed before CESTAT, Hyderabad

1. Demand confirmed u/s 73A was upheld, and
2. Demand confirmed for Agency Commission was remanded back to the adjudicating authority for re-adjudication for determining ‘profit earned by trading in cargo space’ and for determining classification of services.

Legal Position

7. 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 indisputably remitted an amount of Rs. 20,15,629/- to the principals. Therefore, demand to that extent was erroneous.
8. 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.
9. 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.

Judgment

10. Hon’ble court find force in the submissions of appellant and set aside the decision passed by CESTAT, Hyderabad and dropped the entire demand on this issue.