1. M/s. Chennai Port Trust, a PSU, have obtained the requisite clearance from the 'Committee on Disputes' to pursue these proceedings against Order-in-Original No. 77/2007 dated 16.5.2007 of the Commissioner of Service Tax, Chennai, wherein service tax of over Rs. 3 crores has been demanded along with education cess for the period February 2004 to March 2006 under the category of 'Business Auxiliary Service' defined under Section 65(19) of the Finance Act, 1994.
Interest on tax has also been demanded under Section 75 of the Act and a penalty has been imposed under Section 76 of the Act. Under an agreement called "Working Agreement" entered into with the Southern Railway, the Port Trust, during the material period, undertook the activity of transporting cargo (both imported and exported) between the dock and the entry point of the Port area. Upto, and from, the said entry point, the railway themselves undertook the transportation directly. Within the Port area, the Port Trust undertook the said activity (including unloading of cargo at the dock from vessel on to the railway wagon and vice-versa) on behalf of the Southern Railway.
The consideration for the service was collected by cheque drawn in favour of the railway, from the cargo-owners, receipt for the same was issued to those parties and the amounts were deposited with Reserve Bank of India, all by the Port Trust on behalf of the Southern Railway.
In the impugned order, the learned Commissioner classified this service under Clause (vii) of Sub-section (19) of Section 65 of the Finance Act, as Business Auxiliary Service (BAS, for short) and demanded service tax on the gross amount collected by the Port Trust from the Railway under the aforesaid agreement. Clause (vii) reads thus: a service incidental or auxiliary to any activity specified in Sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision.
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (iv) procurement of goods or services, which are inputs for the client; or Explanation: For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "inputs" means all goods or services intended for use by the client; (v) production or processing of goods for, or on behalf of, the client It is the case of the appellant that, for levy of service tax in terms of Clause (vii), the services/activities mentioned in that clause should be incidental or auxiliary to any activity specified in Clauses (i) to (vi). It is submitted that none of the activities specified in Clauses (i) to (vi) was undertaken by the appellant and therefore the activities of billing, collection of cheques, maintenance of accounts, remittance etc. undertaken by them were not to be treated as BAS of the kind defined under Clause (vii). On the other hand, the submission of the learned SDR is that the appellants were rendering services to the cargo owners on behalf of their client viz. Southern Railway, which was expressly covered by Clause (vi). Accordingly, it is submitted that the activities of billing, collection of cheques etc. undertaken by the appellants were incidental or auxiliary to the service rendered by them under Clause (vi) and consequently exigible to service tax in the category of BAS defined under Section 65(19). At this juncture, the learned consultant for the Port Trust comes up with an innovative argument which is not forthcoming in the memo of appeal or in the present application. The argument is that the services rendered by the Southern Railway are not normally taxable under the Finance Act, 1994 and hence any service incidental or auxiliary thereto cannot be charged to service tax under Clause (vii). Opposing this argument, the learned SDR submits that, though the railway's activities when directly performed are not exigible to service tax, they are taxable when performed through agents like Port Trust. It is also remarked that, if the learned consultant's argument is accepted, the very purpose of Clause (vii) insofar as it relates to activities of exempted categories of service-providers would be defeated. The learned consultant has also referred to Notification No. 25/2004-ST dated 10.9.2004, whereunder many of the business auxiliary services, including incidental/auxiliary services, were exempted from payment of service tax for the period prior to 10.9.2004. The learned consultant has also referred to certain amendments brought to the definition of BAS given under Section 65(19).
2. After giving careful consideration to the submissions, we note that the Port Trust was, admittedly, acting as an agent of the Southern Railway in the matter of billing the cargo owners, collecting the cheques and depositing the same with the RBI. The bills and the corresponding receipts stood in the name of the railway and the cheques were drawn in favour of the railway. The remittances were made into the railway's account with RBI. The wagons used for transportation of the cargo between the dock and the entry point belonged to the railway.
Undoubtedly, therefore, the Port Trust was rendering the aforesaid services to the cargo owners on behalf of their client viz. the Southern Railway. Prima facie, the activity was covered under Clause (vi) of Section 65(19) [provision of service on behalf of the client].
Clause (vii) covered services incidental or auxiliary to activities covered by Clauses (i) to (vi). The activities of billing, collecting cheques, issuing receipts and remitting the amounts in the railway's account with RBI appear to have been performed in a manner incidental or auxiliary to "provision of service on behalf of the client". Thus, on the grounds of the appeal, the Port Trust seems to have no prima facie case against the demand of service tax. They, however, appear to be entitled to exemption from payment of service tax under Notification No. 25/2004-ST for the period prior to 10.9.2004. We are not impressed with the argument that any service incidental or auxiliary to a service or activity which is not taxable in the hands of the railways cannot be said to be taxable in the category of BAS. Had the railways themselves rendered their services in the Port area, then any other service or auxiliary to such service would also, perhaps, have been exempt from payment of service tax. The factual situation obtaining in this case is different inasmuch as the Southern Railway was not directly performing any service in the Port area. The Port Trust was performing such services on behalf of the railway and hence the same was exigible to service tax under Clause (vi). Consequently, the activities such as billing, collection of cheque etc., which were incidental or auxiliary to above services, would also be covered by the service tax net.
3. The learned SDR has pointed out that the Port Trust was paying service tax in respect of the same activities but in a different category (Port Services) prior to February 2004. The consultant submits that those payments were made under protest and that the dispute is still pending before this Tribunal.
4. In the present application, there is no plea of limitation, nor any plea of financial hardships.
5. The learned consultant has not provided any break-up of the amount of tax to enable the Bench to ascertain as to what amount of tax is in question for the period from 10.9.2004.
6. In an overall consideration of the case, we direct the appellant to predeposit an amount of Rs. 1,00,00,000/- (Rupees one crore only) within a period of four weeks. Report compliance on 8.8.2008. In the event of due compliance, there will be waiver of predeposit and stay of recovery in respect of the interest, penalty and the balance amount of service tax.