By Vinay Jain & Sachin Mishra, Advocate

1. Whether additional charges such as Preference Location Charges (PLC), External Development Charges (EDC), Internal Development Charges (IDC), Club charges, etc. recovered by the assessee from its customers while rendering Residential Complex Service are eligible for benefit of abatement under Notification No. 26/2012-ST?

Facts & Pleadings: Logix Infrastructure Pvt. Ltd. (hereinafter “appellants”) are providers of Residential Complex Service. The appellants were charging amounts from their customers under various heads such as Base Value, Preference Location Charges (PLC), External Development Charges (EDC), Internal Development Charges (IDC), Club charges, etc. The appellants paid service tax on the entire amount charged after claiming 75% abatement under Notification No. 26/2012-ST.

The Department contended that abatement in Service Tax is granted only in respect of such services where there is transfer of materials along with provision of service. While rendering Preferential Location Services and Internal or External Development Services, there is no transfer of material involved. Further, ‘Construction of a Complex/ Building’ is an independent activity, even without such services. Hence, abatement cannot be availed for such sundry services. Relying on CBEC-TRU on 26-02-2010, the Department contended that PLC, EDC, IDC, etc., are not covered by the provisions of Section 66F of the Finance Act, 1994 and deserve to be bifurcated into two components, ‘Residential Complex Services’ and ‘Special Services’.

The appellants contended that the provisions of 66F of the Finance Act, 1994 provide for taxation of bundled service. As per Section 66F, provision of bundled services shall be treated as provision of single service which gives the bundle its essential character. PLC, EDC and IDC do not have an independent existence and are associated with provision of Residential Complex Services. They are essentially components of the predominant Residential Complex Services and hence cannot be vivisected and treated separate. Further, there is no separate contract with customers for base value and separate contract for other charges..

Judgment: The Hon’ble CESTAT held that the CBEC letter issued by TRU about scope of valuation in respect of Residential Complex Service was introduced in 2010, when there was no provision of Section 66F of the Finance Act, 1994. After the introduction of the Section, its provisions would prevail over any clarification or view taken by the CBEC. The Hon’ble CESTAT further held that the components such as PLC, EDC and IDC are part and parcel of the main services i.e., Residential Complex Service. Thus, the entire consideration received by the appellants is eligible for abatement under Notification No. 26/2012-ST.

Logix Infrastructure Pvt. Ltd. vs. CCE & ST, CESTAT, Allahabad decided on 20-9-2018 in Appeal No. ST/70752- 70763/2018-CU[DB].

Logix Infrastructure Pvt. Ltd.

2. Whether ‘Crossing Over Charges’ charged by the assessee from their sub-franchisee courier agencies for enabling further movement of documents is taxable under Business Auxiliary Service (BAS) till September 2006 and under Business Support Service (BSS) thereafter?

Facts & pleadings: M/s. The Professional Couriers (hereinafter referred to as ‘appellants’) are inter alia engaged in providing courier services. The appellants were collecting certain charges as ‘crossing over charges’ from their subfranchisee agencies for enabling further movement of documents which originated from such sub-franchisees. The appellants contended that the disputed transaction is a continuous service of courier by a single network. Also, all the transactions are taking place in the name of the appellants. Further, no service is being rendered to a third party and hence there is no rendering of ‘Business Support Services’. Relying on the case of Concord Express Logistics India Pvt. Ltd., 2018-TIOL-2710-CESTAT-MAD, the appellants stated that the definition of ‘Business Auxiliary Services’ cannot be applied to the disputed transaction as it is within the same network for completion of services. There is no client-service provider relationship in the transaction. The appellants also contended that their activities are like that of a co-loader, and relying on Board Circular No. 341/43/96- TRU dated 01-11-1996, no service tax can be demanded from a co-loader. Further, the appellants contended that the very same service cannot fall under two different headings. The Department contended that there is no bar for the same activity to fall under ‘Business Auxiliary Services’ up to 2006 and ‘Business Support Services’ thereafter. The service category of ‘Business Support Services’ had been carved out of ‘Business Auxiliary Services’ only. The department alleged that the above Board Circular is not applicable in the present case as the same is applicable in case of co-loader and appellants cannot be considered as co-loaders. Department also alleged that the crossing over charges were collected towards logistic support and other support activities provided to the sub-franchisees and hence, taxable.

Judgment:  The Hon’ble CESTAT held that the disputed activity is a continuous service of courier by a single network i.e., service if any, is service to self only. Further, Hon’ble CESTAT noted that the amount charged for enabling such services approximately covered the expenditure involved in the re-routing of the packages. Since all centres of the appellants belonged to a single network, the concept of both ‘service’ and ‘client’ ceased to exist. The Hon’ble CESTAT further held that the various franchisees of the appellants are operating on a hub and spoke model, and that the crossing over charges, being collected only within the hub and spoke arrangement, cannot be said to be towards provision of any service. The disputed activity is only a continuation or culmination of courier services, and it cannot be alleged that the appellant is receiving or giving services within its own network. Accordingly, Hon’ble CESTAT held that there is no rendition of service in the present case.

Professional Couriers vs. CGST & CE, CESTAT, Chennai decided on 26-9-2018 in Appeal Nos. ST/54/2012 and ST/57/2012

Professional Couriers

Note: The Whole decisions can be downloaded from the CTC website under Knowledge Centre.

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