Auction of warehoused imported goods not liable for Service Tax

S.L. Karoliya, Asstt. Commissioner (AR) for the Appellant. Ms. Mansi Patil, Consultant for the Respondent.

ORDER

Ramesh Nair, Judicial Member – This appeal filed by Revenue is directed against Order-in-Appeal No. US/431/RGD/2Q11, dated 25-11-2011 passed by the Commissioner of Central Excise (Appeals)-II, Mumbai, wherein the ld. Commissioner (Appeals) has set aside the Order-in-Original and allowed the appeal of respondent.

2.The issue involved in the present case is that whether proceed of auction of warehoused imported goods in case of importer abandoned the goods, shall be considered as service charges towards storage or warehouse and is liable for service tax.

3. Shri S.L. Karoliya, ld. Asstt. Commissioner (A.R.) appearing on behalf of the Revenue reiterating the grounds of appeal submits that as per Section 150 of the Customs Act, 1962, when the goods is sold by public auction, proceed of any such sale among other payment, charges in respect of goods sold due to the person having custody of the goods, the said proceed is also paid towards storage and warehouse charges. Since, in the present case the respondent retains the proceed of the sale in auction and adjusted the same against storage and warehouse charges the same is liable to service tax as the amount is nothing but receipt towards services of storage and warehouse of the goods so abandoned.

4. Ms. Mansi Patil, ld. Consultant for the respondent submits that in the present case whatsoever sale proceed received by the respondent is towards auction of the goods and the said proceed were not received from any service recipient. Since the service recipient does not exist, the transaction could not be liable to service tax. For the purpose of service tax it is foremost requirement that there should be service provider and service recipient. Therefore the sale proceed of auction of abandoned goods is not proceed towards providing any service therefore the same is not chargeable to the service tax. She further submits that Id. Commissioner (Appeals) has rightly dropped the demand relying on the Board Instruction F. No. B 11/1/2002-TRU, dated 1-8-2002 wherein it was clarified that no cargo handling service said to have been rendered in case of abandoned cargo, therefore service tax is not leviable.

5. We have carefully considered the submissions made by both the sides.

6.We find that service tax was proposed to be demanded on the sale proceed of the auction of the abandoned imported goods. In the whole transaction no service recipient is existing; therefore there is no question of providing any service to any person. Merely for the reason that Section 150 provides for distribution of the amount of proceed of auction that will not empowered the Government to recover service tax on the auction proceeds. The ld. Commissioner with proper application of mind given detailed finding not only on the facts but also on the law point of Sections 48,150 of Customs Act, 1962 and also discussed in. detail the service tax provision and referred Master Circular dated 28-3-2007 and Board Circular dated 1-8-2002. Findings of the ld. Commissioner (Appeals) is reproduced below :

“I have gone through the records of the case and the oral and written submissions made before us. The issue in the instant case is to decide the ambit of Service Tax in relation to the activity of auctioning the abandoned cargo. The main allegation against the appellants is that the excess amount recovered over and above the storage and warehousing charges was retained by them and the same is liable to Service Tax. The appellants are in the business of providing storage and warehousing services in respect of imported cargo through their Container Freight Station and the crux of the demand against the appellants is on the ground that the sole association of the appellants with the abandoned cargo auctioned by them is through the various services provided by them and thus any income earned by the appellants from the auction of such abandoned cargo, after paying the customs duty and other expenses, is gross amount accruing to the appellants in lieu of the storage and warehousing services provided by the appellants in respect of such imported goods. It is indeed a fact that auctioning of uncleared cargo is part of the business activity of running a CFS and selling of such uncleared goods is not their separate business activity. Therefore, there is no dispute that the sole association of the appellants with such goods is through the services of storage and warehousing services provided by them to the importer/depositor of the goods. The process of recovery of storage and warehousing charges through auction of uncleared cargo takes place as a consequence to the non-payment of charges of the storage and warehousing provided by CFS. In such a situation there are two transactions taking place concurrently i.e. (i) the warehousing of the goods of the depositor (importer) in the CFS and (ii) sale of uncleared goods to the (new) buyer by way of auction by the CFS.

Section 48 of the Customs Act, 1962 prescribe the procedure in the case of goods not cleared, warehoused, or transshipped within 30 days after unloading. The said Section envisages sale of the goods by the person having the custody thereof.

Similarly, as per Section 150 of the Customs Act, 1962, the proceeds from the auction sales should first go to (i) expenses for sale (2) payment of freight and other charges to the carrier (3) payment of duty (4) payment of the charges in respect of the goods sold, to the person having custody of the goods and (5) payment of any amount due to the Government/Customs and balance, if any, shall be paid to the owner of the goods. This is a statutory and mandatory requirement. The retention of such amount by the custodian is expressly with the obligation to refund to the owner of such goods. Both the above said Sections clearly stipulate only sale of goods and make no provision for any service rendered. Section 65(105), Section 66, Section 64(3) and Section 67 of the Finance Act, 1994 make it clear that in order to attract Service Tax, there must be a taxable service provided, a service provider, a service receiver and a consideration received for the provision of the taxable service. In this case, on completion of auction and consequent to sale of such goods, the title of the goods passes to the successful bidder, who has not received, any service on account of storage and warehousing of such goods rather the successful bidder receives the ownership of goods. The auction of the said goods is carried out purely on a commercial basis and the consideration received is without the element of cost of storage and warehousing charges. A sale invoice is generated on the bidder and the goods are delivered after he has paid the full value of the bid amount along with the Sales Tax due thereon. The money realized from the bidder loses the character of a ‘storage and warehousing service’ and acquires the status of sale proceeds and becomes subject to Sales Tax. It is for the appellants (custodian of the goods) to apportion the sale proceeds to the respective components as per the order of priority stipulated under Customs Act. Therefore, the surplus amount retained by the appellants, for statutory disbursement to the owner of the goods is not in the nature of ‘storage and warehousing service’ and as mentioned earlier, it is leftover of the sale proceeds and as per Section 150 of the Customs Act, required to be given to the owner of the goods.

Notification No. 12/2003-S.T., dated 20-6-2003 exempts so much of the value of goods and materials sold by the service provider to the recipient of service, from the Service Tax leviable thereon under Section 6 of the Act, subject to the condition that there is documentary proof specifically indicating the value of the said goods and materials.

Further, CBEC vide para 36.03 of its Master Circular No. 96/7/2007-ST, dated 23-8-2007 has clarified that ‘Service Tax is not leviable on a transaction treated as sale of goods and subjected to levy of Sales Tax/VAT. Whether a given transaction between the service station and the customer is a sale or not, is to be determined taking into account the real nature and material facts of the transaction. Payment of VAT/Sates Tax on a transaction indicates that the said transaction is treated as ‘sale of goods’.

Board vide instruction F. No. B11/1/2002-TRU, dated 1-8-2002 has clarified that no cargo handling service can be said to have been rendered in case of abandoned cargo, therefore, service tax is not leviable. Since cargo handling is precursor to the warehousing, the Circular can be logically applied to the warehousing of abandoned cargo also and the said clarification can be applied to the instant case since no warehousing service can be said to have been rendered. I also place reliance on Tribunal’s decision in the case of M/s. India Gateway Terminal (P) Ltd. v. CCE – 2010 (20) STR 338 (Tri.-Bangalore) wherein it was held that auction of goods not cleared by importers is not covered under Port Services. It was held that the auction charges adjusted by port authorities towards port charges cannot be considered as receipt towards any service.

Following the Tribunal’s decision and the Boards above mentioned clarifications I hold that the auction charges adjusted towards warehousing charges cannot be considered as receipt of any services and hence not liable to demand of service tax.”

From the above findings, it can be seen that there is absolutely no infirmity in the order of the ld. Commissioner (Appeals), therefore the same has to be sustained.

We are therefore upheld the impugned order and dismiss the appeal of the Revenue.