2026-VIL-394-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Demand of Service Tax on Commission Paid to Brokers for Canvassing Voyage - Department alleged that the commission paid by the appellant to foreign agents who are not having any permanent establishment in India for canvassing voyage for ships is classifiable under Business Auxiliary Service – HELD - The SCN did not specify the particular sub-clause of the definition of BAS under which the activity falls, rendering the demand unsustainable - The SCN has not even taken care to put the Appellant to notice as to what would constitute taxable service of BAS under section 65(105)(zzb) of the Finance Act, 1994. The Appellant has also not therefore been put to notice as to under which service their activity falls under Rule 3(iii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 that has been invoked in the SCN - The Department must specify the particular sub-clause of the definition under which the service is liable to tax. The impugned orders also do not detail the manner in which the alleged services received by the Appellant would satisfy the requirement to come within the ambit of Section 65(105)(zzb). The findings in the impugned orders on this count are unsustainable and set aside - The demand of service tax on commission paid to brokers under BAS is set aside – The appeal is allowed - Demand of Service Tax on Payments made to P&I Clubs - The Department alleged that the payments made by the appellant to P&I Clubs located abroad for covering third party liabilities is a taxable service being provided by an insurer under General Insurance Services - HELD - The P&I Clubs are mutual insurance associations that provide pooling of risks and representation to its members, and the relationship is premised on mutuality. It was incumbent upon the authorities below to have examined whether or not there did exist a service provider and service receiver relationship between the P & I club and its members given the conceded position that their relationship is based on mutuality without any profit motive. Therefore, the adjudicating authorities as well as the appellate authority have erred in proceeding to determine the taxability of the service rendered without examining whether or not the relationship between the P & I club and its members premised on mutuality would have a bearing on the exigibility of the services provided to service tax, particularly when the services are conceded as being rendered to its members – The Supreme Court in State of West Bengal v. Calcutta Club Ltd., held that services provided by a club or association to its own members remain outside the ambit of service tax. The P&I Clubs do not fall under the definition of 'insurer' and the payments made cannot be classified as General Insurance Services - the findings in the impugned orders that the P & I clubs are providing General Insurance Services to the Appellant and the consequent demand of service tax on the payments made by the appellant in this regard cannot sustain and set aside - Demand based on Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 - The Department alleged that the appellant had adopted the net amount instead of the gross amount and had eschewed adding the expenditure incurred, and sought to demand service tax by invoking Rule 5(1) – HELD - It is no more res integra that a demand premised on Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, as was prevailing for the relevant period, is unsustainable for the reason that the Honourable Supreme Court has upheld the findings of the Honourable Delhi High Court striking down the said Rule 5(1) as ultravires Section 66 & 67 of the Act in the Intercontinental Consultant’s case - The demand of service tax based on Rule 5(1) is set aside - Invoking of Extended Period of Limitation - The Department invoked the extended period of limitation on the ground of wilful suppression of facts by the appellant – HELD - The SCN did not allege any positive act of wilful misstatement or suppression of facts with intent to evade payment of duty. The appellant's claim of bona fide belief is also not implausible. The Tribunal relied on various decisions that held that in such circumstances, the extended period of limitation is not invokable - The invocation of extended period of limitation is set aside.
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