Laibility to pay service tax for GTA service

PJ/Case Study/2011-12/31

CASE STUDY

Prepared By:
CA Pradeep Jain
Sukhvinder Kaur LLB [FYIC]

Introduction:-

The liability to pay the service tax is on the service provider providing the service. However, in certain exceptional cases, the liability to pay the service tax has been fastened on the service recipient. One such case is Goods Transport Agency service. The liability to pay service tax is on the consignee or consignor of the goods. In the case under study, the assessee had given its trucks on hire to Goods Transport Agency to transport the freight of the consignors to the consignees. In such a situation, can the assessee be held liable to pay the service tax for freight charges collected by him?

Relevant Legal Provisions:-

- Rule 2(1) (d) (v) of the Service Tax Rules, 1994:

The service provider is responsible for payment of Service Tax. (Section 68 of Finance Act, 1994). However, in relation to taxable service provided by a goods transport agency, where the consignor or consignee of goods is,

(a)          any factory registered under or governed by the Factories Act, 1948 (63 of 1948);

(b)     any company established by or under the Companies Act, 1956 (1 of 1956);

(c)     any corporation established by or under any law;

(d)     any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India;

(e)     any co-operative society established by or under any law;

(f)      any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made there under; or

(g)     any body corporate established, or a partnership firm registered, by or under any law, any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage;”

M/s Hasti Petrochemicals & Shipping Ltd v/s Additional Commissioner, C. Ex. Division, Jaipur-II
[Order-in-Appeal no. 521 (CB)ST/JPR-II, Dated: 29.09.2011]

Brief Facts:-

- Appellant are engaged in providing services under the Transport of Goods by Road Service. For the year 2006-07, 2007-08 & 2008-09, it was alleged that the appellant had not paid service tax and also not issued consignment notes for cargo freight collected by them from their customers.

- Department issued show cause notice demanding service tax for the said period with interest and also proposed to impose penalties.

- The Adjudicating Authority passed the order-in-original confirming the demand alongwith interest and imposed equal penalty under Section 78 and penalty was imposed under Section 77 of the Finance Act, 1994.

- Aggrieved by the impugned order, the appellant filed appeal before the learned Commissioner (Appeal) alongwith stay applications.

Appellant’s Contentions:-

Appellant-assessee made following submissions before the Commissioner (Appeal):

- That in the entire demand, there are two main submissions have been raised by the appellant. Firstly, that liability to pay service tax is on consignor or consignee. Secondly, appellant have also acted as truck owner and consignment notes have been issued by other transport company. Then in that case, the liability to pay the service tax is not on them.

- For their first contention that the liability to pay service tax is on consignor or consignee, the appellant submit that in the impugned order the learned Adjudicating Authority has not considered the submission of the appellant that as they are service providers of GTA and were also providing services to persons specified in Rule 2(1) (d) (v) of the Service Tax Rules, 1994, therefore the liability to pay the service tax was on the service recipient. The Rule 2(1) (d) (v) was reproduced and it was submitted that the analysis of the above mentioned rule makes it ample clear that where the taxable services are provided by Goods Transport Agency and the receiver that is the consignor or the consignee fall in the above mentioned seven categories than the duty discharging liability will be on the consignor or the consignee and not on the goods transport agency.

- It was also submitted by the appellant before the learned Adjudicating Authority that recipient of service were private limited companies, limited companies and partnership concerns and it is stated in the Rule 2(1) (d) (v) of the Service Tax Rules, 1994 clause (b) & (g) that where the consignor or consignee of goods is a company established under the Companies Act, 1956 or any body corporate established, or a partnership firm registered then the provider of the Goods Transport Service will not be liable to pay the service tax in such case. Instead in that case the liability to pay the service tax will be on that consignor or consignee, here the private limited companies to which the services are provided. The government has exempted the goods transport agency by road from the service tax liability.

- The appellant further submit that they have paid the service tax on Goods transport agency earlier but the department has issued a letter to us saying that under what authority of law, we are paying the service tax when the consignor and consignee is liable to pay tax. The appellant reiterated some part of the letter written by the department when they were paying the tax under Goods transport service:-

“Further please intimate how you have been paying service tax on outward freight paid by M/s Evergreen International Limited, Boranada, Jodhpur & under what authority of law, since you are neither consignor nor consignee in the instant case as per rule 2(1)(d)(v) of ST Rules, 1994 read with Not. No. 35/2004 ST & 36/2004 ST both dated 30.12.2004. Pl. explain.”

The language used clearly shows that the department is forcing them not to pay the tax and ask the consignor or consignee to pay the tax. Even if appellant pay the tax then it will be demanded from the consignor or consignee also. Thus, appellant have started asking the consignor or consignee to pay the tax. But the demand was issued to that that why they have not paid the tax.

- Further, the show cause notice was issued to one of the exporters M/s Evergreen international Limited, though the service tax has been deposited by them. Even the other exporters have filed refund from the department under Notification No. 41/2007-ST then the refund is rejected on the ground that the exporters are not eligible for refund as the liability to pay service tax is on them and they have not paid the same. But the transporter has paid the tax. The service tax has been paid by the appellant and hence the refund is not admissible. The copies of these orders were supplied to the learned adjudication officer but he has not said anything about these orders. This clearly underlines that the adjudication officer was bent upon to decide the case against the appellant. Such a non speaking order is liable to be set aside.

- The appellant further submit that the learned adjudication officer has said that the appellant have not issued the consignment notes to facilitate the exporter not to pay the service tax. They submitted that the impugned order is mixing both of their submissions. They submit that appellant have issued the consignment notes in these cases but the only thing was that the exporter is liable to pay service tax. When the consignment was sent for the exporter, appellant have issued the consignment notes and the version of the learned Additional commissioner is totally wrong. The consignment notes was not issued only in those cases where they have operated as truck operator which is their second submission. Hence the impugned order-in-original is mixing their both the submissions to upheld the order against them which is totally wrong. Such an order deserves to be quashed.

- The appellant takes up their second contention. The appellant submit that they own number of trucks. Many times, these trucks are lying idle. Further, at their dry port, major work is export of goods. When the trucks go for export then while coming back, they have to come empty. This is not economically feasible. Hence, the appellant take the goods from other transport company and bring their consignments. The other Goods transporter agencies issue the consignment notes and the appellant are operating as truck operator. In such case, there is no liability on them. The liability is either on transporter, consignor and consignee. There is no liability on truck operator. There are number of case laws which provide that there is no liability on truck operators. Appellant have mentioned the same in the reply to show cause notice also. The exemption notification 29/2008-ST dated 16.06.2008 grants exemption to them. The same has been superseded by notification 1/2009-ST dated 5.1.2009. This has also been given retrospective effect by Finance bill 2009. Further it was also clarified by CBEC circular no. 334/13/2009-TRU dated 6.7.2009 also. Hence the exemption is available to the appellant. But the order-in-original not paying weightage to their submission is totally erroneous and liable to be quashed.

- The appellant further submit that impugned order says that the consignment notes were not issued by them so as to facilitate the consignor or consignee to facilitate them to evade payment of service tax. In this regard, appellant submit that they have categorically said that appellant were operating as truck owner and goods transport agency was other person. Appellant has issued the consignment notes. This was shown during the personal hearing also and for each bill, appellant have billed to transport company. Even appellant are ready to show the same now also for each transaction. Further, the transporter company (Goods transport agency) has issued the consignment notes. The photocopy of consignment note was also shown at the time of personal hearing. Appellant are once again enclosing herewith the specimen copies of their invoices along with consignment notes. Appellant will show all the box files at the time of personal hearing as it is very difficult to incorporate all the invoices and consignment notes in the appeal. Appellant have shown all these documents at the time of personal hearing to learned adjudication officer and one box file was also given to him but he has not considered the same. On the contrary, he has not discussed the same at all. Further, Appellant have mentioned this fact when order of Evergreen and other parties was sent to him but he has not discussed the contents of that letter also. Appellant have acknowledgement receipt also. Even the boxes files relating to year 2006-07 was sent along with reply also. But the same was also not discussed. On the reverse side, the order-in-original is contending that Appellant have not shown any evidence for the same. This is totally against the factual position. Such an order is not legally sustainable in eyes of law.

- Appellant have submitted that the exemption notification 29/2008 is applicable on them but the learned adjudication officer says that it was to avoid double taxation on goods given on hire to Goods transport agency under “Supply of tangible assets” and “transport of goods by road service”. In this regard, Appellant submit that they have given the truck on hire to Goods transport agency only. He has issued the consignment note. It is clear from the evidence of their invoice as well as consignment notes. Thus, no service tax is applicable on Appellant as it would lead to double taxation. If the service tax in this case is applied on them then Appellant will be covered under “Supply of tangible assets” which is exempted vide notification no. 29/2008. This notification was further superseded by notification 1/2009 and it has been given retrospective effect in Finance Bill 2009. But the learned adjudication officer did not discuss the retrospective amendment to confirm the demand. He says that the notification was not in force in relevant period as demand pertains to earlier period. He has intentionally not discussed the retrospective amendment otherwise the demand should have been dropped. He further says that case laws are not applicable in their case as Appellant have not shown the name and address of consignor or consignee. Appellant submit that when he is saying that they have not produced any evidence like invoice etc. then how he came to know that Appellant have not written the name and address. As such, he has seen the invoices and consignment notes issued by them. But if he accepts the same then the demand is not sustainable. But he has accepted the same indirectly. Hence, such an order liable to be set aside.

- The appellant further submit that impugned order-in-original says that Appellant are operating as GTA and not as individual truck owner. This is totally erroneous. Appellant have submitted that they have two types of transactions relating to this complete demand. In one part, they are operating as GTA but have submitted that the liability to pay the service tax is on consignor or consignee. The second type of transaction, Appellant are operating as truck operator and Goods transport agency is other person. In that case, he has issued the consignment notes and there is no liability on Appellant. Appellant have shown all the invoices along with bilities to the adjudication officer. But he has mixed our both type of submissions and confirmed the demand. This is totally illogical and illegal. The impugned order is wholly and totally erroneous.

- The appellant further submit that in the impugned order, the learned Adjudicating Authority has held that with regard to income under the head ‘Cargo freight’, the appellant have not produced any evidence in support of their contention that the said income was from the goods carriage given on hire to other Goods Transport agencies.

In this regard, the appellant submit that the above finding is not tenable as the appellant had produced the relevant documents in support of their contentions. It is submitted that the appellant had submitted the records relating to the said income for the year 2005-06 alongwith their reply to the show cause notice. The receipt showing submission of documents was annexed with the reply. Therefore, it cannot be said that the appellant had not filed any evidence and the finding of learned Adjudicating Authority in this regard is required to be set aside.

- It is further submitted that at the time of personal hearing the appellant have taken box files containing the record relevant to the said demand for the year 2006-07 and for the year 2007-08. The said files were produced and shown to the learned Adjudicating Authority. The learned adjudication officer has asked to show the invoices from one of the box file and it was shown to learned additional commissioner. Thereafter, he has told that there is no need to submit the rest of the files. One of box file from which sample invoices were shown was given to him at the time of personal hearing itself. Thus, the appellant had brought all the files but only one file was demanded by the Adjudicating Authority and was shown to him. Therefore, the entire finding in the impugned order is required to be set aside as the appellant had produced evidence in the form of Box files containing the records of the transactions under cargo freight. Even this fact was also narrated in his letter which was sent on 26.02.2011 along with copy of show cause notice and order of Evergreen international as well as order-in-original of M/s Satyam exports and Sharma Industries. This copy was sent through courier. Thus, it is clear that evidence has been produced before the adjudication officer but he did not accept the same. Such an order is liable to be set aside.

- In continuation, the appellant submit that in their Adjoiner dated 26.02.2011 to reply to show cause notice, the appellant have clearly submitted that the appellant have already forwarded the bills as well as bilties raised by GTA for the period 01.04.2006 to 31.07.2008 i.e. the period for which show cause notice was issued, vide their letter dated 03.06.2010. It is submitted that in the adjoiner it was categorically mentioned by the appellant that they will produce all the invoices for rest of period at the time of personal hearing but the learned Adjudicating Authority had asked us to show the sample invoice from one of the box file. The appellant had shown the sample invoice. The learned Adjudicating Authority was satisfied by showing of one sample invoice and the appellant has taken the remaining box files back. Thus, the appellant had produced the records as evidence. Therefore, the finding of the Adjudicating Authority is required to be quashed.

- The appellant further submit that they had produced the evidence in the form of Invoices relating to the head cargo freight but the learned Adjudicating Authority has not considered the same and has given a contrary finding that no evidence was adduced by the appellant, thus the impugned order is vitiated as it violates the principles of natural law. The evidence adduced by the appellant was not considered. It is submitted that in a number of judgments, it has been held that the order passed without considering the submission and evidence produced by the assessee are not sustainable as they violate the principle of natural justice. The said judgments are as under:

- Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)] it was heldthat an order passed without considering the submissions of the appellant is a non speaking order and a non speaking order is not legally viable in the eyes of law.

- M/s Southern Plywoods v/s CCE, Cochin [2009-TIOL-1320-CESTAT-BANG] it was held that Submissions of appellants not being considered violates principles of natural justice.

Accordingly, it is submitted that the impugned order is liable to be set aside as it violates the principle of natural justice.

- The learned adjudication officer has held that these transactions have been recorded under the head “Cargo freight” and not under “hire charges” clearly shows that we intend to hide the transportation charges. But we submit that we do not intend to hide anything. Since our containers are transported as cargo, as such the name “Cargo freight” has been given. The appellant further submit that the learned Adjudicating Authority has not accepted their contention that the appellant had mentioned the income received from the giving the goods carriages owned by them on hire under the head ‘Cargo Freight’ for their own accounting purposes. The services that are provided by the appellant as a Goods Transport Agency by road they have just for their better understanding categorised as a head of cargo freight, as the freight that is taken is for the cargo to be transported. Just the classifications of appellants cannot be one of the bases for raising the demand. However, these contentions of the appellant were not considered by the learned Adjudicating Authority. Such an simple order just confirming the demand on accounting head is totally and wholly unsustainable.

- The appellant submits that the provider of the goods transport agency service is not liable to discharge the service tax liability but the burden of discharging the duty is on the receiver of the service we rely on the below mentioned cases-

MSPL LTD. Versus COMMISSIONER OF CENTRAL EXCISE, BELGAUM [2009 (13) S.T.R. 554 (Tri. - Bang.)]

Goods Transport Agency service - Person liable to tax - Appellant-manufacturer transporting goods in own vehicle to buyer - Demand of Service tax on freight charges collected from buyers - Appellant contending that if consignor or consignee covered under specified categories then any person paying freight is person liable to pay Service tax - Freight paid by buyer in impugned case - Liability to pay Service tax cast on person who pays freight as per provisions - Appellant not liable to pay Service tax - Appeal allowed - Section 68 of Finance Act, 1994 - Rule 2(1)(d) of Service Tax Rules, 1994. [paras 4, 7, 9]

NAVYUG ALLOYS PVT. LTD. Versus COMMR. OF C. EX. & CUS., VADODARA-II   [2009 (13) S.T.R. 421 (Tri. - Ahmd.)]

Demand (Service tax) - Person liable to pay - Demand confirmed on recipient of Goods Transport Agency service - Service tax paid by transporters - Revenue contending that appellant alone liable for GTA service and payment of tax by transporters not valid - Once tax paid, same amount cannot be confirmed in respect of same services - Impugned order set aside - Section 73 of Finance Act, 1994. [paras 1, 2]

But the impugned order just brushed aside the case laws saying that these are applicable in this case. He has not discussed and distinguished the same. Such an approach to ignore the tribunal decisions is totally against the legal position that the tribunal decisions are binding on all lower formation. Hence, the order is not sustainable and our appeal should be allowed.

- It is also submitted that in the impugned order penalty under Section 77 and 78 of the Finance Act, 1994 is imposed on the appellant by holding that all the charges levelled against the assessee are proved on facts and on law. In this regard, it is submitted that no penalty can be imposed on the appellant as the charges have not been established against the appellant. There is no evidence to establish that the appellant had violated the provisions of the Finance Act, 1994 or the Service Tax Rules, 1994. Therefore, the impugned order is liable to be set aside. Further, all the transactions were duly recorded in books of accounts and it was readily made available to the audit wing. Hence the extended period is not invokable and charge of mens rea cannot applied on us. Hence the penalty itself is not sustainable.

- The appellant further submit that they have clearly brought about the discrepancy in the figures by their reconciliation statement but the same is also not acceptable to adjudication officer. He says that the figures have been taken by audit and as such they are correct. We have also clearly brought the errors committed by audit. The audit period stated in audit report is from August 2006 to March 2008 but the show cause notice says that the demand is issued upto July 2009. But the figures were collected upto August 22, 2009. Thus, it clearly shows that there was grave error committed by audit party as well as show cause notice. But even then the department is not ready to accept the real figures provided by the assessee. This shows that the department is bent upon to decide the demand against us. This approach shows that the demand is confirmed with prejudice mind and such demand is not sustainable.

Reasoning of the Order-in-Appeal:-

The learned Commissioner (Appeals) has held that a perusal of the consignment note dated 12.12.2007 show that therein it was mentioned that Service tax was payable by consignee on the basis of which appellant raised Bill dated 03.01.2008. Similarly, on perusal of consignment note dated 20.12.2007 of Shubham road lines, it was observed that it was mentioned that Service tax was payable by consignee on the basis of which appellant raised bill dated 03.01.2008.

- It was noted that from a perusal of submitted copy of consignment notes it is observed that at the time of coming back from sea ports appellant was carrying the goods as truck owner and earned the cargo freight and consignment notes were issued by payment of service tax.

- It was held that the view of the learned Commissioner (Appeals) get support from the decision of Hon’ble Tribunal in the case of Lakshminarayana Mining Co. [2009 (16) STR 691 (Tri-Bang)] wherein it has been held that

“Goods Transport Agency service – Scope of – services of transport of goods provided by truck owners or truck operators not covered – Transport of goods service provided by agents alone liable to service tax – Sections 65 (50b) and 65 (105) (zzp) of Finance Act, 1994”.

Thus, it was held that Service Tax cannot be demanded from appellant being a truck owner/operator accordingly the impugned order was set aside.

- It was further held that since the demand was not sustainable therefore question of interest does not arise and penalty is also not imposable in view of Hon’ble Supreme Court’s Decision in the case of H.M.M. Ltd [1995 (76) ELT 497.

Decision of the Commissioner (Appeal):-

Impugned order set aside. Appeal allowed.

Conclusion:-

When the legal provisions clearly provide that the liability to pay the service tax is on the consignee or consignor then the assessee who is neither consignee nor consignor, but is truck owner then the liability to pay the service tax cannot be imposed on him. The Learned Commissioner (Appeal) rightly held that assessee being a truck owner/operator is not covered under the scope of the GTA service.

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09 November 2011

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PJ/CASE STUDY/2011-12/31
09 November 2011