Payment of service tax on GTA by Truck Operator

Prepared By:

CA Pradeep Jain,
Sukhvinder Kaur, LLB [FYIC]
And Arpita Birla

Introduction:-

In most of the instances, the liability to pay the service tax is on the service provider however, in the case of Goods Transport Agency and in the case of service received from outside India from a foreign entity, the liability to pay the service tax is on the service recipient. In the case under study, the assessee was hiring trucks and providing them for transportation to the persons who wanted to transport their goods. Will he be liable to pay service tax on the commission received by him is the issue raised in this appeal.

Deputy Commissioner, Central Excise, Jodhpur v/s M/s Rathore Freight Carrier
[Order-In-Appeal no. 278-279(CB)ST/JPR-II/2011, dated: 16.06.2011]

Brief Facts:-

- Respondent-assessee was engaged in providing GTA services and were registered for GTA service under Service Tax. On the gross amount received from client as per consignment note, the respondent where paying service tax. In case the assessee did not have its own truck than it hired trucks and paid major freight amount to truck owners as well as kept some cut from it.

- During audit, it was alleged that for the period 2004-05 & 2005-06 the assessee had received commission from the truck owners which was taxable under the head of Business Auxiliary Services. Show cause notice was issued to the assessee to pay service tax on the said commission received.

- The Adjudicating Authority took the view that assessee was working as truck broker therefore the services given to truck owner is classifiable under Business Auxiliary Services, hence Service Tax was payable on said amount. Accordingly, the Adjudicating Authority confirmed the demand of Service Tax along with interest and also imposed penalties under Section 76 and Section 77 of the Finance Act, 1994.

- Aggrieved by the impugned order, the assessee filed appeal before the Commissioner (Appeal). Department filed appeal on the ground that penalty under Section 78 was also required to be imposed on the assessee which was not imposed.

Assessee’s Contentions:-

Assessee made following submissions before the Commissioner (Appeal):

- Assessee submitted that they do not provide any service to any specific person or do not receive any fixed commission. The practice adopted by them is that they engage any vehicle on lower freight and book it at higher side freight to any other person. For eg. say, for a particular trip they hire truck from truck owners @ Rs. 10000/-. For transporting the goods for this trip they charge their customers @ Rs. 15000/-. In other words, out of this amount of Rs. 15000/-; they pay Rs. 10000/- to the truck owners and balance Rs. 5000/- is the margin/profit earned by them. In their financial records, they show this margin only as a net income from freight. However, the service tax is paid by them on the amount recovered from the customers, i.e. Rs. 15000/- in the instant case. This is further clarified from the fact that the service tax is paid on the LR raised by them and the LR is raised on the amount recoverable from the customer. The impugned order is demanding the service tax on the aforesaid amount of Rs. 5000/- by treating the same as commission. And whereas, this amount has already been taxed as the value on which they have paid service tax (i.e. Rs. 15000/-) includes this amount. Thus, the contention of the impugned order demanding the service tax on the amount already taxed is not tenable and is liable to be quashed.

- In continuation to above it was submitted that it is clarified by the Ministry’s Circular F. No. 341/18/2004-TRU (PT) dated 17-12-2004 that liability of payment of service tax on a particular amount occurs only once and if the same has been deposited by a person, then it cannot be taxed twice. This circular in its para no. 5.7 clarifies that if service is paid by any person, other person cannot be made liable to pay the service tax on the same amount in order to avoid double taxation. Though, this para was intended to clarify the cases where the service tax has been paid by the transporter; it cannot be demanded from the consignor/consignee as it would tantamount to double taxation. However, the analogy drawn by this para is clear that service tax cannot be levied twice on the same amount. If the example taken above is recalled – the amount charged on LR and recovered from customers is Rs. 15000/- on which service tax is duly paid. The amount given to truck owners is Rs. 10000/-. The impugned order is demanding the service tax on amount of Rs. 5000/- (being 15000-10000). And whereas, the service tax has been paid on the value inclusive of this Rs. 5000/-. Thus, if the service tax is demanded on this amount it would lead to double taxation as this value has already been taxed with the amount of Rs. 15000/-. Thus, the impugned order, demanding the service tax on the differential amount as above, is contradictory to the above referred circular and is liable to be set aside.

- Further, it was submitted that it is evident from the LR’s also that they are paying the service tax on the amount that they are charging from the service recipient. Also the assessee has not charged any extra amount from the truck owners or the service recipient then what is mentioned in the LR’s. The truck owners are paid the freight from the amount that has been already charged from the recipient of the service. That means the service tax has been paid on the whole of the amount received which includes the so called commission. Passing the original in order for demand on the amount that has already been paid is totally erroneous. Further the copies of the registers maintained by the assessee also shows that the assessee is charging only the amount that is received from the service recipient and no further amount is received by them.

- The assessee further explains the same through an example. Like a person (service recipient) comes to the assessee (Goods Transport Agency) for availing the services of goods transport agency. The assessee hires the truck owners for providing the service. The LR is raised in the name of the service recipient and service tax is charged on the same. Supposing the LR is raised of the amount of Rs. 5000. The service tax on that will be charged @ 10.3% i.e. Rs. 515/-. So the amount received from the service recipient will be a total of Rs. 5000+515 i.e. Rs. 5515/-. From this 5515/- rupees –

- Rs. 515 will be deposited as service tax in the government account.

- From the remaining Rs. 5000 the truck operators will be paid the freight after keeping some amount with the assessee. Supposing they pay the truck owners freight of Rs. 4000.

- The remaining Rs. 1000/- rupees is kept with the assessee.

This is how the assessee deals with the transaction when the truck owners are hired. Therefore this also shows that the assessee is not earning any extra amount that can be called as commission to be charged under the head Business Auxiliary Service as said in the order. Further in the original in order also it is said that “In case the agency does not own its trucks than it hired trucks and pays money to truck owners as well as keeps some cut with it. So on this cut/ commission again service tax cannot be levied”. The same is happening in the case of the assessee then the burden of service tax for the second time cannot be put on the assessee.

- The assessee has maintained the records of all the LR’s and the registers showing the amount charged. The register also shows those entries where the service tax is paid by the consignee of the goods to the government. Therefore where the assessee has not discharged the service tax liability it is discharged by the consignee as applicable in the law. Raising a demand to pay the service tax on the amount that has already been deposited in the government’s account is totally erroneous and is liable to be set aside. Further as said from the beginning that the assessee is not earning anything more as commission on which service tax has not been paid as said in the original in order.

- Further it is said in the order-in-original that the assessee is working as a truck broker i.e. he is acting as a conduit between other Transport Agency and Truck owner so his services are classifiable under Business Auxiliary services and the assessee has to pay service tax on it. To this the assessee contend that there is no other Goods transport agency involved in between. The LR’s of the assessee also show that the name of the consignors. In the name of the consignor there is no name of any Goods transport Agency. Further the register maintained by the assessee also shows the name of the consignor and the destination. This also shows that there are no goods transport agency involved in between the transactions. All the service recipients are the companies, individuals etc but not transport agencies. Therefore the order in original passed taking such allegations is totally liable to be quashed

- Further if the contention of the order in original is accepted for the argument sake also that the assessee is earning commission that is liable to be levied under service tax under the category of Business Auxiliary service then the assessee will get the benefit of the Notification No. 1/2009-ST dated 5.1.09 regarding Exemption in respect of certain specified taxable services when provided to a Goods transport agency (GTA). So if for the argument sake also this is accepted that there is any goods transport agency involved in the transaction and the assessee is earning some commission it will be exempt in the purview of the above notification. As the Notification says that the above mentioned services provided to a Goods transport Agency will be exempt from the levy of service tax the assessee therefore has to pay no service tax on this transactions. Further, reliance was placed on the clause (zzb) of the Notification and it was submitted that the above Notification exempts the service tax leviable on the services provided to the GTA under the head Business auxiliary service. Therefore if this ratio is also applied the assessee is not liable to service tax under the head Business Auxiliary service and therefore the order in original passed against the assessee is totally erroneous and is liable to be set aside.

- Further going with the above analogy the TRU letter 334/13/2009 dated 6.7.2009 it is clarified that the above Notification No. 1/2009 dated 5.1.2009 is given retrospective effect from 1.1.05. It was submitted that from an analysis of the TRU letter it is clarified that the benefit of the Notification 1/2009 dated 5.1.2009 is applicable retrospectively from 1.1.05. Therefore if for the argument sake also it is accepted the assessee according to this Notification is not liable to service tax on the claim raised in the order in original

- Further the order in original is imposing interest on the demand under Section 75 of the Service Tax Act, 1944. To this the assessee contends that if the demand is not sustainable in the law then there arises no question of imposing interest. Therefore the order in original passed is totally erroneous and is liable to be set aside

- Further the order in original imposes penalty under the section 76 and 77 under the Finance Act, 1994. Relying upon Section 76 it was submitted that the assessee has not contravened any of the provisions of the service tax Act. Further it is alleged that the assessee has willfully suppressed the facts from the department. The assessee has not paid the service tax on the commission they have received under the Business Auxiliary services. Extended period is also invoked on the assessee. When the assessee was not liable to pay the service tax under the head Business Auxiliary service there arises no question of penalty under the section 76 of the Service Tax act, 1944. All the information that is collected is collected from the records of the assessee by the audit party. Therefore it cannot be said that the assessee has willfully suppressed any facts from the department. Further the assessee is discharging the service tax liability on the GTA services and filing the ST-3 returns regularly. Therefore when no other category of service is provided by the assessee there is no requirement to obtain further registration under any category of services. Penalty under Section 77 is not imposable on the assessee.

Issue: -

Whether the goods transport agency who has paid service tax on value shown in consignment note should again pay service tax on difference of freight received from client and freight paid to truck owners?

Reasoning of the Commissioner (Appeal):-

The Commissioner (Appeal) found that the assessee had paid service tax on whole amount of freight and kept the difference of freight received from client and freight paid to truck owners, since once Service Tax has been paid on whole amount of freight then it again cannot be demanded on some part of it which retained by GTA to avoid double taxation, hence the demand is not sustainable.

It was further held that since demand is not sustainable then question of interest does not arise and penalty under Section 76, 77 & 78 of the Finance Act, 1994 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 Adjudicating Authority:-

Impugned order was set aside. Appeal of the assessee was allowed and Department’s appeal was rejected.

Conclusion:-

When the assessee was only receiving commission for engaging the vehicle and booking it to other persons who required to transport their goods and the service tax on GTA was paid by the persons hiring the trucks from the assessee, then the assessee was not required to pay the service tax again as the service tax was already paid. The Commissioner (Appeal) rightly set aside the impugned order confirming the demand of service with interest and imposing penalties.

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17 August 2011

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PJ/CASE STUDY/2011-12/20
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