Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/034

13 March 2010

PJ/CASE STUDY/2009-10/34

Case Study

Prepared by:

CA Pradeep Jain and

Sukhvinder Kaur, LLB

Introduction: -

In the case of Goods Transport Agency, the person receiving the service has been made liable to pay tax and he is also entitled to avail cenvat credit of the service tax paid. Also, Notification No. 32/2004-ST, dated 03.12.04 grants the benefit of abatement @ 75% to GTA. However, one of the conditions prescribed in the said Notification was that the transporter had to give declaration on the consignment note that he has not availed the benefit of cenvat credit as well as the benefit of exemption under Notification No. Notification No. 12/2003-ST dated 20.06.03. However, the Transporters were not furnishing the said declaration on the consignment notes. In such a situation whether the substantive benefit of exemption notification could be denied to the assessee paying the service tax on GTA. This was being done even though the fault was at the end of transporter. The department contended that the benefit of abatement is not available and as such the manufacturer should pay the service ta at full rate. The same matter is involved in the case which is understudy in the case study.

Commissioner of Central Excise, Ahmedabad-III v/s M/s Mangalam Alloys Ltd

[Order-in-Original No. 03/JC(KS)/2010, Dated: 23/02/2010]

Brief Facts of the Case: -

¨ The appellants are engaged in the manufacture of excisable goods falling under Chapter 72 of the First Schedule to the Central Excise Tariff Act, 1985. They were also registered with the Service Tax Department and paying the service tax on the transport of goods service received by them.

¨ The appellants were claiming the benefit under Notification No. 35/2004-ST, dated 03.12.04 (Notification 1/2006-ST for further period) and were availing the abatement of 75% on the service of GTA and were paying service tax at the 25% of the gross freight charges for the service of GTA.

¨ The Department noticed that the appellant were availing the abatement of 75% on the gross freight charges without filing of declaration on each consignment note by the GTA as was prescribed by the provisions of the said Notification. Accordingly, show cause notice was issued alleging that the appellant were not eligible for the benefit of abatement under the said Notification on the ground that the condition prescribed therein was not fulfilled. Demand of differential duty with interest and penalty were proposed to be imposed in the said notice.

¨ The appellant have filed a reply to the show cause notice at the time of issuance of the same and also at the time of personal hearing.

Appellant’s Contention: -

- The appellant contended that in the reply that they have obtained the necessary declaration from their transporters and have submitted the same to the Range Superintendent and to the Joint Commissioner. Hence they were eligible to avail the abatement of 75% under the Notification No. 1/2006-ST dated 01.03.2006.

- It was submitted that the declaration to be filed by the service provider was only a procedural requirement and the benefit of abatement cannot be denied on the ground of not following the procedure. They have relied upon the judgments given in the cases of In Re: Prayas Castings Ltd [2008 (12) STR 247 (Commr Appl.)], Commissioner of Central Excise, Vapi v/s Unimark Remedies Ltd. [2009 (15) STR 254 (Tri-Ahmd)], CCE, Vapi v/s M/s Unimark Remedies Ltd. [2009-TIOL-363-CESTAT-AHM], Commissioner of Central Excise, Vapi v/s Neral Paper Mills P. Ltd [2009 (14) STR 374 (Tri-Ahmd)].

- The Appellant further submitted that even if the declarations were not produced, the benefit of abatement of 75% cannot be denied to them. They have cited the judgment in the case of Commissioner of C. Ex., Rajkot v/s Sunhill Ceramics Pvt Ltd [2008 (9) STR 530 (Tri-Ahmd)]. They have also relied upon the judgments given in Sakthi Masala P. Ltd v/s Commissioner of Central Excise, Salem [2009 (15) STR 314 (Tri-Chennai)], Areva T & D India Ltd v/s Commissioner of Central Excise, Allahabad [2009 (14) STR 426 (Tri-Del)], Shanti Fortune (I) Pvt Ltd v/s Commissioner of C. Ex. (ST), Coimbatore [2008 (12) STR 357 (Tri-Chennai)], Jain Steels v/s Commissioner of Central Excise, Meerut [2008 (12) STR 321 (Tri-Del)].

- Appellant contended that as they have filed the required declaration subsequently, they are eligible for the 75% abatement as held by the Tribunal in the case of Famy Care Ltd v/s Commissioner of Central Excise Vapi [2009 (15) STR 708 (Tri-Ahmd)] that whatever the amount of Service Tax paid is available as Cenvat Credit to them and they argued that this is not the case of fraud, mis-statement or evasion of tax intentionally. Therefore, in the absence of any positive evidence on record by the department, the amount demanded beyond a period of one year is without authority and not sustainable in law.

- During the personal hearing the appellant had contended that their transporters had not availed the cenvat credit and declaration to this effect has been filed with the Department.

Reasoning of the Order-in-Original: -

The learned Adjudicating Authority held as under: -

Ø The Adjudicating Authority gave the finding that on all the consignment notes there was no endorsement to the effect that- (i) Cenvat credit on inputs or capital goods was not availed by the transporter and that - (ii) benefit of Notification No. 12/2003-ST, dated 20.06.03 was not availed. However, at the time of personal hearing the appellant had produced the necessary declaration from their transporters and had stated that the said declarations have already been submitted before the Range Superintendent.

Ø The Adjudicating Authority gave the finding that the Range Superintendent had confirmed that the appellant had given the declaration from all their transporters regarding non-availment of cenvat credit and also regarding the non-availment of benefit of Notification No. 12/2003-ST dated 20.06.2003.

Ø The Adjudicating Authority therefore held that the condition of the said Notification had been fulfilled substantially though belatedly. The requirement of declaration in the invoice was only procedural and there was substantial compliance with the requirement of the Notification.

Ø Hence, it was held that denying the benefit of Notification No. 32/2004-ST, dated 03.12.2004 would not be correct in law.

Ø The Adjudicating Authority relied upon the judgments given in the cases of Commissioner of C. Ex., Rajkot v/s Advance Diesel Engineering (P) Ltd [2008 (10) STR 201 (Tri-Ahmd)], Arun Textiles (P) Ltd v/s Commissioner of C. Ex., (S.T.), Salem [2007 (8) STR 350 (Tri-Chennai)] wherein it was held that even if the conditions prescribed in the Notification are fulfilled subsequently benefit of the notification will be available to the assessee. Reliance was also placed on the judgments given in the cases of CCE & C, Guntur v/s Kanaka Durga Agro Oil products Pvt Ltd [2009 STR 399 (Tri-Bang)] and Andhra Pradesh Paper Mills Ltd v/s Commr. of C. Ex. & Cus., Vishakhapatnam [2009 (15) STR 468 (Tri-Bang)].

Ø In the end the Adjudicating Authority held that benefit of Notification No. 32/2004-ST dated 03.12.2004 could not be denied to the appellant. There was no intention to evde payment of service tax by the appellant. The transporters had not discharged service tax on GTA and hence there can be no presumption also that the transporters have availed of credit.

Decision of the Adjudicating Authority: -

Demand raised is not sustainable and demand of service tax fails. Charging of interest and imposition of penalty accordingly not warranted. Proceedings initiated against the appellant are dropped.

Comments: -

This is a very welcome decision for the assessees. When the assessee fulfills the substantial requirements then merely because of procedural lapses the substantial benefit cannot be denied. This decision also is important as it gives relief even when the conditions of the Notification are fulfilled subsequent to the issuance of show cause notice.

Before parting:-

This was big issue all over the country before the amendment in budget 2008. The transporters were not much educated and they were not giving the declaration and as such the benefit of abatement was being denied. To overcome this problem, the abatement was denied to service of Goods transport agency. Further, exemption was given of 75% of taxable value to GTA service. It was clearly equal to abatement percentage. Further, to deny cenvat credit to transporter, the definition of output service was changed and GTA service was excluded from the same. In all, the effect of this whole series of amendments was that the same service tax was payable and cenvat was not available to transporter. But the requirement of giving declaration on consignment note was not required. Thus, to dispense with this requirement, the series of changes were made. This is why it is said that law is very complicated.

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PJ/CASE STUDY/2009-10/034
13 March 2010

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