2019 (4) TMI 1205 - AT - Service Tax

CENVAT Credit - input services - Freight - GTA Service - reverse charge mechanism - HELD THAT - There is no doubt that the tax liability on consideration for goods transport agency service falls upon the recipient of the service. It is also not in doubt that the individual truck operator is outside the pale of the taxable service in section 65 (105) (zzp) of Finance Act, 1994 as it is not the transport per se that is liable to tax but only such transportation as organised through an entity which takes responsibility for the safe delivery of the goods instead of the transporter; the undertaking of such responsibility is evidenced by the issue of consignment note and a truck operator, taking such responsibility upon itself, is not the object of the tax - The tax-paying recipient is, undoubtedly, entitled to avail the CENVAT credit of such tax incidence. If the payments made by the appellant were in the nature of financing of the cost of delivery to be deducted subsequently from the dues owed to the cane farmers, it would not have been labelled as freight in the books of accounts. At the same time, we are deprived of any certainty that the disputed amount was, indeed, obtained from the final accounts as asserted in the impugned order. We can certainly advert that none of the documents on record are amenable to description as consignment notes - the nature, and extent of, expenditure incurred as freight needs further scrutiny before it can be subjected to tax with the sure conviction that these were consideration for road transport contracted by the appellant. Appeal allowed by way of remand.

Issues:
Confirmation of demand of tax liability, imposition of penalty under section 77 and section 78 of Finance Act, 1994, interpretation of taxable service under section 65(105) (zzp) of Finance Act, 1994, determination of tax liability based on relationship between the appellant and a trust, consideration of benefit derived by the appellant, compliance with the scheme of levy of tax on 'goods transport agency service', interpretation of 'consignment note' requirement, liability of tax on the recipient of service, eligibility for CENVAT credit, verification of expenditure labeled as 'freight' in balance sheets, consideration of revenue neutrality and impact on invoking the extended period.

Analysis:

The appeal concerns the confirmation of a tax demand of &8377; 55,34,316, imposition of penalties under sections 77 and 78 of the Finance Act, 1994, and the interpretation of the taxable service under section 65(105) (zzp) of the Act for the period from April 2007 to March 2010. The appellant, a manufacturer of various products, challenges the tax liability determined by the Commissioner based on the relationship between the appellant and a trust. The appellant argues that the activity taxed under the Act was not performed for their benefit and by the specific persons mentioned in the Act. The Tribunal notes that the tax liability for 'goods transport agency service' falls on the recipient of the service, and the issue revolves around whether the provider of the service conforms to the statutory definition. The appellant contends that their eligibility for CENVAT credit eliminates any motive for tax evasion and cites relevant Tribunal decisions to support their case.

The appellant further argues that under the sugarcane procurement system, the responsibility for delivering cane to the factory lies with the farmers, and they merely facilitated the trust to fulfill its function as mandated by the government. The appellant contests the imposition of tax liability, emphasizing that the vehicles used for transportation were operated by individuals and not restricted to motor vehicles. The Authorized Representative, however, supports upholding the tax demand, asserting that the tax liability devolves on the recipient as per the scheme of levy on 'goods transport agency service.' The Representative cites Tribunal decisions to argue that any service rendered by a road transporter, unless exempted, is subject to taxation.

The Tribunal acknowledges that the tax liability for 'goods transport agency service' falls on the recipient and not the individual truck operators. The appellant's claim that the farmers were responsible for freight payment is examined, with the Tribunal noting the absence of certainty regarding the disputed amount's source from the final accounts. The Tribunal highlights the lack of 'consignment notes' in the records and calls for further scrutiny of the expenditure labeled as 'freight' before subjecting it to taxation, emphasizing the need for verification by the original authority.

In conclusion, the Tribunal sets aside the impugned order and remands the matter to the adjudicating authority for a fresh decision, directing a detailed examination of the 'freight' expenditures in the balance sheets and consideration of revenue neutrality's impact on invoking the extended period. The Tribunal emphasizes the necessity for a thorough verification process before applying the tax provisions, ensuring clarity on the nature and purpose of the expenses labeled as 'freight.'

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