2010 (1) TMI 131 - AT - Service Tax

GTA service - The Department was of the view that the appellants who reimbursed freight charges to the suppliers are receiver of GTA service and accordingly they would be liable to pay service tax on the transportation charges. It is on this basis that the show cause notices were issued to the appellants for recovery of service tax on GTA alongwith interest and also imposition of penalty on them for non-payment of service tax. The service tax demands were confirmed by the Asstt. Commissioner and on appeal, the Asstt. Commissioner s orders were upheld by the Commissioner (Appeals). Held that the appellants have only reimbursed the freight expenses incurred by the suppliers and since the appellant s contracts that the suppliers were on F.O.R basis, it is the suppliers who had engaged the transporters to arrange the transportation of the goods from Nepal upto the appellant s factory premises and it is the supplier who have made payment to the transporters prima-facie, the appellant can not be treated at recipient of GTA service - pre-deposit of demand, interest and penalty is waived

Summary

Issues: Determination of liability for service tax on transportation charges reimbursed by appellants to Nepalese suppliers.

Analysis:
The appellants, who are manufacturers of Grey Fabrics, purchased yarn from Nepalese manufacturers on F.O.R. basis. The Nepalese manufacturers supplied the yarn to the appellants and arranged transportation to the appellants' premises, paying the freight to the transporters. The Department contended that the appellants, by reimbursing the freight charges to the suppliers, should be considered recipients of Goods Transport Agency (GTA) service and thus liable to pay service tax on the transportation charges. Consequently, show cause notices were issued for recovery of service tax, interest, and penalty. The Asstt. Commissioner confirmed the service tax demands, which were upheld by the Commissioner (Appeals), leading to the filing of the present appeals along with stay applications.

The advocate for the appellants argued that the appellants did not receive GTA service as they only reimbursed the freight expenses to the suppliers. He emphasized that the contracts with the Nepalese suppliers were on F.O.R. basis, making the suppliers responsible for engaging transporters and paying for transportation. Therefore, the appellants should not be considered recipients of GTA service. On the other hand, the learned DR contended that the suppliers acted as agents of the appellants, making the appellants recipients of GTA service and liable for service tax.

After considering the submissions and records, the Member (Technical) found that the appellants merely reimbursed the freight expenses to the suppliers. Since the contracts were on F.O.R. basis, with the suppliers engaging transporters and making payments, the appellants could not be deemed recipients of GTA service. Consequently, the requirement of pre-deposit of demand, interest, and penalty was waived for the hearing of the appeals, and the recovery was stayed. The stay petitions were allowed, and the order was dictated in the open Court by the Member (Technical).