2025 (3) TMI 902 - AT - Service Tax

Levy of service tax - transportation or insurance related expenses recovered in excess from the buyers - HELD THAT - It is found that the appellant discharged the excise duty liability of Rs.10, 04, 21, 540/- i.e. Rs.7, 86, 81, 141/- and Rs.2 17, 40, 399/- on excess freight and insurance charges respectively consequently the levy of service tax is unsustainable. The activity of arranging transportation of goods till the dealers premises cannot be classified under Business Auxiliary Service and therefore no service tax is payable on transportation related expenses recovered in excess by the appellant from their buyers. It is an activity which is directly related to the supply of goods on which excise duty has been paid by the appellant and once the excise duty has been paid no service tax is leviable on the said transaction. Although the learned counsel for the appellant has raised several other contentions however since the issue is decided on merits in favour of the appellant it is no more relevant to record a finding on them. Conclusion - When excise duty is paid on the transaction value which includes transportation and insurance charges no additional service tax is exigible on those charges as they are part of the supply of goods. Appeal allowed.

ISSUES PRESENTED and CONSIDERED

The central issue considered by the Tribunal was whether the transportation or insurance-related expenses recovered in excess from buyers by the appellant were chargeable to service tax under the Finance Act, 1994. Additionally, the Tribunal considered whether the penalties imposed on individuals under Section 78A of the Act were justified.

ISSUE-WISE DETAILED ANALYSIS

1. Chargeability of Excess Transportation and Insurance Charges to Service Tax

Relevant legal framework and precedents: The Tribunal examined the applicability of service tax on excess transportation and insurance charges in light of previous decisions, particularly referencing the Tribunal's decisions in Pushpak Steel Industries Pvt. Ltd. Vs. CCE & ST, Pune-III and Gokulanand Texturisers Pvt. Ltd. & Anr. Vs. CCE & ST, Surat-II. These cases established that transportation costs incurred in delivering goods to buyers' premises do not constitute a taxable service under the category of 'business support service'.

Court's interpretation and reasoning: The Tribunal reasoned that the appellant's activities were directly related to the supply of excisable goods, and the transportation and insurance charges formed part of the transaction value on which excise duty was already paid. The Tribunal emphasized that these activities did not involve a service provider-service receiver relationship and thus could not be classified as a taxable service.

Key evidence and findings: The Tribunal noted that the appellant had paid excise duty on the entire transaction value, including the excess charges for transportation and insurance. The invoices reflected the assessable value of the goods and the statutory levies, including transportation/freight charges.

Application of law to facts: The Tribunal applied the principles from previous judgments to the facts of the case, concluding that the appellant's activities were not taxable as they were part of the supply of goods and not independent services.

Treatment of competing arguments: The Tribunal considered the Revenue's argument that the excess amounts were separate from the transaction value and thus taxable. However, it rejected this view, citing the consistent application of excise duty on the total transaction value.

Conclusions: The Tribunal concluded that no service tax was payable on the excess transportation and insurance charges, as they were part of the excisable transaction value.

2. Imposition of Penalty under Section 78A

Relevant legal framework and precedents: The penalties were imposed under Section 78A of the Finance Act, 1994, which deals with penalties for certain contraventions related to service tax.

Court's interpretation and reasoning: Given the Tribunal's finding that no service tax was due on the transportation and insurance charges, the basis for imposing penalties under Section 78A was undermined.

Key evidence and findings: The Tribunal noted that the penalties were linked to the alleged non-payment of service tax, which was found to be unsustainable.

Application of law to facts: The Tribunal applied its conclusion on the main issue to the penalty issue, determining that the penalties were unjustified.

Treatment of competing arguments: The Tribunal did not find any compelling arguments from the Revenue to justify the penalties once the main service tax demand was set aside.

Conclusions: The Tribunal set aside the penalties imposed on the individuals, as the underlying service tax demand was not upheld.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The activity of arranging transportation of goods till the dealers premises cannot be classified under 'Business Auxiliary Service' and, therefore, no service tax is payable on transportation related expenses recovered in excess by the appellant from their buyers."

Core principles established: The Tribunal reinforced the principle that when excise duty is paid on the transaction value, which includes transportation and insurance charges, no additional service tax is exigible on those charges as they are part of the supply of goods.

Final determinations on each issue: The Tribunal allowed the appeals, setting aside the service tax demand and penalties. It concluded that the transportation and insurance charges were part of the excisable transaction value and not subject to service tax.

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