2010 (1) TMI 431 - AT - Service Tax

Stay Goods Transport Agency - The appellants are procuring the inputs from Reliance Industries Limited and the dispute has arisen regarding service tax on the freight. Demand on the ground that appellant as consignee not liable to pay tax. Held that- liability to pay service tax on supplier once freight paid by such person and appellant not liable. Strong prima facie case made out by the appellant. Thus, pre deposit waived.

Summary

Issues:
1. Liability of service tax on freight procured from a supplier.
2. Interpretation of Rule 2(1)(d)(v) of Service Tax Rules.
3. Responsibility to verify payment of service tax by the supplier.

Analysis:
1. The issue in this case revolves around the liability of service tax on freight procured by the appellant from a supplier. The department contended that the appellant is liable to pay the service tax on freight, resulting in a confirmed demand of Rs.2,40,558/- for a specific period. Additionally, a penalty equal to the service tax demand was imposed under Section 78 of the Finance Act, 1994.

2. The appellant, represented by a Chartered Accountant, argued that the service tax demand was based on the consignee being mentioned as the party liable for service tax in the LR. Reference was made to Rule 2(1)(d)(v) of the Service Tax Rules, which states that service tax is payable on transportation charges by the entity paying the freight. The appellant highlighted that the supplier included the freight element in the input supplied, and the transportation was organized by the supplier, absolving the appellant of direct involvement in paying the freight.

3. On the other hand, the department's representative contended that since the LR indicated the consignee as liable for service tax, the appellant should have ensured whether the supplier had indeed paid the service tax. However, the tribunal, after considering both arguments, found that the LR did not specify the freight amount, while the invoice indicated that the freight was inclusive. Consequently, the tribunal concluded that when the supplier pays the freight, the liability for service tax shifts to the supplier, not the appellant. The tribunal emphasized that it was not the appellant's responsibility to verify the supplier's payment of service tax. As a result, the tribunal ruled in favor of the appellant, waiving the pre-deposit requirement of service tax, penalty, and interest, and allowing the stay petition during the appeal's pendency unconditionally.