2016 (8) TMI 946 - AT - Service Tax

Demand of tax and penalty reverse charge mechanism manufacture of grey fabrics import of yarn from Nepal separate invoice raised for expenses like transportation, clearance expenses etc is appellant receiving GTA services from exporter? - Notification No. 35/04-S.T - Held that - the contract of appellant with the Nepalese suppliers is for supply of yarn and not for providing any particular service. Transport of goods is an activity incidental to the supply of goods for which Nepalese suppliers has engaged transporters. Nepalese suppliers had not acted as the agents of the appellants for arranging transportation from Nepal border to the factory premises of the appellants. Just because the Nepalese suppliers had billed the appellants separately for transportation from Nepal border to factory premises alongwith other expenses, they do not become the agents of the appellants. In view of this, the appellants cannot be treated as recipients of GTA services in terms of Notification No. 35/04-S.T. appellant not liable to pay service tax appeal allowed decided in favor of appellant.

Summary

Issues:
- Liability to pay service tax on transportation charges from Nepal to the factory premises
- Applicability of reverse charge mechanism
- Imposition of penalties under sections 76, 77, and 78 of the Finance Act 1994

Liability to pay service tax on transportation charges from Nepal to the factory premises:
The appellants, engaged in manufacturing grey fabrics, imported yarn from Nepal. The issue revolved around whether the appellants were liable to discharge service tax on transportation from Nepal border to their factory. The revenue contended that as the transportation was a service received by the appellants, they were required to fulfill their service tax liability on a reverse charge basis. The Deputy Commissioner confirmed the demand, leading to penalties under sections 76, 77, and 78 of the Finance Act. However, multiple identical orders in favor of other appellants indicated that the Nepalese suppliers, not the appellants, engaged the transporters. The Tribunal observed that the appellants did not instruct the suppliers to engage transporters on their behalf, and the suppliers billed the appellants for both goods and transportation expenses. The Tribunal concluded that the appellants could not be considered recipients of GTA services and were not liable to pay service tax on the transportation charges.

Applicability of reverse charge mechanism:
The dispute centered on whether the appellants, by reimbursing the Nepalese suppliers for transport expenses, should be treated as engaging the transporter and thus liable for service tax under the reverse charge mechanism. The Tribunal found that the Nepalese suppliers, not the appellants, had paid the transportation charges to the transporters. As the appellants had only reimbursed the suppliers for the transport expenses from Nepal border to their factory premises, they could not be deemed to have engaged the transporter directly. Therefore, the Tribunal held that the appellants were not the recipients of GTA services and were not obligated to pay service tax under Notification No. 35/04-S.T.

Imposition of penalties under sections 76, 77, and 78 of the Finance Act 1994:
The Deputy Commissioner's order confirming the demand for service tax also imposed penalties equivalent to duty under sections 76, 77, and 78 of the Finance Act 1994. However, the Tribunal, considering the decisions in similar cases, set aside the impugned order and allowed the appeal with consequential relief to the assessee. By following the precedent decision where it was established that the appellants were not liable to pay service tax on the transportation charges, the Tribunal found no reason to uphold the penalties imposed under sections 76, 77, and 78 of the Finance Act.

In conclusion, the Tribunal ruled in favor of the appellants, holding that they were not liable to pay service tax on transportation charges from Nepal to their factory premises, as they were not the recipients of GTA services and had not engaged the transporters directly. The penalties imposed under sections 76, 77, and 78 of the Finance Act were set aside based on the precedent decision and the findings in similar cases.