2016 (12) TMI 733 - AT - Service Tax

Reverse charge mechanism import of yarn from Nepal separate invoice raised for expenses like transportation, clearance expenses etc is appellant receiving GTA services from exporter? - Held that - similar issue decided in many case and thus the issue id no more res integra - reliance placed on the decision of the case of Chairman Silk Mills Pvt. Ltd. Vs. CCE Jaipur 2016 (8) TMI 946 - CESTAT NEW DELHI , where it was 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 - demand set aside - decided in favor of appellant-assessee.

Issues:
1. Liability for service tax on transportation expenses from Nepal to the appellant's factory.
2. Applicability of reverse charge mechanism for service tax payment.
3. Interpretation of Notification No. 35/2004-S.T. for determining liability to pay service tax on GTA services.
4. Agency relationship between Nepalese suppliers and the appellants for transportation arrangements.
5. Precedent set by previous Tribunal decisions on similar cases.

Analysis:

1. The issue in these appeals revolved around the liability of the appellants to pay service tax on transportation expenses incurred for importing yarn from Nepal to their factory. The revenue contended that since the transportation service from the Nepal border to the appellant's factory was received by the appellants, they were obligated to discharge their service tax liability under the reverse charge mechanism. The Deputy Commissioner had confirmed a demand against the appellants, including penalties, which was upheld by the Commissioner (A), leading to the present appeals.

2. Upon hearing both sides, the Tribunal found that similar cases involving other appellants had been disposed of previously, where it was observed that the Nepalese suppliers, not the appellants, had engaged the transporters and billed the appellants for transportation expenses. The Tribunal emphasized that the appellants could not be considered as recipients of GTA services as they did not engage the transporters directly or through the Nepalese suppliers. The contract between the appellants and the Nepalese suppliers was for the supply of goods, not for any specific service, and the transportation arrangement was deemed incidental to the supply of goods. Therefore, the appellants were not liable to pay service tax on the transportation services.

3. The Tribunal referred to Notification No. 35/2004-S.T. to determine the liability to pay service tax on GTA services. It highlighted the importance of establishing who engaged the transporter and who was responsible for paying the freight. In the absence of evidence showing that the appellants had engaged the transporter, they could not be considered as recipients of GTA services and, consequently, were not liable to pay service tax on the transportation services from Nepal to their factory.

4. The Tribunal relied on previous decisions, including Final Order No. 818-832/2010-SM(BR) and the case of Chairman Silk Mills Pvt. Ltd. Vs. CCE Jaipur, to support its findings. It noted that the precedent set in these cases, where similar issues were addressed, guided the Tribunal's decision to set aside the impugned orders and allow all the appeals with consequential relief.

5. In conclusion, the Tribunal overturned the orders passed by the lower authorities, following the precedent established in similar cases, and ruled in favor of the appellants, holding that they were not liable to pay service tax on the transportation expenses from Nepal to their factory.

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