2018 (5) TMI 555 - AT - Service Tax

Liability of service tax - freight charges for transportation of sugarcane from the field to their factory premises - reverse charge mechanism - Held that - the issue is no more res integra, as the Tribunal in the case of Nandganj Sihori Sugar Co. Ltd. Versus Commissioner of C. Ex., Lucknow 2015 (12) TMI 1604 - CESTAT ALLAHABAD was considering the very same issue and held in the favor of the assesses and set aside the demands of the service tax on the amounts paid as transportation charges of sugarcane, on behalf of the farmers - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Applicability of service tax on freight charges for transportation of sugarcane.
2. Responsibility of payment of service tax on freight charges.
3. Interpretation of State Government policy on sugarcane procurement.
4. Precedent cases on service tax liability for transportation charges.

Analysis:

Issue 1: Applicability of service tax on freight charges for transportation of sugarcane
The appeal was against an Order-in-Original confirming demands for service tax on freight charges paid for transporting sugarcane to the factory premises. The Adjudicating Authority upheld the tax liability as the appellant, a manufacturer, did not discharge the service tax under reverse charge mechanism. However, it was revealed that the transport charges were paid by the appellant to transporters for moving sugarcane to the factory, and the appellant claimed that these charges were recovered from the farmers. The appellant argued that the payment was part of the total price paid to the farmers for sugarcane procurement.

Issue 2: Responsibility of payment of service tax on freight charges
The Tribunal found that during the relevant period, the appellant had indeed paid transport charges to individual transporters, which were deducted from the total price paid to the farmers for sugarcane procurement. The appellant contended that any service tax on freight charges should be paid by the individual farmers, but the State Government policy mandated that sugarcane be delivered to the factory door by the farmers. Therefore, the appellant facilitated the payment of transport charges to comply with the State Government's directions regarding sugarcane procurement pricing.

Issue 3: Interpretation of State Government policy on sugarcane procurement
The Tribunal considered the appellant's argument that the payment of transport charges was in line with the State Government's pricing factor for sugarcane and was not an attempt to evade duty. It was noted that the State Government required sugarcane to be delivered to the factory by the farmers, and the transport charges were a financial facilitation extended by the appellant to adhere to the State Government's procurement price policy.

Issue 4: Precedent cases on service tax liability for transportation charges
The Tribunal referred to several precedent cases where similar issues were considered, and the Tribunal ruled in favor of the assesses, setting aside the service tax demands on transportation charges of sugarcane. The Tribunal held that the decisions in those cases supported the appellant's position, and therefore, the impugned order confirming the service tax liability was deemed unsustainable and set aside. The appeal was allowed based on the precedents and the appellant's arguments.

In conclusion, the Tribunal set aside the Order-in-Original and allowed the appeal, citing the precedent cases and the appellant's compliance with the State Government's policy on sugarcane procurement as reasons for the decision.