2022 (3) TMI 803 - AT - Service Tax

Levy of service tax - supply of tangible goods for use service - GTA - levy of penalty - reverse charge mechanism - period April 2011 to March 2016 - HELD THAT - As the basis of issuance of show cause notice is the contract between appellant and JMC India Ltd., Mumbai and after examining the said contract with M/s. JMC, the alleged demand under the category of supply of tangible goods for use has been dropped by the adjudicating authority and said finding of the adjudicating authority has not been challenged by the Department and no other contract is the basis of issuance of show cause notice, in that circumstances, the demand against the appellant is not sustainable. Admittedly, wherein the goods transportation activity has been carried out and consignment note has been issued by the appellant, the appellant is not liable to pay service tax but the service recipient is liable to pay service tax under the reverse charge mechanism and it is recorded by the adjudicating authority in the impugned order that service recipient has discharged service liability thereof. Therefore, the said allegation is not sustainable. In some of the cases the appellant transported the good by road without issuance of the consignment note, the said activity prior to June 2012 was not classifiable under category of services as no consignment note was issued and it is prime requirement to demand service tax under the category of good transport agency service. Further, the appellant has hired out vehicles to other GTA service providers, who have issued consignment notes to their clients. Such activity of the appellant was also exempt under notification no. 1/2009-ST dated 5.1.2009 for the period prior to 30.6.2012 and exempt under notification no. 21/2012-ST dated 20.6.2012 for the period post July 2012. The appellant has transferred the right to use vehicle to its client and such activity was not covered under supply of tangible goods service prior to June 2012 as the possession and control was also given to the person who had the right to use the goods and such activity amounts to deemed sales covered in negative list from July 2012. But the appellant has discharged the service tax liability from the period 2015-16 in such cases. The appeal is allowed - decided in favor of appellant.

Issues Involved:
1. Classification of services provided by the appellant.
2. Liability to pay service tax under the reverse charge mechanism.
3. Applicability of exemption notifications.
4. Invocation of the extended period of limitation.
5. Imposition of interest and penalties.

Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant engaged in three primary activities: transportation of goods with or without issuance of consignment notes, hiring vehicles to other GTA service providers, and transferring the right to use goods. The core issue was whether these activities fell under the category of "Supply of Tangible Goods for Use Services" or "Goods Transport Agency Services." The adjudicating authority initially alleged that the services fell under the former category based on a contract with JMC Project (I) Ltd. However, it was later determined that the main activity was transportation of goods, which falls under GTA services, not supply of tangible goods.

2. Liability to Pay Service Tax Under the Reverse Charge Mechanism:
For transportation activities where consignment notes were issued, the liability to pay service tax was on the service recipients under the reverse charge mechanism. The adjudicating authority confirmed that the service recipients, such as JMC, Afcons, and L&T, had paid the service tax under this mechanism. Therefore, the appellant was not liable to pay service tax for these activities.

3. Applicability of Exemption Notifications:
The appellant claimed exemption from service tax for hiring vehicles to other GTA service providers based on Notification No. 1/2009-ST dated 5.1.2009 (up to June 2012) and Notification No. 25/2012-ST dated 20.6.2012 (post-July 2012). The adjudicating authority acknowledged these exemptions, thus supporting the appellant's claim that no service tax was payable for these activities during the relevant periods.

4. Invocation of the Extended Period of Limitation:
The show cause notice was issued by invoking the extended period of limitation, alleging fraudulent registration under GTA services. The adjudicating authority dropped the demand based on the JMC contract, which formed the basis of the show cause notice. Since no other contracts were cited as the basis for the notice, the extended period of limitation was not justifiable.

5. Imposition of Interest and Penalties:
Given that the primary demand was not sustainable, the imposition of interest and penalties on the appellant was also deemed unjustified. The appellant's activities were either exempt or the tax liability was on the service recipients under the reverse charge mechanism. Consequently, the adjudicating authority's order to impose penalties was set aside.

Conclusion:
The Tribunal found no merit in the impugned order and set it aside. The appeals were allowed with consequential relief, emphasizing that the appellant's activities were correctly classified under GTA services, and the service tax liability was appropriately discharged by the service recipients under the reverse charge mechanism. The exemptions claimed by the appellant were valid, and the extended period of limitation was not applicable. Hence, the demand, interest, and penalties were not sustainable.

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