2017 (11) TMI 291 - AT - Service Tax

Appellant not liable for service tax on cargo handling services under reverse charge mechanism

The Tribunal held that the appellant was not liable to discharge the service tax liability under goods transport agency services for providing cargo ... Reverse charge mechanism - goods transport agency - person liable for paying service tax under goods transport agency (Rule 2(1)(d)(v) of Service Tax Rules, 1994) - liability cast on the person who pays the freightReverse charge mechanism - person liable for paying service tax under goods transport agency (Rule 2(1)(d)(v) of Service Tax Rules, 1994) - liability cast on the person who pays the freight - consignor or consignee as person liable - Whether the appellant is liable to discharge service tax under the goods transport agency (GTA) provisions or the liability lies on the person who pays the freight (consignor/consignee) under the reverse charge mechanism. - HELD THAT: - On the undisputed facts the appellant is itself a transporter, bills its clients for carriage (including amounts paid to third party transporters and an additional commission), receives payment from clients and then settles the third party transporters. Rule 2(1)(d)(v) of the Service Tax Rules, 1994 casts liability under the reverse charge mechanism on the consignor or consignee (or more generally on the person who pays or is liable to pay the freight). The Tribunal applied that statutory scheme and followed Division Bench precedents (Essar Logistics Ltd. and MSPL Ltd.) which hold that where the consignor/consignee (or the person who actually pays the freight) discharges the freight, the liability to pay service tax under GTA falls on that person and not on the GTA or intermediary who merely passes on transporter charges. The decision relied upon by Revenue (Darbar Transport Co.) was distinguished on facts because there the hirer had no own trucks and the factual matrix differed. A single bench decision relied by Revenue was also distinguished, and the Division Bench precedents were held binding. Applying the statutory provision and the binding precedents to the facts, the demands confirmed by the lower authorities could not be sustained.Impugned orders set aside; appeals allowed.Final Conclusion: The Tribunal held that under Rule 2(1)(d)(v) read with the reverse charge mechanism the service tax liability in the facts on record lay on the person who pays the freight (consignor/consignee) and not on the appellant; the impugned orders confirming demands and penalties were set aside and the appeals allowed. Issues:- Discharge of service tax liability under goods transport agency services for providing cargo handling services.- Interpretation of Rule 2(1)(d) of the Service Tax Rules 1994.- Liability of the person who pays freight for transportation of goods under reverse charge mechanism.Analysis:Issue 1: Discharge of service tax liability under goods transport agency services for providing cargo handling services:The appellant was alleged to have not discharged the service tax liability under the category of goods transport agency services for providing cargo handling services to their clients. The Revenue claimed that since the appellant paid transporters for vehicles and charged clients the entire amount plus commission, they were liable for service tax. The appellant argued that they only paid hiring charges and their clients discharged the service tax liability under reverse charge mechanism. The Tribunal examined the factual matrix and concluded that the appellant's clients were discharging the service tax liability, not the appellant. Therefore, the demands raised by the lower authorities were not upheld.Issue 2: Interpretation of Rule 2(1)(d) of the Service Tax Rules 1994:The Tribunal analyzed Rule 2(1)(d)(v) of the Service Tax Rules 1994, which defines the 'person liable for paying the service tax' for goods transport agency services under reverse charge mechanism. The rule specifies that the consignor or consignee, or a person liable to pay freight charges, is responsible for service tax payment. The Tribunal found that the appellant did not pay freight charges but collected them from clients who then paid the transporters. Citing precedents such as Essar Logistics Ltd. and MSPL Ltd., the Tribunal held that the appellant was not liable for service tax under the goods transport agency category.Issue 3: Liability of the person who pays freight for transportation of goods under reverse charge mechanism:The Tribunal referred to previous decisions where it was established that the liability to pay service tax is on the person who actually pays the freight for transportation of goods. Relying on the precedents of Essar Logistics Ltd. and MSPL Ltd., the Tribunal held that the appellant, acting as a transporter who collected charges from clients, was not liable to pay service tax under the reverse charge mechanism. The Tribunal rejected the view expressed in the case of Darbar Transport Co and followed the conventions of Division Bench rulings over Single Member Bench decisions.In conclusion, the Tribunal set aside the impugned orders and allowed the appeals, holding that the appellant was not liable to discharge the service tax liability under the goods transport agency services.