Tribunal upholds service tax liability on GTA Services despite payments through dealers.

The appeal was dismissed by the Tribunal, upholding the confirmation of demands on GTA Service received by M/s. Nirmal Seeds Pvt. Ltd. The Tribunal found that despite payments being made through dealers, the liability to pay service tax rested with the appellant as they had a direct agreement with the transporter and all payments were on the appellant's accounts. The Tribunal concluded that the appellant had devised a mechanism to avoid paying service tax and that the physical payment through dealers did not absolve the appellant of tax liability.

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Issues:
Confirmation of demands on GTA Service received by M/s. Nirmal Seeds Pvt. Ltd. and liability of paying service tax.

Analysis:
The appeal was filed against the confirmation of demands on GTA Service received by M/s. Nirmal Seeds Pvt. Ltd. The appellant argued that they were not liable to pay service tax as the dealers to whom they sold goods were responsible for paying the freight and, consequently, the service tax. The appellant contended that as per Rule 2(1)(d) of Service Tax Rules, 1994, the liability to tax would arise only for the person who physically pays the transporter. They claimed that when the dealers paid the freight to the transporter, the liability shifted to the dealers under reverse charge basis. The appellant emphasized that they reimbursed the dealers after the payment was made. They also argued that no penalty could be imposed as there was no intention to evade duty, citing a previous Tribunal decision.

The respondent argued that the liability under Rule 2(1)(d) of the Service Tax Rules, 1994 extended to the person who was liable to pay the freight, including payments made through agents for transportation. They contended that the appellant, despite the payment being made by the dealers, had a clear understanding and agreement with the transporter. The respondent claimed that all amounts, whether paid directly by the appellant or through dealers, were on the appellant's accounts, indicating their liability to pay service tax. The respondent alleged that the appellant had devised a mechanism to avoid paying service tax knowingly.

The Tribunal examined the submissions and noted that unlike the case of Rajalakshmi Paper Mills Pvt. Ltd., where it was not established that consignees were paying freight on behalf of the consignor, in this case, there was a clear understanding between the appellant and the dealers regarding payment. The Tribunal observed that the appellant had entered into agreements with the transporter directly, and all payments, whether through dealers or directly, were on the appellant's accounts. The Tribunal concluded that a mechanism had been devised to mislead authorities and avoid paying service tax. It held that as long as the liability to pay the transporter rested with the appellant, the physical payment through dealers did not alter the tax liability. Consequently, the appeal was dismissed.

The judgment was pronounced on 28-2-2017 by Shri Raju, Member (T) of the Appellate Tribunal CESTAT MUMBAI.

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