2024 (3) TMI 237 - AT - Service Tax

Appellant not liable for service tax on transportation and legal consultancy services under reverse charge mechanism

CESTAT NEW DELHI ruled in favor of appellant regarding service tax liability on transportation and legal consultancy services. The tribunal held that ... Recovery of service tax - activity of transportation of goods by road and in providing Business Support Service to various clients like, Vehicle Factory Jabalpur, Railway, Bharat Earth Movers Limited, Bharat Electronics Limited and Gun Carriage Factory Jabalpur - scope of definition of ‘Business Entities’ and ‘persons’ as defined under Section 65 (B) (17) and 65 (B) (37) respectively of the Finance Act - HELD THAT:- The appellant was taking trucks of individual owners, admittedly the appellant itself is not a goods transport agency and no consignment note was issued by the appellant. Facts on record also clarifies that the appellant is not engaged in door to door transportation, hence, is not a courier agency. Resultantly, it becomes clear that the service rendered by the appellant is simply the service by way of transportation of goods which is covered under Sub-clause B of Section 66D of Finance Act. Thus, the appellant is wrongly held liable for payment of service tax on the said activity. Coming to the tax liability with respect to legal consultancy services under reverse charge mechanism, it is observed that it is an admitted fact that the amount booked under the head ‘legal expenses’ was not paid to any advocate and affidavit to this effect has also been submitted by the appellant. The adjudicating authority neither has considered the said affidavit nor has appreciated any other evidence on record which may show that the legal expenses were paid to the lawyer. The onus was definitely on Revenue to show that the appellant had received services of Advocate so as to make them liable to pay service tax under reverse charge. In absence thereof, the confirmation on this count is also not sustainable. Once the appellant is held to have no service tax liability, the question of having any intent to evade the same does not at all arise. Resultantly, even penalty has also wrongly imposed on the appellant. The appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the activity of transporting manufactured defence and railway goods by hiring third-party trucks constitutes a taxable 'Business Support Service' or is covered by the negative list entry for 'services by way of transportation of goods' under Section 66D of the Finance Act (post-1.7.2012) and therefore not liable to service tax. 2. Whether the appellant (who did not operate as a goods transport agency and did not issue consignment notes) can be treated as a goods transport agency or courier agency for the purposes of excluding the transportation service from the negative list. 3. Whether amounts booked as 'legal expenses' attract service tax under the reverse charge mechanism where the assessee admits no payment to any advocate and furnishes an affidavit to that effect. 4. Whether imposition of penalty is sustainable where service tax liability is found not to exist and there is no evidence of intent to evade tax. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation: Business Support Service v. Transportation (negative list) Legal framework: Section 65B(49) (definition of 'Support Service'); Section 66B (charge of service tax from 1.7.2012); Section 66D (negative list) - specifically clause (p) excluding 'services by way of transportation of goods by road' except when provided by a goods transportation agency or courier agency. Precedent Treatment: No judicial precedents were cited or treated in the reasoning; the Tribunal relied on statutory definitions and factual record. Interpretation and reasoning: The Tribunal compared the statutory definition of 'Support Service' with the actual activities performed. The activities consisted of physically loading manufactured defence and railway items onto hired trucks (owned by third parties) and transporting them from factories to destinations or railway stations; in some instances the vehicles themselves were carried on trailers. The Tribunal found these activities to be ordinary road transportation of goods and not functions enumerated within the 'Support Service' definition (infrastructural, operational, administrative, logistic, marketing or similar outsourced functions). The Tribunal placed weight on the fact that the appellant hired trucks from individual truck owners, did not issue consignment notes, and did not operate door-to-door services that would characterise a courier or goods transport agency. Ratio vs. Obiter: Ratio - the proper characterisation of such hired-truck transportation as falling within the negative list entry for transportation of goods by road (except when provided by a goods transport agency or courier agency). Obiter - incidental factual observations about modes of loading (e.g., use of trailers) and examples of goods transported. Conclusion: The Tribunal concluded the services rendered were transportation of goods by road covered by the negative list under Section 66D(p) and therefore not taxable as Business Support Service under the Finance Act for the relevant period post-1.7.2012. Issue 2 - Whether appellant qualifies as a goods transport agency or courier agency Legal framework: Section 66D(p) carve-outs for services by a 'goods transportation agency' or a 'courier agency'; statutory meaning and the factual markers (consignment notes, nature of service, door-to-door operation) that distinguish such agencies. Precedent Treatment: No authorities relied on; Tribunal applied statutory text to facts. Interpretation and reasoning: The Tribunal examined factual indicia: absence of consignment notes issued by the appellant, hiring of trucks from individual owners (indicating the appellant was not itself operating a fleet as a goods transport agency), and absence of door-to-door courier-type services. On these bases, the Tribunal held the appellant did not meet characteristics of either a goods transport agency or a courier agency. Ratio vs. Obiter: Ratio - where transport is effected by hiring third-party trucks and no consignment notes or other indicia of a goods transport or courier agency exist, the service provider does not fall within the statutory exceptions and the service remains covered by the negative list. Conclusion: The appellant was not a goods transport agency or courier agency; therefore the negative list exemption applied and no service tax liability arose on the transportation activity. Issue 3 - Reverse charge liability for legal consultancy expenses Legal framework: Reverse charge mechanism under the Finance Act (provisions imposing liability on recipient when service received from advocate/consultant and taxed under reverse charge); evidentiary burden of Revenue to establish receipt of taxable legal services. Precedent Treatment: Not applicable; Tribunal considered evidence on record. Interpretation and reasoning: The Tribunal noted the appellant admitted that amounts booked as 'legal expenses' were not paid to any advocate and produced an affidavit to that effect. The adjudicating authority failed to consider this affidavit or other exculpatory evidence. The Tribunal emphasised that the burden lay on Revenue to show that taxable legal services were received so as to trigger reverse charge; in absence of such proof, the confirmation of liability was unsustainable. Ratio vs. Obiter: Ratio - reverse charge cannot be confirmed in absence of evidence that the assessee actually received legal services from an advocate; onus is on Revenue to prove receipt of such services. Conclusion: The reverse charge tax confirmation on account of alleged legal consultancy expense payments was unsustainable and set aside. Issue 4 - Penalty for alleged tax evasion Legal framework: Penalty provisions tied to tax liability and culpable intent; principle that penalty for evasion requires existence of tax liability and proof of mens rea/intent to evade. Precedent Treatment: No precedent referenced; Tribunal applied basic principles of tax penalty law. Interpretation and reasoning: Having held that no service tax liability existed on the transportation activities and that reverse charge liability was not established, the Tribunal reasoned that punitive consequences predicated on evasion cannot stand. Without tax liability and without evidence of intent to evade, imposition of penalty was inappropriate. The Tribunal explicitly connected the absence of liability to the absence of any culpable intent. Ratio vs. Obiter: Ratio - penalties for evasion cannot be sustained where the underlying tax liability is not established and there is no evidence of intent to evade. Conclusion: Penalties imposed by the adjudicating authority were wrongly levied and were set aside. Cross-references See Issue 1 and Issue 2: characterisation and agency status are interdependent; finding that the appellant was not a goods transport or courier agency (Issue 2) is integral to applying the negative list exemption (Issue 1). Final disposition (connected to above issues) The Tribunal set aside the impugned order, allowed the appeal, and quashed the tax, interest/confirmations based on reverse charge, and penalties as unjustified in law and on the facts.