Service tax demands on toll charges and logistic services set aside under Rule 6(3A) CCR 2004

CESTAT Allahabad ruled in favor of the appellant in a service tax dispute involving toll charges, logistic charges, and other taxable services for 2012-17. The tribunal held that appellants were entitled to Rule 6(3A) benefits under CCR 2004 even without prior option exercise. Service tax demands on logistic charges were set aside as VAT was already paid, making service tax and VAT mutually exclusive. Toll collection service tax demands were rejected based on established precedent. Extended limitation period invocation was upheld for 2012-15 due to willful suppression, but demands for 2015-17 were set aside as they couldn't be raised via Statement of Demand. Interest and penalty were also set aside following demand rejection.

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Issues Involved:

1. Disallowance of Cenvat credit u/r 6(3) of Cenvat Credit Rules, 2004.
2. Demand of service tax on logistic charges.
3. Demand of service tax on collection of toll tax at toll plaza.
4. Demand of service tax on other taxable services for the period 2015-16 and 2016-17.

Issue No. 1: Disallowance of Cenvat credit u/r 6(3) of Cenvat Credit Rules, 2004

The Learned Commissioner held that the Appellants availed Cenvat credit relating to taxable and exempted services without maintaining separate accounts or following the necessary provisions u/r 6(2), 6(3), and 6(3A) of CCR, 2004. Consequently, demands were raised for the period 2012-13 to 2014-15 at 6% of the value of exempted services, and for 2015-16 and 2016-17 at 7%. The Appellants argued that they maintained separate records for input services at workshops and showrooms, and that they were liable for a proportionate payment which they had duly made. The Tribunal held that the benefit of Rule 6(3A) cannot be denied even if the option was not exercised at the beginning of the year, citing multiple precedents. The Tribunal also accepted the Appellants' submission that services availed at workshops were exclusively related to taxable services and thus not liable for reversal. The Tribunal ordered for appropriation of the amounts already paid by the Appellants towards the demand and interest.

Issue No. 2: Demand of service tax on logistic charges

The Department contended that the Appellants had not deposited service tax on logistic charges recovered from car buyers, treating these charges as a separate service. The Appellants argued that logistic charges were part of the transaction value of the car sale, on which VAT was already paid. The Tribunal noted that VAT and service tax are mutually exclusive, and since VAT was paid on logistic charges, service tax could not be demanded. This position was also supported by a previous order of the Commissioner (Appeals) in a similar case involving the Appellants' sister concern, which the Department had not appealed. Therefore, the Tribunal held that service tax could not be demanded on logistic charges.

Issue No. 3: Demand of service tax on collection of toll tax at toll plaza

The Department held that the Appellants' activity of collecting toll tax for NHAI constituted a taxable service. The Appellants argued that their activity fell under the negative list u/s 66D(h) of the Finance Act, 1994, and that they collected toll in their independent capacity, not as agents of NHAI. The Tribunal cited multiple precedents where it was held that toll collection under a contract with NHAI is not liable for service tax, as the Appellants were not acting as commission agents but had secured the right to collect toll independently. Therefore, the Tribunal set aside the demand on toll collection.

Issue No. 4: Demand of service tax on other taxable services for the period 2015-16 and 2016-17

The Statement of Demand issued for 2015-16 and 2016-17 proposed a demand based on discrepancies between amounts declared in ST-3 returns and amounts received under various heads in the balance sheet. The Appellants argued that the differences were due to discounts received from suppliers and other non-service-related receipts. The Tribunal found that the discounts and other amounts did not pertain to any service provided by the Appellants and thus were not liable for service tax. The Tribunal set aside the entire demand of Rs. 4.26 crores on account of other income.

Limitation and Penalties:

The Tribunal held that the extended period of limitation was not invocable as the issues involved interpretation of CCR and service tax provisions, and there was no deliberate suppression of information by the Appellants. Consequently, the demand for the period 2012-13 to 2014-15 was also set aside on the ground of limitation. Penalties were also set aside, as the Tribunal found no contumacious conduct on the part of the Appellants.

The appeals were allowed with consequential relief.

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