2024 (6) TMI 348 - AT - Service Tax

Fuel transportation company wins service tax exemption under Section 66D for goods transportation services

M/s. Manak Chand Agarwal Versus Commissioner of Central Goods and Service Tax, Excise and Customs, Udaipur

M/s. Manak Chand Agarwal Versus Commissioner of Central Goods and Service Tax, Excise and Customs, Udaipur - TMI The core legal questions considered by the Tribunal in this appeal are:1. Whether the services provided by the appellant to certain contractors (M/s. Shreenath & Co., M/s. Hari Priya Filling Station, and M/s. Vishnu Priya Filling Station) constitute 'Transportation of Goods by Road' within the meaning of Section 66D(p) of the Finance Act, 1994, thereby attracting exemption from service tax, or whether the appellant was merely supplying trucks/lorries/tankers on hire, which is a taxable service.2. Whether the appellant is liable to pay service tax on the amounts received as freight charges or hire charges, particularly given the absence or presence of consignment notes issued by the appellant or the contractors.3. Whether the appellant is entitled to exemption under Notification No. 25/2012-ST, specifically Sr. No. 22(b), relating to services by way of giving on hire a means of transportation of goods to a Goods Transport Agency (GTA).4. Whether the extended period of limitation and imposition of penalty under Section 78 of the Finance Act are justified in view of the appellant's conduct, including filing of 'Nil' returns and delayed payment of service tax.Issue-wise Detailed AnalysisIssue 1 & 2: Nature of Services Rendered - Transportation of Goods or Supply of Tangible Goods Service (STGS)Rs.Legal Framework and Precedents: Section 66D(p) of the Finance Act, 1994, provides a negative list exemption for services by way of transportation of goods by road, except when rendered by a Goods Transport Agency (GTA) or courier agency. Section 65B(26) defines GTA as a person who provides transportation of goods by road and issues consignment notes. The issuance of consignment notes is a crucial factor in determining whether the service qualifies as GTA service (taxable) or transportation by other persons (exempt).Relevant precedents relied upon include:Narendra Road Lines Pvt Ltd Vs. Commissioner of Customs, CGST, Agra - Holding that transportation without issuance of consignment note does not attract service tax as GTA service.Mahanadi Coal Fields Ltd. Vs. Commissioner of Central Excise & Service Tax - Similar holding emphasizing the importance of consignment notes.Court's Interpretation and Reasoning: The Tribunal carefully examined the contracts between BPCL and contractors (M/s. Shreenath & Co., M/s. Hari Priya Filling Station, and M/s. Vishnu Priya Filling Station) and the subsequent subcontracting arrangements with the appellant. It was observed that:The contracts with BPCL were for transportation of branded fuel using specified tankers/lorries, with detailed terms regarding security, painting, statutory compliance, and crew identity.The contractors awarded the transportation work to the appellant by way of subcontract, with payments described as freight charges on a per kilometre/kilolitre basis.There was no agreement indicating that the appellant's trucks/tankers were given on hire; rather, the appellant performed the transportation activity itself.Consignment notes were issued only in the case of M/s. Vishnu Priya Filling Station, not for the other two contractors.The Tribunal noted that the appellant's ledger accounts described the receipts as transportation income, but the department alleged that the appellant admitted the receipts as hire charges in their show cause reply (claimed later as clerical error). The appellant failed to produce invoices clearly showing the receipts as freight charges. The department also pointed out that neither the appellant nor the contractors were registered as GTA and no consignment notes were issued except in one case.Application of Law to Facts: Since transportation of goods by road by persons other than GTA or courier agencies is exempt under Section 66D(p), the appellant's activity qualifies for exemption if it is transportation and not supply of tangible goods service (STGS). The absence of consignment notes is critical; however, the Tribunal found that the appellant was actually engaged in transporting goods (branded fuel) and the payments received were freight charges, not hire charges.Treatment of Competing Arguments: The department argued that the activity was supply of tangible goods service because the appellant allegedly provided trucks on hire. The appellant contended that the activity was transportation of goods by road, exempt under the negative list, and the subcontracting nature did not alter the service's character. The Tribunal sided with the appellant, emphasizing the contractual terms and the nature of payments as freight, not hire. The department's reliance on absence of consignment notes was countered by the fact that the appellant performed transportation and that the contractors issuing consignment notes were GTAs.Conclusions: The Tribunal held that the appellant's services amounted to transportation of goods by road, exempt under Section 66D(p)(i)(A) of the Finance Act. The demand of service tax on this count was set aside. However, the demand against M/s. Vishnu Priya Filling Station, where consignment notes were issued, was rightly dropped by the department and not reopened due to finality.Issue 3: Eligibility for Exemption under Notification No. 25/2012-STLegal Framework: Sr. No. 22(b) of Notification No. 25/2012-ST exempts services by way of giving on hire a means of transportation of goods to a GTA.Court's Reasoning: The department denied exemption on the ground that the recipients of the appellant's services were not GTAs. However, the Tribunal found that the contractors (e.g., M/s. FCPL) had issued consignment notes and thus qualified as GTAs. Therefore, even if the appellant's activity was of giving vehicles on hire, the exemption under Sr. No. 22(b) would apply.Application to Facts: Since the appellant's subcontractors were GTAs, the appellant was entitled to the exemption for providing vehicles on hire to GTAs. The Tribunal relied on a decision of CESTAT Ahmedabad which held that transportation services by persons other than GTA are exempt under Section 66D(p)(i)(A).Conclusion: The denial of exemption under Notification No. 25/2012-ST by the adjudicating authority was erroneous. The appellant was entitled to this exemption.Issue 4: Limitation and PenaltyLegal Framework: The extended period of limitation under service tax law can be invoked in cases of concealment or suppression of facts. Penalty under Section 78 of the Finance Act can be imposed for failure to pay service tax and concealment.Court's Reasoning: The appellant had filed 'Nil' returns for the relevant period and did not disclose the correct taxable value. The appellant's belated payment of service tax was considered an admission of liability. The Tribunal observed that concealment was evident and thus the department was justified in invoking extended limitation and imposing penalty.Conclusion: The imposition of penalty and invocation of extended limitation period were held to be justified.Significant Holdings'If any person is providing services of transport of goods by road, and his is neither covered under the statutory definition of GTA, nor under courier agency, then he is not liable to pay any service tax on such transportation.''A person can be said to be Goods Transport Agency, if the person provides services in relation to transportation of goods by road and issues the consignment note. The transportation services provided by GTA against consignment note are taxable but not the transportation of goods by any other person.''The receipts from the appellant are on account of the taxable services provided by the assessee as the same are neither covered under negative list of the services as per Section 66D of the Finance Act, 1994 nor exempted vide any Service Tax Notification including Mega Exemption Notification No. 25/2012-ST dated 20.06.2012 and hence attract the levy of service tax under Section 66B of the Finance Act, 1994 during the period in dispute.' (Adjudicating authority's finding, set aside by Tribunal)'Even if the contention of the revenue is accepted that the Appellant are not providing the transport of goods services to M/s FCPL and providing the vehicles on hire basis, the demand of service tax still not sustainable in the present matter... FCPL has issued consignment notes/ LRs for transportation of goods, hence M/s FCPL is clearly covered under the definition of Goods Transport Agency Service.''Services of transportation of goods by a person other than GTA are clearly exempt under Section 66D (P)(i)(A) of the Finance Act, 1994.''Since the activity is held purely to be a service of transportation of goods (branded fuels) by road, not by GTA, it is covered under the negative list/list of exempted services in terms of Section 66D(p)(i)(A) of Finance Act.'Final determinations:The appellant's activity of transporting branded fuel for contractors was held to be transportation of goods by road, exempt under Section 66D(p)(i)(A), not taxable as STGS.The demand of service tax confirmed by the adjudicating authority on this count was set aside.The appellant was entitled to exemption under Notification No. 25/2012-ST for providing vehicles on hire to GTAs.The extended period of limitation and penalty imposition were upheld due to concealment and delayed payment.The demand related to other miscellaneous income was rightly dropped and not reopened.