2024 (10) TMI 221 - AT - Service Tax

Transportation services by road exempt from service tax unless proven provided by Goods Transport Agency under Section 66D(p)

The CESTAT Ahmedabad allowed the appeal, setting aside demands for service tax, CENVAT credits, interest and penalties. The tribunal held that ... Recovery of service tax - whether the tax was leviable and recoverable from the appellant in respect of the turnover reported in balance sheet and which exceeded the amount reported in Form ST-3 returns filed belatedly and after initiation of the inquiry? - extended period of limitation - validity of SCN. HELD THAT:- Section 66B of the Act imposed a tax on the value of all services, except for those specifically listed in the negative list under Section 66D. Activities detailed in Section 66D were thus outside the levy of service tax. Therefore, it was crucial to establish that any given activity falls outside the scope of Section 66D to subject it to taxation under Section 66B. On the contrary, Clause (p) of Section 66D, as designed by Parliament, excluded the entire gamut of transportation services provided by road for goods from the scope of taxation, except when such services are rendered by a Goods Transport Agency (GTA) or a courier agency. Whether the services were falling within the scope of exception carved out to clause (p) or not and for which it is necessary to examine as to whether the revenue established the applicability of exception to clause (p) with the help of contemporaneous evidences while issuing show cause notice? - HELD THAT:- There are no hesitation in appreciating the legal position as it emanated from the plain reading of clause (p) of section 66D with section 66B that the activity in the nature of transportation of goods by road would not attract levy if it could not be specifically and undisputedly proved to fall within the scope of exception carved out to clause (p). Since the rate of abatement taken by the revenue implied that the services were treated as taxable services of transportation of goods by road by GTA, it is the definition of GTA given in section 65B which is relevant at this stage and not the definition of courier agency. As per the definition of GTA provided in Section 65B(26), presence of a consignment note issued by the person who shall be deemed as GTA was mandatory. Therefore, it was necessary in the case before us to examine as to whether the revenue had made out their case in the show cause notice on the basis of consignment notes issued by the appellant or not. In absence of such consignment notes, the turnover of activities cannot be deemed as value of services provided by way of transportation of goods by GTA. Based on the facts and contentions presented in the show cause notice and looking to the complete absence of crucial and necessary evidence in form of consignment notes, the turnover taken from the balance sheet cannot be attributed towards the services by way of GTA. Consequently, the revenue has not made out a case in the show cause notice as well as in adjudication to bring the amount of turnover reported in balance sheet within the scope of exception carved out to clause (p). Consequently, it is found that the clause (p) of section 66D cannot be taken out from the taxation of the turnover in dispute and accordingly the tax cannot be levied under section 66B of the Act. It is found from the records as well as the show cause notice that the ST-3 returns were filed by the appellant after initiation of the inquiry on 05.04.2016 and that too without payment of late fees prescribed in rule 7C. ST-3 returns would have become the basis for analysis and investigation vis-à-vis financial statements when they were filed within the prescribed time limit or before commencement of the investigation. When the returns were filed after commencement of investigation they do not carry evidentiary value and cannot be taken into consideration for ascertainment of the tax liability arising on account of the investigation - the demand of CENVAT credits which found its root in the demand of service tax on services provided by way of transportation of goods and thus that shall be treated equally as the demand of service confirmed in the impugned Order - the demand of CENVAT credits made in the impugned Order is non-estand liable to be set aside. Because the demand of tax on transportation services is not sustainable. It is also found that the ST-3 returns were filed by the appellant without payment of late fees prescribed in rule 7C - Having looked at the scheme postulated by section 70 read with rule 7C, it is necessary to hold that the returns were furnished contrary to the procedures laid down in the law inasmuch as the late fees were not paid and therefore the returns were required to be deemed as defective returns liable to loose the sight of law. Accordingly, the returns as well as facts stated therein became non estfor the purpose of investigation as well as adjudication and therefore nothing can be based upon the facts stated in the said defective returns. Since the demand of CENVAT credits was solely based on the returns, it is liable to be held baseless. Time Limitation - suppression of facts or not - HELD THAT:- It is unclear why the appellant would have suppressed information from the revenue, especially when there was no significant tax liability involved. Therefore, the extended period of limitation was not applicable to the appellant's case. Since the show cause notice was issued based on the extended period and the entire liability falls outside the normal limitation period, the entire demand proposed in the show cause notice and confirmed in the impugned Order is invalid - the demand for the longer period is hit by the limitation also. Validity of SCN - appellant had challenged the validity of the show cause notice on a ground that the opportunity of pre-show cause notice consultation was not afforded as per mandatory requirement of the board - HELD THAT:- There are no contrary fact in submission of the appellant. It is also found that with the given opportunity of pre-show cause notice consultation, facts would have been well appreciated and the case would have avoided unwarranted litigation. However, it is decided that the show cause notice itself failed to survive on various counts elaborately discussed and decided hereinbefore, the challenge made by the appellant for want of pre-show cause notice consultation is infructuous and thus this aspect not entered into. The demands of service tax, cenvat credits, interest and penalties are held unsustainable and the same are accordingly set aside - Appeal allowed. Issues Involved:1. Whether the service tax was leviable and recoverable from the appellant for transportation of goods by road.2. Applicability of exemptions under Notification No. 25/2012-ST and the reverse charge mechanism.3. Validity of demand based on balance sheet turnover and belated ST-3 returns.4. Invocation of the extended period of limitation.5. Non-compliance with pre-show cause notice consultation requirement.Issue-wise Detailed Analysis:1. Levy and Recovery of Service Tax:The primary issue was whether the service tax was leviable on the appellant for the turnover reported in their balance sheet, which exceeded the amount in the belatedly filed ST-3 returns. The revenue classified the appellant's services as 'transportation of goods by road' and demanded service tax under the forward charge mechanism. The appellant argued that transportation of goods by road is a negative list activity under section 66D(p) of the Finance Act, 1994, and thus not taxable unless provided by a Goods Transport Agency (GTA) with consignment notes. The absence of consignment notes meant the services could not be classified as taxable under GTA, and the burden of proof was on the revenue to demonstrate taxability.2. Exemptions and Reverse Charge Mechanism:The appellant claimed exemptions under Entry Nos. 21 and 22 of Notification No. 25/2012-ST, arguing that if services were taxable, the liability should be on the recipient under the reverse charge mechanism as per Rule 2(1)(d) and Notification No. 30/2012-ST. The Tribunal found that the revenue failed to establish the applicability of exceptions to clause (p) of section 66D with contemporaneous evidence. The absence of consignment notes and the classification of services as 'transportation of goods by road' supported the appellant's claim for exemption and non-liability under the reverse charge mechanism.3. Validity of Demand Based on Balance Sheet and ST-3 Returns:The demand was based on the turnover difference between the balance sheet and belated ST-3 returns. The Tribunal held that financial statements alone cannot form the basis for a tax demand without corroborating evidence. The ST-3 returns filed post-inquiry lacked evidentiary value as they were filed without the prescribed late fees, rendering them defective. The demand of CENVAT credits was also deemed non-est since it was rooted in the unsustainable service tax demand.4. Invocation of Extended Period of Limitation:The appellant challenged the invocation of the extended period of limitation under section 73 of the Act. The Tribunal found that the extended period was invoked arbitrarily, without substantive evidence of suppression or intent to evade tax. As the entire demand was based on the extended period, it was declared invalid.5. Non-compliance with Pre-show Cause Notice Consultation:The appellant argued that the show cause notice was invalid due to the lack of pre-show cause notice consultation, a mandatory requirement. Although the Tribunal found the notice unsustainable on other grounds, it noted that such consultation could have clarified facts and prevented unnecessary litigation.Conclusion:The Tribunal set aside the demands for service tax, CENVAT credits, interest, and penalties as unsustainable. The appeal was allowed with consequential relief, emphasizing the importance of proper classification, evidence, and adherence to procedural requirements in tax disputes.