2025 (5) TMI 648 - AT - Service Tax

Freight Facilitation Services Exempt from Tax: Intermediary Role Clarified Under Finance Act Amendments

M/s. BHARAT HEAVY ELECTRICALS LTD. Versus COMMISSIONER OF CGST, DEHRADUN (UTTARAKHAND)

Tribunal ruled that service tax was not leviable on facilitation of freight and insurance amounts received by a non-Goods Transport Agency (GTA) entity. ... Levy of service tax - additional amounts received by the appellant towards transportation and consequent insurance booked by them under the head “Other Operational Income and Freight and Insurance Income” - HELD THAT:- The issue has been decided in the case of the appellant in DY. GENERAL MANAGER (FINANCE) BHARAT HEAVY ELECTRICALS LTD. VERSUS COMMISSIONER OF CUSTOMS & CENTRAL EXCISE, BHOPAL [2024 (11) TMI 1285 - CESTAT NEW DELHI], where the issue has been decided in favour of the appellant that no service tax is leviable on the amount towards facilitation of freight and insurance. Appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in the present appeal are:Whether the additional amounts received by the appellant towards transportation and insurance, booked under 'Other Operational Income and Freight and Insurance Income,' constitute taxable services under the Finance Act, 1994, specifically under the ambit of service tax on Goods Transport Agency (GTA) or Insurance Services.Whether the appellant, not being a Goods Transport Agency or Insurance Service Provider, is liable to pay service tax on facilitation of freight and insurance amounts received from clients.The applicability of the provisions of Section 66B and Section 66D (p) of the Finance Act, 1994 (as amended), concerning the levy of service tax on transportation and insurance services in the context of the appellant's business activities.Whether the demand of service tax, interest, and penalty confirmed by the Commissioner, CGST, Dehradun, under the impugned order is sustainable in law.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Taxability of amounts received towards facilitation of freight and insuranceRelevant legal framework and precedents: The Finance Act, 1994, as amended, governs the levy of service tax. Section 66B imposes service tax on taxable services, while Section 66D enumerates services exempted from tax, including sub-clause (p) which excludes transportation of goods by road services rendered by entities other than Goods Transport Agencies (GTA) and Courier Agencies. The CENVAT Credit Rules, 2004, regulate input credit mechanisms. The appellant's case was previously adjudicated in respect of their Bhopal unit by Final Order No.57972 of 2024 dated 27.11.2024, which held that no service tax is leviable on facilitation of freight and insurance amounts received.Court's interpretation and reasoning: The Tribunal noted that the appellant is not a GTA or an Insurance Service Provider but facilitates transportation and insurance through contractors/vendors who discharge service tax on those services. The Tribunal emphasized that post the Finance Act amendment effective 1st July 2012, the nomenclature of services was abolished, and every activity was made taxable except those specifically exempted under Section 66D.The Tribunal relied heavily on the interpretation of Section 66D(p), which excludes services by way of transportation of goods by road except when provided by a GTA or Courier Agency. Since the appellant is neither, the facilitation of freight and insurance income received by them does not attract service tax.Key evidence and findings: The appellant submitted financial records showing amounts received as freight and insurance income for the years 2015-16, 2016-17, and 2017-18. They also provided the Work Contract dated 27.12.2014 and sample invoices. The Department's audit findings indicated that the appellant had not paid service tax on these amounts, leading to issuance of a show cause notice demanding Rs.26,93,70,551/- along with interest and penalties.Application of law to facts: The Tribunal applied the statutory provisions to the factual matrix, noting that the appellant's role was limited to facilitation and not direct provision of transportation or insurance services. The contractors/vendors discharged the applicable service tax. Therefore, the amounts received by the appellant were not subject to service tax under the Finance Act.Treatment of competing arguments: The Department argued that the appellant's activities fell within taxable services under Section 65B(44) and Section 66B, warranting service tax on the facilitation amounts. The appellant contended that they were not GTA or insurance providers and that the amounts were part of operational income, not taxable service fees. The Tribunal favored the appellant's interpretation, relying on the prior final order and statutory exemptions.Conclusions: The Tribunal concluded that the demand of service tax on facilitation of freight and insurance income was not sustainable. The impugned order confirming the demand was set aside and quashed.Issue 2: Liability for interest and penalty under Sections 75, 76, and 78 of the Finance ActRelevant legal framework: Section 75 provides for interest on delayed payment of service tax; Sections 76 and 78 prescribe penalties for non-payment or short payment of service tax.Court's interpretation and reasoning: Since the Tribunal held that no service tax was payable on the amounts in question, the consequent imposition of interest and penalties was also unwarranted. The liability for interest and penalty flows from the tax demand; with the tax demand quashed, these ancillary charges cannot survive.Application of law to facts: The appellant's non-payment of service tax on facilitation amounts was not a default because the amounts were not taxable. Therefore, no interest or penalty can be imposed.Conclusions: The Tribunal quashed the demand for interest and penalty along with the principal tax demand.Issue 3: Applicability of prior adjudication to the present caseThe Tribunal explicitly relied on the final order passed in respect of the appellant's Bhopal unit, wherein the identical issue was decided in favor of the appellant. The Tribunal held that the facts and legal questions in the present appeal were identical, warranting the same conclusion.This reliance on precedent within the same factual and legal context underscores the principle of consistency and avoids conflicting decisions on identical issues.3. SIGNIFICANT HOLDINGSThe Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt from the prior final order relied upon:'However, with respect to the activity of transportation of goods by the appellant themselves, we observe that the appellant admittedly is not a Goods Transport Agency. We also observe that with effect from 1st July, 2012 the concept of nomenclature of services has been done away and every activity has been made taxable except those which are mentioned in section 66D of the Finance Act (Amendment Act of 2012). The period in question is post said amendment. Hence in light of the above facts section 66D is perused. We observe that sub-clause (p) of Section 66 D records the services by way of transportation of goods by road except the services of : (i) A Goods Transport Agency (ii) A Courier Agency. Since admittedly the appellant is neither the GTA, nor the Courier agency hence, the activity of transportation of goods by road by them is well covered under the aforesaid provision. The amount in question is an amount towards facilitation of freight and insurance by the appellants themselves. The said perusal of section 66 D (p) in itself is sufficient to hold that the service tax on the said amount has wrongly been demanded. The order to that extent is therefore liable to be set aside.'Core principles established include:Service tax liability under the Finance Act is contingent on the nature of service provider and the specific service rendered, with statutory exemptions playing a critical role.Facilitation charges for freight and insurance, when not provided directly by the appellant as GTA or insurance provider, do not attract service tax.Prior adjudications on identical issues are binding and must be followed to ensure consistency.Interest and penalty provisions are contingent upon the existence of a valid tax demand.Final determinations on each issue are:The demand of service tax on facilitation of freight and insurance income is unsustainable and quashed.The consequent interest and penalty imposed are also quashed.The impugned order confirming the demand is set aside, and the appeal is allowed.